Municipal bonds are leading the market as the best-performing closed-end funds.

Eight of the top 10 -- and 126 of the 147 -- closed-end funds with positive total returns from Jan. 30 through Feb. 27 target the municipal-bond market.

As the credit market thaws, investors who are willing to take more risk for a little more reward than holding Treasury funds have pushed up the price of municipal-bond funds in February.

Among the top 10, the best performer, Millennium India Acquisition Co. Inc. ( SMCG) , isn't a municipal bond fund. The closed-end fund rebounded 26.92% in February after devastating losses over the past year on its portfolio of Indian financial-services companies.

Of the muni funds, the top-performing closed-end fund was the Eaton Vance Insured New York Municipal Bond Fund II ( NYH), up 14.8%. The fund earns current income exempt from federal income taxes, including the alternative minimum tax and New York state personal income taxes. The fund earns income by investing primarily in high-grade New York municipal bond obligations that are insured for the timely payment of principal and interest.

Doing nearly as well at 14.5%, the Eaton Vance Insured Massachusetts Municipal Bond Fund ( MAB) targets current income not subject to the regular federal income tax, alternative minimum tax and Massachusetts personal income tax. The fund accumulates income from investments in high-grade, insured Massachusetts municipal obligations.

Another closed-end investment management company making progress recouping earlier losses, Van Kampen's Van Kampen California Value Municipal Income Trust ( VCV) gained back 12% in February. The fund's capital-preservation strategy seeks a high level of current income, exempt from federal and California income taxes. The trust invests its assets in a portfolio mostly of California municipal debt obligations rated as investment grade at the time of purchase.

For the latest happenings in the municipal bond market, check out the articles of Matthew Posner of Municipal Market Advisors. And, for an excellent primer of what exactly is a municipal bond and what type of muni bonds exist, I recommend reading the basic descriptions provided by The Securities Industry and Financial Markets Association.

10 Best-Performing Closed-End Funds in February
Fund (Ticker) Rating
Total Return 1 Month
Total Return 1 Year
Millennium India Acquisition Co Inc (SMCG) U
Sector Fund-Financial Service
Eaton Vance Insured New York Municipal Bond Fund II (NYH) B+
Muni-New York
Eaton Vance Insured Massachusetts Municipal Bond Fund (MAB) C+
Van Kampen California Value Municipal Income Trust (VCV) C+
Eaton Vance Insured California Municipal Bond Fund (EVM) B
Cornerstone Progressive Return Fund (CFP) D-
Income Equity
PIMCO New York Municipal Income Fund (PNF) C 
Muni-New York
PIMCO New York Municipal Income Fund III (PYN) C
Muni-New York
PIMCO California Municipal Income Fund III (PZC) C
Van Kampen Municipal Opportunity Trust (VMO) B
Source: Ratings and Bloomberg

For an explanation of our ratings, please read this methodology statement.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. 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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