Chance Carson

Yes, Virginia, There are High Dividend ETNs

Thanks again to d_teller: Very helpful clarification that UBTI may not exceed $1000/ year for EACH taxpayer ID, NOT per MLP.
All the more reason to stick with only securities wrapped inside C Corporations, a structure which issues a Form 1099, not a K-1.

Also a great heads-up about CanRoys (Canadian Royalty Trusts) which might convert to MLP status.

d_teller: Do you know of any service, newsletter, etc which might report on pending conversions to MLPs? Thank you again for your detailed discussion and clarification on these complex tax issues. Call me sometime..I'd like to pick your brain on a couple of other issues.

Thanks. (1-877-260-0800 toll-free). Chance Carson, Editor, AboutETFs.com (www.AboutETFs.com)

Yes, Virginia, There are High Dividend ETNs

David Lentz: Excellent question about the dividend safety of each of these 3 ETNs due to housing, banking or junk bond holdings.

So here's how they stack up: JEM- all Currency Yield plays with no direct exposure; BSR- all Energy Infrastructure Master Limited Partnerships with no direct exposure; GCE, on the other hand, DOES have moderate exposure. GCE holds 75 Closed End Funds, with each of individual CEFs having as little as zero exposure all the way up to as much as 100% exposure. Only two of its holdings have 100% exposure. The average exposure that GCE has to the troubled industries that you mentioned, David, (Financial, Housing, Banking and Junk Bonds) is currently 20.5%. We rate this risk as quite moderate considering the excellent diversification of this ETN, its current 7.5% Distribution Rate and its historically high 10%+ Discount to NAV (this large discount probably indicates that investor fears about the financials in the portfolio are already baked into the price).

We suspect that a basket of these three ETNs is not nearly as risky as you fear....time will tell.. Good luck and thanks again for your excellent question.

Yes, Virginia, There are High Dividend ETNs

d_teller: Thanks for your thorough discussion about the tax risks and complications facing any tax-qualified account which seeks to hold securities issuing K-1s (such as Master Limited Partnerships -MLPs).

And as User 232593 aptly points out ( AboutETFs.com is in complete agreement) never, NEVER buy an individual MLP in your qualified retirement plan. While not a "prohibited transaction" per se, the risk of your custodian having to report "Unrelated Business Taxable Income" (UBTI) from certain MLPs just isn't worth it. Admittedly this risk is quite remote unless you hold particularly large blocks of individual MLPs which might generate more than $1000 per MLP annually. But we still advise you to just say NO!

Despite our negativism toward holding individual MLPs in your tax qualified plans, there ARE at least five securities which invest in Master Limited Partnerships which are perfectly fine to hold in your IRAs and other retirement accounts. These five holdings are structured as Type C Corporations and issue 1099s, not K-1s (even though each invests in MLPs.) By not issuing K-1s, these five different investments provide a secure way to enjoy the benefits which MLPs offer (mainly high distributions ranging from 6.1% to 8.4% per year) without the taxation confusion.

Four of these MLP asset plays are Closed End Funds and one is BSR, the Exchange Traded Note (ETN) which we featured in the above article. The four CEFs are FMO (Fiduciary/Claymore MLP Opportunity Fund- www.claymore.com), SRV (Cushing MLP Total Return Fund- www.swankcapital.com), KYN (Kayne Anderson MLP Investment Company- www.kaynecapital.com) and MTP (MLP & Strategic Equity Fund- www.iqiafunds.com).

Here are the current Distribution Rates and Premium or Discount for each CEF: FMO- 7.0% Dist, 7.75% Premium; SRV-7.5% Dist, 11.6% Premium; KYN- 7.3% Dist, 6.5% Premium; MTP- 8.46% Dist, 1.7% Discount. We would be sellers of FMO, SRV and KYN due to their Premiums to NAV. We would be buyers of BSR which generally trades at parity with its underlying Index and MTP for its slight Discount to NAV and its 8.4% Distribution Rate.

Yes, Virginia, There are High Dividend ETNs

Thanks for your caution about the complex taxation issues facing individual investors utilizing currency ETNs. We fully agree at AboutETFs.com- currency ETNs are best purchased by tax qualified accounts (or extraordinarily informed tax advisors!). The tax issues for individuals investing in GCE and BSR, on the other hand, seem straight forward.