You don't have to be a moneybags to enjoy municipal bond breaks

In one newspaper ad, Daddy Warbucks, diamond stick pin agleam on his tuxedo bib, smiles a satisfied smile. He's endorsing Empire State triple-tax free investments.

A Scudder mutual fund ad shouts: ''New York income triple tax-free.'' And the Bevill, Bresler & Schulman firm points out that an 11.25 percent yield on a New York City bond bought by a N.Y.C.resident in the 50 percent tax bracket ''is like getting a 22.50 percent yield from a taxable investment.''

Daddy Warbucks would understand. The bond market has been been battered. Creditworthiness of muni bonds has been low since the Washington Public Power Supply System bond default last year. Thus the interest they pay is high. Ergo: Buy low, get high yield, decent safety, and tax protection.

But you don't have to be a titan like Warbucks to need to shelter the interest earnings you can enjoy today. Two-income families can easily fall into a high enough tax bracket to want a safe, tax-sheltered investment. As the ads suggest, if you're living in a city like New York, these investment devices can exempt you from local, state, and federal taxes on the dividends you receive.

There are three ways you can go:

* Buy a municipal bond.

* Buy into a closed-end unit investment trust that is holding a packet of muni bonds.

* Buy shares in a mutual fund that buys and sells muni bonds.

Municipal bonds themselves are fairly sound investments. But they are expensive, a bit inconvenient in that you are always clipping coupons, and not particularly liquid - which is bad if interest rates go higher and your investment starts dropping in price.

You can go one better with the unit investment trusts (UITs), such as those advertised by Empire State. Robert Check, senior vice-president of the Advest brokerage, says UITs his company sells appeal to an older investor with $150,000 to $200,000 to invest - ''serious money'' that would otherwise go into bonds or certificates of deposit. The UIT buys the bonds for the investor, clips the coupons, and distributes or reinvests the dividend.

Mr. Check says a New Yorker in a 50 percent tax bracket, and socked with state and local taxes, would need an investment with a 25 percent interest rate to be the equivalent of a 10 percent triple tax-exempt UIT. A UIT's trustee fee is minuscule (usually 0.15 percent a year), since there is no portfolio management involved. But there's a hefty 4- to 5-percent sales charge, making a UIT better for a long-term investor than a short-term one.

An investor seeking greater liquidity, diversity, and professional portfolio management may want to look for a mutual fund that invests in municipal bonds. With one of these, your shares are immediately redeemable. If your municipal bond fund is in a fairly diverse mutual fund family, often you can switch your money from one fund to another as you desire. And in a down bond market, the portfolio manager can channel the money into cash, shed certain bonds, or do both.

Muni bond funds are relatively easy to afford, usually beginning with investments as small as $1,000. It is also easier to keep up with them than it is with individual muni bonds and muni investment trusts, for unlike the latter two, muni bond fund prices are quoted in mutual fund tables of many newspapers.

The federal tax savings you can achieve depends on your bracket. If you have income of, say, $25,000 and you are filing your taxes singly, a 10 percent yield on a tax exempt muni bond fund would be equivalent to a taxable yield of 14 percent. With joint income of $70,000, a 10 percent muni bond fund yield would amount to a 17.24 percent taxable yield. If it is a no-load muni bond fund, you realize virtually all of that gain.

Remember that only municipal bonds issued by your own state are totally tax-free to you. Similarly, a UIT or muni-bond fund must be set up for your state if you want the maximum tax benefit (assuming, of course, that that is even a consideration: Some states do not have income tax and many cities do not).

Here's how the diversified portfolios offered by both UITs and muni-bond funds work: A batch of AA bonds, say, can be held with higher-yielding BBBs (many of which carry private insurance to comfort investors in these riskier vehicles). When the UIT or mutual fund pots are stirred, you end up with a higher interest rate than a high-quality bond would pay - but with almost as much safety, and greater liquidity.

One problem is that when the bond market dives as it has the past few months, prices of bonds in the UIT also fall. That flattens the yield and erodes your capital like ''Chinese water torture,'' one analyst says.

The same problem affects municipal bond mutual funds. But J. Michael Pokorny, vice-president and portfolio manager of the Philadelphia-based Delaware Management Company's Pennsylvania Fund, points out that when the bond market slumps, many municipalities stop issuing bonds. Some are legislatively barred from doing so at high interest rates. That decreases the supply of bonds. Yet demand for these bonds remains fairly steady from conservative investors such as bank trust departments. This keeps prices stable.

''Our fund really does well in up and down markets,'' Mr. Pokorny says. ''There's always demand for Pennsylvania paper.'' In 10 years the fund has grown to $57 million. Its yield at this writing was 8.72 percent.

There are about 30 muni-bond mutual funds especially tailored to different states, notes Reg Green of the Investment Company Institute (ICI). Most are designed for residents of New York, California, Massachusetts, or Pennsylvania. Assets of these funds amount to $4 billion, a modest part of the total assets of development, Mr. Green points out, and have grown rapidly.

Such growth is evident in no-load bond funds introduced last July by the Boston-based Scudder Funds for New York and California residents. In less than a year, the California fund assets jumped to $40 million and the New York fund to

Richard F. Seamans, senior group vice-president at Scudder, believes the introduction of the funds was particularly timely: ''It's an area where professional management hasn't been offered before to (municipal bond) holders.'' He considers it the most rapidly growing area of mutual funds, attracting moderate to high tax-bracket investors, who can enjoy ''not only a tax-exempt return on dividend income but capital appreciation as well.''

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