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Alpine Dynamic Dividend Institutional Message Board

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  • alta10bc alta10bc Feb 14, 2010 8:35 PM Flag

    A question for longer time owners of this fund

    ....The Alpine Funds appear to have new co-portfolio managers that may start buying some higher yielding North American issues i.e. PNNT..
    ....The economy is slow in recovering, the value of Alpine Funds will also recover.
    ....A lot of banter over sustainability of dividends, as a income investor there is no problem as I see it in the near term.
    ....Couple other funds that are suited to income stream investors that may appeal with high yields are: ETY, EXG, IGD. I like AOD as well!!!!

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    • Personally I don't worry about the sustainability of the dividend. I just hope they are on their game with their trading, because with a low NAV and a high yield, there is little, if any, cushion here for mistakes.

    • Re: ....Couple other funds that are suited to income stream investors that may appeal with high yields are: ETY, EXG, IGD. I like AOD as well!!!!

      Be aware that ETY has an ROC of 89.5%, EXG has an ROC of 91.9% and IGD 74.3%. As for price, ETY and EXG over the past 6-months have been flat while IGD has actually declined. Nothing wrong with owning these as long as you are ok with receiving ROC distributions rather than actual income. Since your own money is being handed back to you with ROC, the only way to realize any value is to sell when prices are higher to capture a capital gain.

      Go to CEF Connect, click the distributions tab and note the amount of ROC. Under the chart, click interactive. Then check the prices over 6-months by selecting the 6-month display option. When a fund is flat or declining in price and your monthly distributions are ROC, you are receiving no value and there is no point in owning the fund.

      • 2 Replies to porkus_chopius
      • The only thing "good" about ROC is that distributions are tax-free until the amount you receive exceeds the amount you've invested. Then it is reported as a capital gain rather than income. Be sure to adjust your cost basis accordingly. You can Google "Return of Capital" for a more detailed descriptions.

        http://www.fairmark.com/mutual/nontax.htm

        If you have any funds paying a large percentage of ROC, be sure to avoid owning them in a tax deferred account (such as IRA) since you will pay tax on all IRA distributions at your marginal tax rate.

      • My understanding of the characterization and taxation of exercised CALL options is a bit different ...

        1. Exercised Call options DO NOT reduce your cost basis ....the premium recieved is simply added to the option strike price ...and the gains are considered capital gains ...Example - fund buys ABC stock for $20 ...then SELLS a CALL option against the position struck at $22.50. The fund recieves $1 per share in this hypothetical ..and the stock is subsequently CALLED AWAY ...the tax law ( Google tax treatment of CALL options ) REQUIRES that the exercised transaction be taxed as follows:

        $22.50 strike price plus $1 =$23.50 proceeds ..cost basis REMAINS $20...so the gain is taxed at $3.50. ( whew )...but what happens to the $1 actually recieved ? well ..it is classified as ROC ...if the option was NOT exercised ...then the $1 would be INCOME ...thats why in a fast rising market ...funds like ETY / IGD / ETG / BGY are posting 80-90% ROC ...because the options are being exercised 90% of the time ....

        Options are CAPITAL ASSETS ...and the CASH they bring in adds to the asset base of the fund and its NAV ...

        Mutual funds don't pay much in the way of taxation ...as the unique formation of the company REQUIRES that they pass-thru most of the income / gains created to us ...the shareholder and we pay the taxes ...( Securities Act of 1940 i think )

        Since options are securities themselves ...just like stocks ...they must be considered CAPITAL ASSETS just like stocks / bonds / money market funds ...they are priced by the second and you can lose or make money on them ...the point being ...they are REAL tangible assets ...somehow the impresion seems to be that they are an accounting gimmick ...not so.

        Since almost every mutual fund lost money in the recent recession ...( -58% for most ) it seesm logical that they have huge amounts of CAPITAL LOSSES to "wash" against CAPITAL GAINS going forward ...ETY has about $5.00 per share in realized losses ....

        This may mean ...that even if the fund posts GREAT returns in 2010 and 2011 ...we wont get a large capital gain distribution towards year end ....so BUYING this type of OPTION WRITE funds may be a great opportunity ...we get 12-15% annualized distribution from our respective investments ...and little to no capital gains taxation ....this happened after the 2002 market meltdown as well ... The big news for us being the tax adantaged status ( Eaton Vance even puts those two words in the fund title of several of their funds ..ETY / ETG ) ...

        ROC in bond funds and on some exercised PUT transactions DOES adjust the cost basis .. but CALLS are treated very differently ...and this is well settled tax law ... fought its way to the Supreme Court in the early 1990's ...the IRS is happy because ....they get to tax exercised calls as CAPITAL GAINS ... we are happy ... because there are NONE ....at least for the next 12-24 months as the funds recover from the extensive losses ...

        Summary - funds like ETY typically sell options against 55% of their portfolio ...they are up to 65% on the last report ...as they seek to raise more cash by selling calls against more of their portfolio ...they also reduced the dividend a few months ago ...they have the flexibility to sell calls against 100% of the portfolio ...but that would rob them of any CAPITAL APPRECIATION ...which we need to raise the NAV ...i fully agree that the Option write fund must be distributing most of their income ...as ROC / Income ...but ...by law..they have to ...I dont think they can retain more than 25% of income recieved ...( check that please )

        Porkus - respect your posts and opinion ...but I just cant agree that the ROC from the option write funds mentioned are simply giving your money back to you ...its much more / better than that ....

        Options are Assets too !

        as always ..regards and best of luck ...

 
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