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There are pros and cons of letting your broker hold stock certificates

SHARE There are pros and cons of letting your broker hold stock certificates

Question - What do you think of having a broker keep your stock certificates for you? Is it a good idea? - R.L., Chicago

Answer - There are pros and cons.

When buying shares through a broker, the brokerage firm can arrange for your securities to be kept in a vault at a depository in what's called "street name." While the brokerage firm or its agent is listed as shareholder, it keeps records showing you as the real or "beneficial" owner.

Some investors feel more secure actually holding a paper certificate for their stocks, but keeping them in street name has become common practice.

"It's important for investors to understand that they have a choice, and if the broker doesn't offer to inform you, you have a right to ask," said Katherine Philipp, investor education specialist with the SEC.

The advantages to having your broker hold your stock, according to the SEC, are:

You can be sure you'll easily meet the three-day deadline to present shares upon sale; you won't have to worry about certificates being lost or stolen; the brokerage firm will keep you up to date on developments such as tender offers; and it will be easier to use margin accounts or place limit orders to sell at a specific price.

The disadvantages are:

Some brokers may charge an "inactivity fee" for holding securities if you don't trade regularly; some only pass along dividend and interest payments on a weekly, biweekly or monthly basis; important corporate communications may not be mailed directly to you from the company and therefore be delayed; and it takes two weeks for a transfer if you wish to sell your securities through another brokerage firm.

Question - I'm 77 years old and have no pension other than Social Security and three mutual funds, one of which is Franklin High Yield Tax-Free Income Fund, Class I. Should I stick with this one? - R.H., Harlingen, Texas

Answer - It didn't get to be the third-largest long-term municipal bond fund without good reason.

Except for 1990 and 1995, it has consistently beaten its competition. Strong returns have helped the fund gain assets despite the attraction of a booming stock market.

The $4.5 billion Franklin High Yield Tax-Free Income Fund, Class I, gained 7.88 percent over the past 12 months to rank in the upper 6 percent of all national long-term municipal bond funds. Its three-year annualized return places it in the top 3 percent of its peers. As a municipal bond fund, it's exempt from federal taxes.

"The big difference is selection, because this fund is very discriminating about picking a bond and following a buy-and-hold strategy," explained Kevin Kresnicka, analyst with the Morningstar Mutual Funds investment advisory. "It puts a lot of research effort on the front end to get purchases right, sometimes even working with bond issuers to help structure a bond deal."

The average weighted maturity of Franklin High Yield Tax-Free Income's bonds was recently 19 years and average duration 7 years. The largest portion of its portfolio is in bonds rated AAA, BBB and BB. The lower-grade or non-rated bonds it does hold are chosen judiciously.

About half its bonds are insured. This fund, based in San Mateo, Calif., has a 4.25 "load" (initial sales charge) and a $100 minimum initial investment.

Question - Having received some very good advice from your column in the past, I would now like to know what you think about Nautica Enterprises. Its most recent results were very good. - L.L., Northbrook, Ill.

Answer - This popular men's apparel company is charting a profitable course. As you noted, earnings per share rose 36 percent to $1.02 in the fiscal year ended Feb. 28.

Wall Street analysts covering it currently have it rated between a buy and a strong buy, according to the Boston-based First Call Corp. research firm. That includes six strong buys, three buys and one hold.

They project that the fiscal year that began in March will produce earnings per share of $1.25, rising the following year to $1.52. A five-year annual growth rate of 22 percent is expected.