Bank Fund Tops Quarter's Closed-End Fund Performers

With all of the trouble financial stocks have been in lately, it may come as a surprise that the best-performing closed-end fund in the third quarter is a fund that focuses exclusively on banks and thrifts. What's not surprising are the positive returns from investments partially sheltered from the economic maelstrom.

Banks dominated the news again Friday. Before Congress passed Treasury Secretary Henry Paulson's financial bailout plan in the afternoon, Citigroup (C Quote) was crying "foul!" on surprise news this morning that Wachovia (WB Quote) had inked a $15 billion merger deal with Wells Fargo (WFC Quote). Citigroup, which had agreed to buy Wachovia on Monday, swiftly sank while Wachovia and Wells Fargo soared.

All three banks are holdings of the John Hancock Bank and Thrift Opportunity Fund (BTO Quote). The fund's 14.2% third-quarter return represented a bounce-back from the sector bottom in July, bringing the one-year damage to a negative 22.2% return.

Unlike Wachovia, down 77.4%, and National City Corp (NCC Quote), down 63.2% for the quarter while under SEC protection from short-sellers, breathtaking gains of 186.6% in UCBH Holdings (UCBH Quote), 98% in Trico Bancshares (TCBK Quote) and 87.6% in Univest Corp of Pennsylvania (UVSP Quote) top the fund's portfolio list of 58 double-digit or better gainers.

In second place is the Nuveen North Carolina Dividend Advantage Municipal Fund (NRB Quote), which pulled in a 7.9% gain with income exempt from federal and North Carolina income taxes. The largest positions include debts of the North Carolina Eastern Municipal Power Agency, the city of Charlotte, the county of Dare and the University of North Carolina at Chapel Hill. The fund, with a rating of B+, is worth investigating for North Carolinians looking to add exposure to the relative safety of municipal securities.

Also earning a buy rating of B+, the Blackrock Health Sciences Trust (BME Quote) rose 4.6% in the third quarter. On balance, the fund's stock holdings appreciated by being grouped in the consumer non-cyclical sector. Stock holdings like Halozyme Therapeutics (HALO Quote), up 36.4%; InterMune (ITMN Quote), up 30.4%; Amgen (AMGN Quote), up 25.7%; and Genentech (DNA Quote), up 16.8%, are less susceptible to bad economic times as insured individuals don't scrimp on health care.

10 Best-Performing Closed-End Funds in the Third Quarter
Fund (Ticker), Rating	Total Return 3 Months	Total Return 1 Month	Total Return 1 Year	Objective
John Hancock Bank and Thrift Opportunity Fund (BTO US), C-	14.20%	2.31%	-22.18%	Financial Service
Nuveen North Carolina Dividend Advantage Municipal Fund (NRB US), B+	7.94%	-0.46%	6.39%	Muni-North Carolina
Blackrock Health Sciences Trust (BME US), B+	4.62%	-4.46%	3.58%	Health & Biotech
BlackRock Virginia Municipal Bond Trust (BHV US), A-	4.31%	-2.72%	8.74%	Muni-Virginia
Western Asset Emerging Markets Floating Rate Fund (EFL US), B+	4.00%	-11.77%	19.55%	Emerging Market-Debt
Eaton Vance Insured Pennsylvania Municipal Bond Fund (EIP US), C+	2.99%	-2.96%	0.86%	Muni-Pennsylvania
Eaton Vance Insured Massachusetts Municipal Bond Fund (MAB US), C-	2.70%	-6.19%	-2.67%	Muni-Massachusetts
BlackRock New York Municipal 2018 Term Trust (BLH US), A+	1.78%	0.05%	3.65%	Muni-New York
Nuveen North Carolina Dividend Advantage Municipal Fund 2 (NNO US), C+	1.59%	-2.34%	-6.31%	Muni-North Carolina
PIMCO Strategic Global Government Fund (RCS US), C+	1.38%	-7.12%	3.42%	Global Debt
Source: TheStreet.com Ratings and Bloomberg

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