Municipal bond funds dominated the list of Ratings 10 top-rated closed-end funds.

Nine of the funds in the accompanying list of the 10 highest-rated closed-end funds are munis, with three of them single-state funds and one a high-yield muni fund.

This represents a recovery for the muni group, which experienced lackluster performance during the second half of last year. Single-state muni funds were handicapped by potential threats to their exemptions to state income taxes. Then there were the credit-crunch-inspired woes of muni bond insurers, along with turbulence in the auction-rate securities markets.

Observers are cautioned not to refer to the lone high-yield muni on the list as a "junk-bond fund," as the Western Asset Management Municipal High Income Fund ( MHF) has returned high-quality returns of 9.78%, 18.84% and 11.68%, respectively, over the past three months, year to day and 12 months. With a three-year annualized growth rate of 10.57%, it is the only fund on the list with a double-digit compound annual return for that stretch.

The lone equity fund on the top-10-ratings list, the BlackRock Real Asset Equity Trust ( BCF), sports the best three-month and 12-month performance numbers for the group, 13.09% for the quarter ended June 30 and 22.47% for the most recent 12 months.

The "Real Asset" reference in BCF's name fits the current economic times: minerals that are likely to retain their values in this inflationary period. The fund's top portfolio holdings include Rio Tinto ( RTP), Companhia Vale Do Rio Doce ADS ( RIO), BHP Billiton ( BHP) and E.I. du Pont de Nemours. ( DD).

The funds on the list are split evenly as to those that ended the year's first half priced at a premium to net asset value per share vs. changing hands at a discount to NAV. The PIMCO California Municipal Income Fund ( PCQ) and the BlackRock Maryland Muni Bond Trust ( BZM) both ended the second quarter priced at double-digit premiums over NAV, while the Western Asset Managed Municipals Fund ( MMU) and the BlackRock Real Asset Equity Trust ( BCF) were priced, respectively, at hefty discounts of 8.34% and 9.83%.

BlackRock MD Muni Bond Trust (BZM) A 3.69 9.96 -2.43 5.37 11.10
BlackRock NY Muni 2018 Income Trust (BLH) A -0.41 -1.53 6.62 5.28 -0.32
BlackRock Real Asset Equity Trust (BCF) A 13.09 9.41 22.47 N/A -9.83
Morgan Stanley Muni Inc Opp II (OIB) A 4.65 6.51 0.85 7.05 3.79
Morgan Stanley Muni Inc Opp III (OIC) A 1.54 6.88 -2.26 6.12 1.47
Nuveen Muni Value (NUV) A -1.15 5.85 3.57 5.23 -0.21
Nuveen Select Tax-Free Inc 3 (NXR) A 2.55 8.73 9.08 6.38 -0.14
PIMCO CA Municipal Income Fund (PCQ) A+ -1.29 0.71 0.41 6.89 12.62
Western Asset Managed Municipals (MMU) A+ 1.05 2.70 2.73 5.61 -8.34
Western Asset Municipal High Inc (MHF) A+ 9.78 18.84 11.68 10.57 5.57
Source: Ratings - Data as of 6/30/2008.
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Richard Widows is a senior financial analyst for Ratings. Prior to joining, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.