Watching this stock market go up and down, an investor could end up with a neck strain -- not to mention a severe headache.

So let's turn our attention to the bond market, where we see the upgrades for the third quarter going to those funds invested in mortgage, municipal and investment grade bonds. Now, this doesn't mean these sectors are all experiencing favorable conditions, but the funds as individuals have fared well in the context of the turmoil due to specific characteristics.

Below are three of the more interesting strategies being employed.

The First Trust/FIDAC Mortgage Income Fund ( FMY), which is leveraged to the tune of 30% and very focused with 92% of its assets invested in its top-10 mortgage securities. The balance is in government bonds. The fund trades at a 14% discount to its net asset backing.

Another interesting fund in the list is the Nuveen North Carolina Dividend Advantage Municipal Fund ( NRB), which as the name suggests, invests in the municipal obligations issued by local and state government authorities within North Carolina. The recent upgrade of this fund may suggest there is increased investor confidence that the state of North Carolina is able to continue paying the interest on its securities at a time when municipalities are under heightened scrutiny. Although it is not diversified regionally, the fund is spread out in regard to its holdings, with 30% of assets invested in the top 10. A drawback is that it only trades at a 4% discount -- in the current circumstances, at least a double-digit discount is warranted.

If you don't like North Carolina but still want a regional-specific muni fund, BlackRock Municipal Trust ( BLJ) is another option. It trades at a higher discount of 6.5% but still not enough to provide safety given the current market conditions.

Closed End Upgrades

On the way up
Name & Ticker
Current Grade
Previous Grade
Discount to NAV
3 Month Return
Category
First Trust/FIDAC Mortgage Income (FMY)
A+
B+
-14.16
-2.13
General Mortgage
American Strat Inc Portfolio (ASP)
A+
B
-16.07
-5.78
General Mortgage
Western Asset Intermediate Muni (SBI)
A
B
-14.35
-4.72
Municipal - National
BlackRock Broad Inv Gr 2009 Tm Tr (BCT)
A
B-
-2.63
1.13
General Bd - Investment Grade
American Strat Inc Portfolio II (BSP)
A
B-
-15.43
-4.57
General Mortgage
Federated Prem Intermediate Muni (FPT)
A-
B-
-18.09
-9.45
Municipal - National
Nuveen NC Div Adv Muni 2 (NNO)
A-
C+
-3.96
0.43
Municipal Single State
BlackRock NJ Muni Bond Trust (BLJ)
A-
C+
-6.59
-1.6
Municipal Single State
Source: TheStreet.com Ratings
Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Patel cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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