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New York Post
Hate Taxes? Check Out This Fund
By Beth Piskora
February 17, 2002
AS New Yorkers begin to prepare for the April 15 tax deadline, they are probably bemoaning their fates since they live in one of the most highly taxed places on earth.
For those who want to shield more of their income from taxes, one option is a double tax-free municipal bond mutual fund, where income and gains are free from federal, state and local taxes.
The Franklin Double Tax-Free Income is the only one of its kind, in that its interest income is exempt from federal and state taxes in all 50 states, including high-tax New York.
That's because this fund invests primarily in municipal bonds issued by Puerto Rico and other U.S. territories, giving it special tax-exempt status .
"There's a perception that Puerto Rico is an emerging market, but that's not really true," said Carrie Higgins, portfolio manager for the fund.
In fact, the portfolio, which holds about 60 different bond securities, is "entirely investment grade and most of it is insured," noted Higgins, who emphasizes a conservative strategy for the fund.
"Our portfolio is focused on income, not total return," she added. "We are not looking for deep-discount bonds. Instead, we buy the highest yielding bonds. We have consistently been the top yielding fund in our category, when ranked by Lipper."
The major holding in the portfolio is also a new holding: bonds issued by the Puerto Rico Highway/Transportation Commission. These bonds were issued last month, underwritten by Salomon Smith Barney, and were in high demand. They yield 8.02 percent.
The fund also has a great deal of "general obligation" bonds, which are issued by the government of Puerto Rico to help with any type of spending project, be it roads, schools, water or anything else.
"We are buy-and-hold investors," said Higgins, who pointed out the portfolio has very little turnover.
The average maturity for the bonds held in the portfolio is 20.6 years, and the average yield is 5.82 percent.
Late last year, the fund changed its name from Franklin Puerto Rico Tax-Free Income fund.
"The name change helped market an old fund that didn't really change its strategy, though we can buy bonds issued by other U.S. territories, like Guam, the Virgin Islands and the Mariana Islands. But the bulk of the portfolio is still primarily Puerto Rico bonds because that's where we see the best opportunities," said Higgins.
Fund at a glance
Name: Franklin Double Tax-Free Income
Portfolio Manager: Carrie Higgins
Minimum investment $1,000
Web site www.franklintempleton.com