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TheStreet Open House

10 Best Municipal Bond Funds for 2012

Stocks in this article: MXNMHESWNTXMXABABSIMCMVFMITFXKSMMPA

NEW YORK ( TheStreet Ratings) -- TheStreet Ratings reviews the risk-adjusted return performance of around 25,000 funds every month. The best rated fixed income exchange-traded funds for 2012 are listed each month at TheStreet's Top-Rated ETFs page.

When narrowing the criteria to just municipal bond funds and widening the scope beyond just exchange-traded funds to also include open-end and closed-end funds, 10 funds stand out as the best. The funds below are worthy of consideration for your 2012 portfolio.

Our listing of the top funds in this category is led by two open-end funds, one exchange-traded fund, and seven traditional closed-end funds. As the list is dominated by closed-end funds, be mindful of the premium or discount embedded in the market price when timing your purchase. Also, if you live in a state that assesses an income tax, finding a municipal bond fund specializing in your state may limit your tax exposure.

Here are the 10 best municipal bond funds for 2012:

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10. BlackRock MuniYield PA Qly

BlackRock MuniYield PA Qly (MPA) seeks to provide shareholders with as high a level of current income exempt from federal and Pennsylvania income taxes as is consistent with its investment policies and prudent investment management by investing primarily in a portfolio of long-term municipal obligations the interest on which, in the opinion of bond counsel to the issuer, is exempt from federal and Pennsylvania income taxes. This is a traditional closed-end fund.

Expense Ratio: 1.36%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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9. DWS Strategic Municipal Inc Tr

DWS Strategic Municipal Inc Tr (KSM) is a closed-end non-diversified management investment company. The fund's investment objective is to provide a high level of current income exempt from federal income tax. The fund will seek to achieve this objective by investing in a portfolio of tax-exempt municipal securities. The fund will invest at least 50% of its assets in investment grade municipal securities or unrated municipal securities of comparable quality and may invest up to 50% of its assets in high-yield municipal securities that are below investment grade. The fund has the ability to issue preferred shares for the purpose of leveraging the fund's assets.

Expense Ratio: 1.32%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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8. Marshall Intermediate Tax Free Inv

Marshall Intermediate Tax Free Inv (MITFX) seeks to provide a high level of current income that is exempt from federal income tax and is consistent with preservation of capital. This open-end fund invests at least 80% of its assets in municipal securities, the income from which is exempt from federal income tax. Fund assets are invested in investment grade municipal securities, which include debt obligations of states, territories and possessions of the U.S. and political subdivisions and financing authorities of these entities that provide income exempt from federal income tax. The fund maintains an average dollar weighted portfolio maturity of three to ten years.

Expense Ratio: 0.77%

Front Load: 0.00%

Back Load: 2.00% redemption fee for shares held less than 30 days

Rated "A+" by TheStreet Ratings:

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7. BlackRock MuniVest Fund

BlackRock MuniVest Fund (MVF) seeks to provide shareholders with as high a level of current income exempt from federal income taxes as is consistent with its investment policies and prudent investment management by investing primarily in a portfolio of long-term investment-grade municipal obligations the interest on which is exempt from federal income taxes in the opinion of bond counsel to the issuer. This is a traditional closed-end fund.

Expense Ratio: 1.22%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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6. Invesco Insured Municipal Bond Tr

Invesco Insured Municipal Bond Tr (IMC) is a closed-end diversified management investment company. The fund seeks tax-exempt current income. The fund will invest primarily in a diversified portfolio of tax-exempt municipal obligations which are covered by insurance guarantees. The fund will also invest in municipal obligations which are backed by an escrow or trust account containing sufficient U.S. Government securities or U.S. government agency securities to ensure timely payment of principal. The fund will leverage itself through the issuance of preferred stock.

Expense Ratio: 1.22%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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5. SPDR Nuveen Barclays Bld Amr Bd ETF

SPDR Nuveen Barclays Bld Amr Bd ETF (BABS) seeks to provide investment results that correspond to the price and yield performance of the Barclays Capital Build America Bond Index. The index tracks the market for qualified taxable municipal securities. This is the only exchange-traded funds in the top ten.

Expense Ratio: 0.35%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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4. Minnesota Municipal Inc Portfolio

Minnesota Municipal Inc Portfolio (MXA) has an investment objective to provide high current income exempt from both regular federal income tax and State of Minnesota personal income tax, consistent with preservation of capital. This closed-end fund will seek to achieve its objectives by investing in a portfolio of Minnesota municipal obligations rated as investment grade at the time of purchase or, if unrated, of comparable quality as determined by the adviser. The fund may invest up to 20% of its total assets in municipal securities which, at the time of purchase, are rated lower than investment-grade or are unrated. The fund may leverage itself through the issuance of preferred stock.

Expense Ratio: 1.29%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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3. Schwab Tax-Free Bond Fund

Schwab Tax-Free Bond Fund (SWNTX) seeks high current income that is exempt from federal income tax, consistent with capital preservation. This open-end fund normally invests at least 80% of net assets in municipal securities, the interest from which is exempt from federal income tax, including the federal alternative minimum tax. The average dollar-weighted maturity is typically between 3 and 10 years. It may invest more than 25% of total assets in municipal securities financing similar projects. The fund may invest up to 15% of assets in below investment-grade bonds.

Expense Ratio: 0.63%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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2. MA Health & Education Tax-Exempt Trust

MA Health & Education Tax-Exempt Trust (MHE) is a closed-end funds with an objective to seek as high a level of current income exempt from both regular and federal income taxes and Massachusetts personal income taxes as is consistent with the preservation of shareholders' capital. The fund seeks to achieve its investment objective by investing primarily in top rated tax-exempt obligations (bonds, notes and capital lease obligations). The fund may leverage up to 35% of total assets.

Expense Ratio: 1.38%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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1. Minnesota Municipal Income Fund II

Minnesota Municipal Income Fund II (MXN) has an investment objective to provide current income that is exempt from both regular federal income tax and regular Minnesota personal income tax. All of the fund's municipal bond investments will be investment grade quality at the time of purchase. Under normal conditions, the fund will invest at least 80% of its assets in municipal bonds that pay interest that is exempt from regular federal income tax and regular Minnesota personal income tax. This is a traditional closed-end fund.

Expense Ratio: 1.86%

Front Load: 0.00%

Back Load: 0.00%

Rated "A+" by TheStreet Ratings:

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How We Rate Funds

TheStreet Ratings condenses the available fund performance and risk data, including penalties for load charges, into a single composite opinion of each fund's risk-adjusted performance. This allows the unbiased identification of those funds that have historically done well and those that have underperformed the market. While there is no guarantee of future performance, these investment ratings provide a solid framework for making informed, timely investment decisions. In order to qualify for a rating, an open-end fund must either have three years of risk and return data or be an additional share class of an existing fund with at least three years of performance statistics.

Funds rated "A" or "B" are considered "Buy" based on a track record of higher than average risk-adjusted performance. Funds at the "C" level are rated as "Hold," while underperformers at the "D" and "E" levels our model ranks as "Sell."

-- -- Written by Kevin Baker in Jupiter, Fla.

MORE FROM THESTREET RATINGS:




Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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