Your Funds Might Be Exposed to the AMT

Two of Thornburg's five municipal bond funds hold no AMT bonds -- the (LTMFX Quote)Limited Term Municipal Fund (LTMFX) and the (THNYX Quote)New York Intermediate Municipal Fund (THNYX). Vanguard has stopped investing in private-activity bonds in thirteen of its municipal bond funds. They are the

(VMATX Quote)Vanguard MA Tax-Exempt Fund (VMATX)

(VOHIX Quote)Vanguard OH LT Tax-Exempt Fund (VOHIX)

(VNJTX Quote)Vanguard NJ Long-Term Tax-Exempt Fund (VNJTX)

(VNYTX Quote)Vanguard NY Long-Term Tax-Exempt Fund (VNYTX)

(VPAIX Quote)Vanguard PA Long-Term Tax-Exempt Fund (VPAIX)

(VCITX Quote)Vanguard CA Long-Term Tax-Exempt Fund (VCITX)

(VCAIX Quote)Vanguard CA Inter-Term Tax-Exempt Fund (VCAIX)

(VFLTX Quote)Vanguard FL Long-Term Tax-Exempt Fund (VFLTX)

(VMLTX Quote)Vanguard Ltd.-Term Tax-Exempt Fund (VMLTX)

(VWSTX Quote)Vanguard Short-Term Tax-Exempt Fund (VWSTX)

(VWITX Quote)Vanguard Inter-Term Tax-Exempt Fund (VWITX)

(VWLTX Quote)Vanguard Long-Term Tax-Exempt Fund (VWLTX)

(VILPX Quote)Vanguard Insured LT Tax-Exempt Fund (VILPX)

Because the sale of the AMT bonds was completed early this year, customers who are subject to this tax may still have some reportable income from these funds on their 2007 returns.

The (VWAHX Quote)Vanguard High Yield Tax-Exempt Fund (VWAHX) and all of its tax-free money market funds will continue to invest in private-activity bonds.

Fidelity fund manager Christine Thompson says her firm will continue to offer municipal bond funds with varying degrees of AMT exposure. Private-activity bonds have traditionally used higher yields to attract investors. Thompson says they can sometimes "offer wonderful potential" but at the moment "spreads are so tight, you are not getting paid for AMT."

As more Americans find themselves subject to the Alternative Minimum Tax, you can be sure the outcry against it will grow. However, because the AMT generates billions of dollars in tax revenue, change won't come overnight. Investors considering municipal bond funds will probably have to get used to the idea of considering tax implications as they make their decisions.

Below is a list of closed-end funds tracked by TheStreet.com Ratings with at least 20% of their holdings in municipal bonds subject to the AMT.

False Advertising Closed-end funds tracked by TheStreet.com Ratings with at least 20% exposure to AMT
Fund Name	Ticker	TSC Rating	% AMT Holdings	YTD Return	1-Year Return
Dreyfus Strategic Muni Bond	DSM	C	32.00	-0.85	16.84
Nuveen Muni High Income Opp	NMZ	B-	31.39	1.83	15.54
BlackRock Corporate High Yield	COY	C-	31.24	1.03	13.19
BlackRock MuniAssets	MUA	B+	29.67	-0.72	13.12
Blackrock Apex Municipal	APX	B	28.20	0.96	13.24
Nuveen Div Adv Muni 3	NZF	C+	28.12	-0.11	11.59
Nuveen OH Quality Inc Muni	NUO	E+	27.49	0.95	-2.63
Selgiman Select Municipal	SEL	C-	26.80	2.98	7.90
BlackRock NY Municipal Income	BNY	C+	25.36	-4.82	9.94
Nuveen Select Quality Muni	NQS	C	24.74	0.66	9.70
Nuveen VA Div Adv Muni	NGB	C-	24.16	0.85	6.35
Nuveen PA Prem Inc Muni 2	NPY	E+	24.07	2.75	1.69
Dreyfus Strategic Municipals	LEO	C	24.00	5.14	16.31
Alliance Nat Muni Income	AFB	C	23.51	2.08	3.71
BlackRock MuniHoldings	MHD	C	23.07	-2.91	4.45
Van Kampen Trust for Insur Muni	VIM	D+	22.93	2.27	6.73
Nuveen Muni Income	NMI	C	22.62	3.52	9.80
Nuveen CA Perf Plus Muni	NCP	C	22.52	0.67	6.53
Puntam Managed Muni Inc Trust	PMM	C+	21.81	4.15	11.78
BlackRock NY Muni Bond Tr	BQH	B	21.68	-1.17	14.86
Colonial High Income Muni	CXE	C	21.67	-1.19	2.71
BlackRock Long Term Muni Adv	BTA	U	21.63	1.27	5.41
Nuveen Premier Insur Muni Inc	NIF	D-	21.63	3.28	3.78
BlackRock MuniYield NY Insur	MYN	D+	21.09	0.21	1.61
Colonial Muni Inc Trust	CMU	C+	21.01	3.14	10.11
Eaton Vance Muni Income Tr	EVN	C	21.00	1.02	11.78
Eaton Vance PA Muni Inc Tr	EVP	D	20.90	2.59	5.92
Nuveen Muni Adv	NMA	C-	20.89	-0.26	7.39
BlackRock MuniHoldings Fund II	MUH	C	20.54	0.72	8.14
DWS Municipal Inc Tr	KTF	E+	20.48	3.22	-6.56
BlackRock MuniYield Quality	MQY	D+	20.40	0.66	3.96
Colonial Inv Grade Muni Tr	CXH	C	20.28	2.90	7.99
Source: TheStreet.com Ratings Note: Returns are for the period ending Feb. 28

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