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Dear Mr. Berko:

Dear B.D.:

Over the past half-dozen years I’ve kept an informal scoreboard on discount brokers used by my readers and folks with whom I visit on a social and business basis. The brokerages that are frequently mentioned favorably are Muriel Siebert, Charles Schwab, E*Trade and Fidelity. They’re not the cheapest, but they are the most user-friendly — especially when you need a live, patient human being to assist you with silly and not-so-silly questions. I know several midlevel big shots at two of these discount firms, and they believe customer service is far more important than saving a $3 or $5 commission on a trade. I do, too.

So, if you make 50 trades a year, it could cost you $200 to $250 extra in commission costs. However, superior customer service will return 10 times that amount in personal satisfaction and confidence. So stay away from Bank of America. Several readers who use Bank of America tell me that its service “stinx,” employees are not knowledgeable, the statements are poor, the research is mediocre, and their cash accounts only pay 0.25 percent on customer balances.

High-yield junk bonds, or “junkers,” come in three flavors:

1. The Good, usually bonds with Standard & Poor’s ratings between BBB-minus to B-minus.

2. The Bad, with S&P ratings between CCC-plus and C-plus.

3. The Ugly, which is anything below C-minus and may implode or has already imploded.

During the past 30 years, I’ve recommended some losers and some winners. According to my certified public accountant, who has kept track of these recommendations since 1992, (not including convertible or municipal bonds) the total annual return (income plus gains) is 8.351 percent.

Junkers are much more volatile than their better-rated brethren because of their higher risk of default. But in 2008, corporate bond funds in the junk category suffered a 26.2 percent decline in value. Although that’s a bummer, it’s certainly a better performance than the Dow Jones industrial average. The three credit rating agencies that last year couldn’t spot a swan in a flock of blackbirds tell us that default rates for junkers was 4.6 percent in 2008 and could top 12 percent this year.

There are numerous junkers that might easily escape bankruptcy court this year that carry yields between 15 percent and 20 percent. Those high yields are tempting. But there have been so many confusing changes in bond portfolio valuations, along with changes in the economic metrics used by the rating services, that I’m not comfortable just yet with my ability to confidently select individual issues. So, instead of recommending two junk bonds, I’m going to suggest two high-yield, closed-end corporate bond funds that trade on the New York Stock Exchange.

The Highland Credit Strategy Fund (HCF-$4.97) pays 6 cents a month, 72 cents annually, and yields 14.5 percent. This closed-end fund is not leveraged and trades at a 23 percent discount to net asset value. Its 12-month trading range is $4.23 and $16.90, and today’s low level might be a good entry point for a $10,000 investment. The Putnam Premier Income Trust (PPT-$4.85) pays a monthly dividend of 4.3 cents, which was raised from 3.9 cents in June 2008 and yields 10.6 percent. PPT trades at a 7.3 percent discount from net asset value and more than 60 percent of its portfolio is rated BBB or better. PPT is not leveraged, and its 12-month trading range is between $6.34 and $3.03. I’m comfortable with a $10,000 investment in PPT. HCF is really bad junk; PPT is good junk. Together the current yield would be an attractive 16.8 percent. Not bad, that!

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2009 Creators Syndicate Inc.