Of all municipal bond funds, general market and single-state funds provided the best returns for investors during the first half of 1993, according to Lipper Analytical Services Inc.

Those two kinds of funds accounted for eight of the top 10 best performing funds during the first two quarters of the year. Two national insured bond funds rounded out the top 10.

No intermediate or high-yield funds were among the best performers.

For all of 1992, general market and New York funds accounted for eight of the best performing municipal funds, according to Lipper data.

For the first half of 1993, the strongest single-state funds included entries from Florida, Louisiana, Michigan, and New York.

The 10 best performing tax-exempt funds for the first six months of 1993 posted an average annual return of 9.81%. Among individual fund sectors, the top 10 general market funds had an average annual return of 9.51 %. The top single-state funds had an average return of 9.43%, while the insured funds logged an 8.37% annual return.

The top 10 high-yield and intermediate funds posted average annual returns of 7.81% and 7.28%, respectively.

The funds' results compare to an 8.658% rate of return as of June 30, 1993, on Applied Municipal Network's 1993 AMX total return index, which measures performance of the new-issue market.

Shearson Managed Municipal Fund came out on top. The fund's A shares carry only a front-end load, or sales charge; its B shares carry other fees but not a front load.

Although Shearson does not, Lipper treats the A and B shares as separate funds. As a result, Lipper lists the fund's A shares as the top performing fund, with a total return of 10.93%. The B shares ranked second, with a total return of 10.63%.

The fund's portfolio manager, Joseph P. Deane, also a senior vice president and managing director of Shearson Lehman Advisors, said several factors contributed to the fund's strong performance.

"I think we were very well positioned with where we wanted to be on the yield curve," Deane said.

In recent months, Deane said he has shortened the average maturity of the portfolio. The average maturity is now about 18.8 years, compared with 26 years at the beginning of the year, indicating a more conservative investment strategy, he said.

In addition, several investments posted strong returns for the fund, Deane said, including a block of New York City general obligation bonds purchased late last fall and slightly less than $100 million bonds from the Panhandle Eastern Corp. in Louisiana.

The Panhandle Eastern pipeline bonds were purchased last July with yields in the 7.75% range and recently traded with yields in the 5.90% range, the Shearson porfolio manager said.

"That's up more than 180 basis points," Deane said. "I think the whole natural gas industry has done well."

Long-term tax-exempt mutual funds had total assets of about $223.47 billion as of May 30, the most recent date for which figures are available, according to the Investment Company Institute. The assets of short-term municipal funds'totaled $97.74 billion, the institute said.

Net sales of the long-term funds, composed of total sales minus redemptions, were $20.77 billion, a 60.4% increase over the same period one year ago, the institute said.

Overall, general municipal bond funds were the best performing sector of funds during the first half, Lipper said, with short-term municipal debt funds outperforming their U.S. Treasury counterparts. The firm attributed the sector's strong returns to investors' concerns about higher taxes. In addition, intermediate municipal funds also fared better than intermediate U.S. Treasury funds for the second quarter of 1993, Lipper said.

One factor aiding the strong performance of single-state funds during the first half has been officials' conservative budget forecasts, said Richard A. Ciccarone, director of tax-exempt fixed-income research at Kemper Securities Inc. in Chicago.

Reining in finance estimates has helped states combat slow revenue growth caused by the dismal economic recovery. For the most part, credit quality has remained strong, since states are controlling forecasts and spending and some have seen revenues come in slightly above conservative forecasts, Ciccarone said.

During the first quarter of 1993, "states were one of the best performing sectors," Ciccarone pointed out.

For fiscal 1993, states are projecting only a 3% to 4% revenue growth, compared with a historical average rate of about 7% during the 1980s, Ciccarone said.

As states' fund balance reserves are averaging in the 1.2% range, one of the lowest levels seen since the late 1970s and possibly since the Depression, few can afford overly optimistic budget forecasts, the Kemper analyst said.

"They don't have room to make mistakes. But when revenues come in above projections, that aids bond performance," Ciccarone said.

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