Why Are There So Few Oregon Muni Bond Funds?

Why are there so few Oregon municipal bond funds, either open-end or closed-end? With a 9% top marginal state income tax rate, you would think Oregon would be a great candidate for a single-state muni fund.

-- Peykue Rasmartin

Peykue,

The field of Oregon muni bond funds isn't all that small, considering that Oregon is a relatively small state and doesn't issue a whole lot of bonds.

The 9% top income tax rate, which kicks in for incomes over $5,650 (Jeez, Salem, why bother exempting anyone?), does create "decent demand" for single-state funds, says Michael Hamilton, vice president and fund manager at U.S. Bancorp's First American Asset Management and co-manager of (ORTFX)Aquila Tax-Free Trust of Oregon. The rate, easily the highest to apply so broadly, gives Beaver State residents a strong incentive to find a tax shelter.

Lipper tracks 10 open-end Oregon funds with combined assets of $1.64 billion as of the end of March. (There are no closed-end Oregon funds in Lipper's database.)

That's small potatoes compared with the 64 open-end and 22 closed-end New York funds with combined assets of $29.6 billion. But New York has a population of more than 18 million and issued $36.5 billion of munis last year, according to Thomson Financial Securities Data. Oregon's population is about 3.3 million, and $2.5 billion of munis were issued last year.

Oregonians' menu of muni funds compares favorably with that of South Carolina, which has a population that's only slightly larger and a top state income tax rate of 7% applying to incomes over $11,400. Lipper tracks just seven South Carolina funds with combined assets of $563 million.

Morningstar Conference Coverage

The annual Morningstar Investment Conference in Chicago brings together many of the investment industry's top executives and portfolio managers to share ideas and spotlight emerging trends. TSC contributor Brenda Buttner and staff reporter Joe Bousquin will provide continuous coverage of the three-day event starting Monday.

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