Closed-End Funds Back On Sale

The Eaton Vance Fund is an option income fund, a kind of covered-call fund. It generates additional income by selling call options, or rights to buy stocks at a predetermined price. This income can help offset declines, although it can also limit a fund's upside.

Other option income funds that Morgan Stanley likes include the (JGV - Cramer's Take - Stockpickr)Nuveen Global Value Opportunities Fund (JGV), which traded at a 7.4% discount as of Dec. 31, but yielded 9.3%, and the (NFJ - Cramer's Take - Stockpickr) NFJ Dividend, Interest & Premium Strategy Fund (NFJ), which posted a discount of 6.6% and a yield of 9.0% at year's end.

"Among equities, the oversold closed-end funds are the option income funds, that is where people are taking tax losses," says Mazzilli. "Meanwhile, fear and misunderstanding about what is going on in the guarantees for municipal bond funds is causing the selling there."

Among closed-end municipal bond funds, Morgan Stanley recommends the (VKI - Cramer's Take - Stockpickr)Van Kampen Advantage Municipal Income Trust II (VKI), which was yielding 5.8% as of Friday's close on a discount around 9.7%; the (MUI - Cramer's Take - Stockpickr)BlackRock Muni Intermediate Duration Fund (MUI) with a yield of 5.5% on a discount of 11.3%; and the (MYF - Cramer's Take - Stockpickr)Blackrock MuniYield Florida Fund (MYF), discount of approximately 11.7% yielded 5.4%.

Among taxable bonds, both Mazzilli and Wachovia's Bush like the (VTA - Cramer's Take - Stockpickr)Van Kampen Dynamic Credit Opportunities Funds (VTA), which was discounted 12.2% to record a yield of 11.3% as of Dec. 31

Wachovia's Bush says if investors want to take advantage of the discounts and capture these yields they have to hurry: discounts had already started to narrow last week. She says the Claymore Closed-End Fund Index bottomed out on Dec. 19.

"The people who didn't take a vacation took advantage of these prices during the last week of December," says Bush. "Now more people are coming back and taking advantage of the heavy tax-loss selling."