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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75379  
Subject: Re: Franklin Income Adv Date: 9/19/2012 2:38 AM
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You don't mention which class of shares...A, B, C or R. I'll assume this is FRIAX as is listed with Morningstar.

This fund is much better than most of its category. To sustain its dividend, which has been virtually unchanged at about $.144 to $.154/yr for several years, it holds primarily bonds and utilities, which provides a current 6.4% yield based on today's closing price of $2.24/share. However, there is risk here, as its standard deviation is about 40% greater than other conservative allocation funds, such as Vanguard's Wellesley Income (VWINX). This is most likely due to its 50% (or thereabouts) holding of high yield (junk) bonds, with an average credit rating of 'B' and with about 1/3 of its bonds being below B grade. This puts the fund at high risk of bond defaults should the economy go into another recession....which probably helps explain the funds precipitous 31% drop in 2008, when its index dropped about 18%. Its income expense ratio is 11.8% based on the last shareholder's report, which is about average for this kind of open end fun.

Although the yield is enticing, I would forego this fund simply due to the income and interst rate risks. This is the managed mutual fund equivalent of 'yield chasing'.

I think VWINX is a much better choice. Its 60% bonds have an average credit rating of "A" with almost no bonds held below investment grade. Its equity holdings are almost evenly split between energy, financials, consumer staples, healthcare, utilities and technology. And its income expense ratio is 5.4%, about half that of FRIAX. Its current yield is about 3.3%, but this level of income has held up well during market down cycles.

BruceM
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