CODI and ACAS (the accursed)have had huge gains that they've deferred the payouts to following years. In both cases, I believe it was 2007 windfalls. These BDC's have more acctg tricks than you can imagine. ACAs shat it all at once. CODI's been parsing it out, little by little.
OK, a cursory glance at the Feb 2009 annual report shows that written options contributed about 3% to returns. That's just an estimate. Dividends received are far more important by a factor of about 3.5. I think about 3-4% out of the current 14% payout rate is going to represent a true return of capital i.e. erosion of NAV over time. So you're looking at a yield of 10 - 11%, which isn't bad at all. Fully concede that this is just an estimate, and may be incorrect. Those with better accounting brains feel free to examine the numbers and get back to us.
I understand that ROC here includes call option premium written. But that is not the whole story. Contrary to what anyone claims, 15% over time on a diversified portfolio is not easy. But I'm willing to believe it's possible. Guess I'll have to dig into the quarterlies myself.
gates says volumes. also, one must look at what are the definitions of terms used from one asset class to the next. covered call income is considered ROC in this arena. so, to automatically think that ROC erodes NAV, in this case that would be mistaken.
if we are talking about a tanker/dry bulk fleet, then ROC means something else entirely.
I have heard many debates on what you just mentioned with CEF's. Some funds keep their distributions even but a little too high so the funds don't sell off, but over time this erodes the NAV.
It's hard to tell unless you keep an eye on the NAV over time, I think, and examine statements explaining what the distributions consist of.
I believe there is a line on the regular 1040 form for ROC income; or rather, you are asked what amount if any of total distributions were ROC. Pretty simple as I recall, though I'm no expert in this and will gladly defer to any where are expert.
I'm most interested in the actual long-term returns for a fund with this model. The model is not complicated. Sure, if these guys are expert stockpickers they could do 15% on that alone, perhaps over a 20+ years period, although that would be much rarer than 15% over shorter periods. Right now we have a fund that has a negative total return since inception, which was however only in 2005. I purchased more at $12, so I have a positive return on my total holdings in IGD at this point. And the monthly income is seductive. What I really want to flesh out is if this is actually more like a vehicle to stretch your assets over some long-term (but not 20+ years) period, where the ROC would actually eat away at the NAV over time. Not sure how this would work, but you would expect it to impact total return, and therefore at some point you would see something give in the model, probably a share dilution or some other crap like that. Please note I am not predicting this, and am positive on the fund. Just hoping to get some insight from the collective brain here about what a projected total return on this fund would be over the very long term. Difficult if not impossible to do; but, the exercise will focus the mind, and that can't be bad.
Good fortune to all.
Not that I know of. MLP's use K-1's, but with closed-end funds I think we'll just receive a notice at the end of the year breaking out what our distribution consists of, and then we pay taxes accordingly.
This will be my first year doing return of capital in closed-end funds, so I'm not sure yet exactly what forms are involved. I'm hoping it won't be too complicated. Other posters who have owned these funds for years probably know more about this.
I think that is the idea behind some of these funds - you just hold them and take the income, part of which is characterized as return of capital, so you save on taxes.
The same idea as the MLP's. Many people hold the propane, oil and gas pipeline co's for income, which, due to their business model, characterize the distributions as ROC also.
The return of capital makes more work at tax time, but for a 15% or so yield that is only partially taxable, it may be worth it to many people.
I hear you, but what if you never sell and continue to receive ROC past the point where your actual basis was zero? The ROC is not taxable when received. If you sell the shares you have a basis of zero and pay cap gains on the entire sale amount. But again, what if you never sell, or sell after you have received ROC more than equal to the original price you paid?