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Tri-Continental (TY) is one of the oldest closed-end funds. It was originally issued on January 12, 1929. TY owns mainly large-cap stocks (the average market cap is $76 billion). The fund has paid dividends to shareholders for 63 consecutive years. Over the last six months, the correlation of TY and SPY has been near 90%.

TY has a fairly low expense ratio, but traditionally sells at a double digit discount to NAV. Because of this, I often use it as a core holding when there are no better alternatives available. I like to buy TY at a discount of 16% or more, and sell when the discount narrows to 12% or less.

Here are the top ten holdings as of Dec. 31, 2009 (36% of net assets):

AAPL, CVX, PFE, JNJ, HD, GS, BAC, MRK, GE, COP

Brief comments on TY:

  1. It has a reasonable expense ratio of 0.71%. The discount/expense ratio is over 20 times.
  2. The portfolio turnover ratio of 111% is a little higher than I like. On the positive side, the fund holds highly liquid large cap stocks, so the “hidden” trading costs caused by the bid-asked spread and adverse market impact are low.
  3. The fund performed poorly in 2008, and new management was hired November 2008. The fund is currently managed by two PhDs from RiverSource Investments. Over the last year, the NAV has appreciated 49% versus about 47% for the S&P 500.
  4. Tri-Continental Corp. pays quarterly.
  • Total Net Assets: 988MM
  • Total Common Assets: 951MM
  • Leverage: 3.8%
  • Annual Distribution (Market) Rate: 1.54%
  • Income Only Yield: 1.54%
  • Fund Expense ratio: 0.71%
  • Discount to NAV: -15.74%
  • Portfolio Turnover rate: 111%

Full Disclosure: Long TY.

Source: Tri-Continental: Core Closed-End Fund Holding