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mike57dk

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  • Equity CEFs: Eaton Vance Really Wants You To Own Its Option-Income Funds [View article]
    Reply to ehsii ...
    Saw your comment and wanted to illustrate an answer to show why these Option Income funds are not necessarily "removing equity from the fund" as you mention.
    First aspect to consider is that there are TWO separate equity investments here ...ETY holds common stock and SELLS S&P 500 index calls each month ....two separate items that are taxed and distributed ...so ..unlike a CMO bond for example; where they distribute a good portion of principal as ROC each month as the underlying mortgages are paid back; Option Income funds are Selling Calls (ETY) each month and closing out 90% + of them every 2-3 weeks ...
    ETY recieved about $90 million in Option premiums over the last reported six months doing this ...but spent over $103 million closing them out ....creating an estimated $13 million loss - taxed at 60% long term losses and 40% short term losses ....

    Now ...ETY has about $1.6 billlion invested in the stock market ...mostly in blue chip companies like Apple / Exxon ....and that portfolio value went UP during the same six months ....much / much more than the $13 million loss ..( they hold $60 million of Apple stock for example which went up significantly )

    This portfolio value increase was measured in their last six month report at + $250,000,000 ....in NUA ...net unrealized appreciation.

    These funds typically use a so-called managed distribution process to pay out their respective dividends which allows the fund to pay out their dividend distribution on an equal basis ....and provide some certainity to investors about the dividend cash flow ....so ...where does the money come from to pay out the huge distribution ?

    Three places -
    1. The dividends the portfolio generates ..but that cant typically be more than 2% per year ...( and portfolio expenses are paid from dividends recieved so that leaves about 1% for investors )

    2. In a declining market ...the option premiums received for selling Call options can help pay for the distribution ....ETY needs about $187 million each year to pay an 11% annual distribution ....and the last six month report showed they booked $90 million in premiums ...hmmmmm...but then closed out that with a $103 million buy back ....

    3. They use appreciation in the stock portfolio to pay the huge distribution ....and they have about $250 million on hand ( today ) to do exactly that ....lol ....

    When there is no appreciation in the portfolio ....the Option premiums received will help offset the cost of the dividend distribution ...as the fund management will not be closing out the CALL options ...as they will be profitable ....

    The IRS loves short term transactions ....they get to tax them at the HIGHEST possible personal income rate ....BUT ....wait ...these funds all have a huge anount of capital loss carry-forwards from 2007 / 2008 to wash against these new capital gains ....netting in a ZERO TAXATION .....until 2018 when the carry-forwards will expire ....( whew ...lot to explain )

    So ....the net distribution from funds like ETY are classified as 90% " Other Capital " ....and is non-taxable ...where the remaining 10% is dividends and interest ...which is taxable ...

    Bottom Line - The fund is NOT eating itself up with return of capital like a mortgage bond does ....you get some downside protection in the market as the fund is Selling index calls each month ...and upside potential as the fund closes out these Calls every 2-3 weeks for a loss when the market is good ( going up )...and you are buying the fund at a 13-15% discount to its actual underlying value ....
    Hope this helps explain ....regards
    Dec 2 11:04 AM | 5 Likes Like |Link to Comment
  • Tonix Approaching 100 Days Until BESTFIT Results [View article]
    Had always heard that there are at least seven ways to be Bullish or Bearish on a stock ...The top three Bullish tactics being :
    1. Long Call
    2. Short Put
    3. Buy shares ..

    So essentially the debate is which tactic is best for TNXP at this price ...but all are essentially BULLISH variants ...whichever " floats your boat" ....that fits your specific risk / financial profile and prior experience ...

    Am long the shares ...seemed the easiest, most convenient way to act on this investment idea ...I think the options chain was a very recent change / development for TNXP ...with a grand total of 137 CALL contracts outstanding thru three strike prices in December 2014 ...( according to WSJ this am ) ...That's not just thin volume ...that's tissue thin ...( one ply if you will ) ...and as a former options trader; B&H certainly understands that lots of bad things can easily happen ...such as no buyers when you really , really want to sell ...making the quoted option bid / ask more of a fantasy than a price where you can actually get an execution or worse.. a market execution far , far below the quoted price which is nothing more than a last trade history ...or a machine calculated number ...based on an algorithm, not trading based. ( ouch )

    In my opinion, and given the relatively low price of the stock , the approximate 10,000,000 total number of shares outstanding, heavily held by the insiders and about 1.3 million shares held by Technology Partners Fund VIII LP in Mill Valley, California, the best way own the future of TNXP ...is by simply buying the shares.

    But ...lets have some fun ...and ASSUME that the stock hits the $61 per share level suggested by Joe in this article ....and in November ....what do you think the December CALLS struck at $60 would be selling for ? My guess is that the huge volatility in driving the price upwards over $50 per share in the last 100 days ...and the 3-7 week time value remaining on the Dec 14 contracts would impute a BIG NUMBER ....$10 per contract ? $15 on what would be the latest pharma stock to explode upwards ....My point is that you can then SELL the covered calls expiring in Dec 14 ....probably get $15 per share or perhaps much more ...and when exercised ...your exit price would be effectively $75 per share ....or about a $63 per share profit assuming a $12 average purchase price ...that's not shabby either ....if the market price sags back to $40 per share ...close out the open covered call position ...count your money ...keep the underlying shares for another Covered write ...

    Lots of fun ways to make money ...IF... the market price goes up as Joe has forecasted ...There is no ONE RIGHT answer here ...just the one that fits you.

    Mike

    Jun 20 04:00 PM | 4 Likes Like |Link to Comment
  • Equity CEFs: The Insanity Of CEF Investors [View article]
    Reply to KenGold -

    I pulled my 1099-Div statements from 2011 and 2010...just to be precise and avoid any mis-information.

    line 1a - total ordinary dividends ( includes 1b ) $5,503.22

    line 1b - Qualified dividends ......................... $1,862.43

    line 3 - Nondividend distributions ...............$4,038.87

    In the detail breakout section for Dividends and Distributions

    ETY - CUSIP # 27828N102 -02/28/11 - $6.43 - Qualified dividend
    02/28/11 -$662.60 - nondividend distribution

    This was repeated for the remaining three quarterly dividends paid in 2011....

    The net result being that ETY created a qualified dividend stream to me in 2011 of $26.78 ....and taxable at 15% back then ...so $4.02 of the $26.78 was required for federal taxes due ....

    ETY also contributed $2,759.65 in completely non -Taxable, non dividend distributions ....
    ETY distributed ZERO short or long term capital gains ....ZERO / ZIP / NADA ...in 2010 or 2011. ( because the capital loss carryforwards washed all capital gains away )

    The Summary also had this listed :

    Return of Principal distributions ......................... $0.00

    Basis Adjustments ......................... ..................$0.00

    Summary / opinion - I paid $4 in federal income taxes on cash received / reinvested of $2,786.43 ...Thats about a 0.0144% rate ...( check my math but $4 on $2786 is way less than 1% )

    Less than the cost of the " meal deal " from Subway ...or a Happy Meal at McDonalds ....got me $2,782 in net tax-free Income.

    To be extra -certain ; I checked the other brokerage account where I have ETY ....at a different firm ....and saw the exact same accounting result and methodology ....

    No ROC / No Basis Adjustments ....This is just Other Capital or non-dividend distributions ....

    As I stated before; this is not some sleazy accounting gimmick ..Its actually the only way to account / pay taxes correctly on the distributions from this security....

    If ETY didn't have such a huge amount of capital loss carryforwards ...I have no doubt that much of this income would have been classified as short and long term capital gains ....and taxable at a very high level ...plus potentially Obamacare investment tax depending on your income ...( 3.8% more potentially )

    My guess is that we will have 3-4 years of this super-favorable tax treatment ...and then face the consequences of high taxation that our lawmakers have bestowed upon us ....

    As more and more people figure this out ...I predict that there will be a migration from high tax funds ....to these high yield / low tax funds ...not just ETY ....but that's the one Option Income fund I own...lol ...so I am hoping the renewed interest will stimulate buying and move the market price even higher ...

    Hope this helps ...I really tried to make it understandable and specific ...we still have market risk and plenty could go wrong in our investment thesis ..but I am looking for + 20-25% from this fund in 2013 ...we almost got that much last year alone ...

    regards -
    Feb 1 06:47 PM | 4 Likes Like |Link to Comment
  • Equity CEFs: Eaton Vance Really Wants You To Own Its Option-Income Funds [View article]
    Thanks for the reply Doug ...I appreciate it.
    My contention, which may well be incorrect, is that NO ADJUSTMENT of cost basis is necessary with ETY....this is important because many potential investors would be loathe to try and figure out such an adjustment and perhaps fear some type of IRS challenge to any guestimates they might, in good faith, try to apply to the basis ...thus intimidating them away from this type of fund. ( who wants IRS problems ? or to try and calculate the basis reduction ? ...not me ) One of the points to owning a mutual fund is to let them figure out the taxation stuff ...lol.
    ETY started out in 2006 with a professional Options Advisor that essentially charged them a fee to WRITE CALL options against the portfolio holdings each month ....The thesis then was that exercised call options had the premiums received ADDED to the option strike price to calculate a capital gain ...( typically short term with ETY ) ...no adjustment to the cost basis was allowed or necessary under tax law ....premiums just increased net proceeds.
    Later, ETY management decided to FIRE the Options advisor and revert to exclusively writing WRITING S&P index calls at the next higher strike price from the prevailing market EACH MONTH ...and then ...CLOSE out the transaction typically within two-three weeks ...and repeat the cycle ....SELL / CLOSE ...

    The six month report in April, 2012 shows ETY recieving $90,698,884 in S&P Index call premiums ....BUT ....paying $104,386,575 to close out the majority of these positions ....lets postulate a ( $13,687,000 ) LOSS over the preceeding six months.

    This was fine and dandy ...because the overall portfolio value was appreciating with the market ...much more than the $13.6 million loss ....
    ETY management has been using the IRS rule 1256 tax treatment of equity index options where even short term holdings of Index options were taxed at 60/ 40 ...60% long term / 40% short term ....so an investor in the 25% tax bracket would still get a net 19% capital gains tax rate on short term transactions using equity index options. ( whew )

    The REALLY interesting part, however, is that ETY is managing to book a raw LOSS on virtually their entire S&P index option trading ...estimated to be approximately 100,000 contracts each fiscal year ....because, in a rising market, it just makes a ton of sense to close out the index options each month, book a loss, and let the stock portfolio continue to appreciate ....ETY reported in April that they have $251,000,000 in NUA ....
    So ....they have nothing to " adjust " ....and INCREDIBILY this trading at a loss tactic even ADDS to the future capital loss carry-forward amounts ...( hard to believe ...but true )
    These guys are even booking NUA from their share re-purchase program ...showing a +3.45% gain in the Nov 5 update ....just on ETY.
    This entire ROC debate is clouded with confusion ....PUT contracts do have a basis adjustment / bonds have an ROC component ....but ....NOT CALL contracts ...The IRS allows the term " OTHER CAPITAL " on the brokerage 1099 statements which is non-taxable ...and ETY uses this avenue to provide year end tax reporting ....OTHER CAPITAL, from the option premiums for example, can and will be taxed at the Short Term / Long Term rates ( which the IRS LOVES ) ....BUT ....when the fund has $445 million in carryforwards and is losing money on their Index Option trading each year .....there is literally NOTHING to tax.

    Again, not to be arguementative, but I would never own a mutual fund where I had to guestimate or adjust the basis ...and even long term holders of the fund should have a plan to SELL ....perhaps if the fund moved back to a premium to NAV ? ( a + 10% Premium would force me to sell for example ) ....

    Appreciate your article and quick response ....Thx - Mike



    Nov 30 01:37 PM | 4 Likes Like |Link to Comment
  • Equity CEFs: Eaton Vance Really Wants You To Own Its Option-Income Funds [View article]
    Nice article Doug...a couple of questions though ...you mention that holders of ETY will have to adjust their cost basis by the ROC component ...I just dont see that as practical or even necessary as ETY, in specific, uses a methodology of Selling S&P 500 calls and closing them out each month by Buying them back ....Since the fund exclusively uses CALLS and not PUTS ...no adjustment of basis is necessary.
    I believe that current tax law allows for a 60/40 split of long and short term gains classification of the proceeds ....( similiar to commodity contracts ) which allows a super short holding period such as the 2-3 week average duration that ETY uses as a typical holding period for the 80,000+ S&P call contracts it buys and closes out each year.
    Also ...you didnt mention the HUGE capital loss carry-froward these funds and ETY have on the books thru 2017 ...ETY has approximately $500,000,000 in capital loss carry-forwards to " wash" against future capital gains ....so ....investors can look forward to ZERO taxation on capital gains thru 2017 in this fund ...only paying taxes on the stock dividends actually credited from the portfolio ...lets call it 10% of the 2013 estimated distribution ...$1.01 per share x 10% = $0.10 ....x your income tax bracket rate ...lets postulate 28% on average = a federal tax obligation of $0.028 per $1.01 in cash actually recieved in 2013 or a measley 2.8%.
    Comparative investments in dividend paying stocks / ETFs or dividend capture mutual funds WILL be taxed at your ordinary income tax rate up to 39.6% ....plus the 3.8% Obamacare tax for income over $388,350 in 2013.
    So ...investors in the option income funds will pay NO capital gains taxes for years ...and typically less than 3% on the total distribution paid out in 2013 ....Investors in CDs / Money market funds / rental income / ordinary dividends / preferred stocks will be paying typically 25-35% of the proceeds they recieve in 2013 ...
    This aspect gives the so-called Option Income funds a compelling advantage in the coming years ...( at least until 2017 )
    Thx - look forward to your response - Mike
    Nov 29 01:30 PM | 4 Likes Like |Link to Comment
  • Equity CEFs: Eaton Vance Really Wants You To Own Its Option-Income Funds [View article]
    Reply to no2cattx -
    Thanks for your reply and question.
    The answer is on page 13 of the semi-annual report to shareholders- Section D - Federal Taxation - ETY has $445,775,309 in capital loss carry-forwards that can and MUST be applied to capital gains going forward ...I did note that the capital loss carryforwards were itemized by expiring year ...and that $53,547,524 will expire, if not washed against capital gains at the end of 2018.
    In my opinion; this is HUGE ...as investors; we can anticipate a full SIX YEARS of paying little to no capital gains taxes from this fund, regardless of tax rates or increases that may be imposed ...because fund management gets to " wash " their past capital losses against future capital gains thru 2018.
    Many mutual funds have aggregated tax loss carry-forwards on their books and ETY is no exception ...its just that they have $445 million ...lol ....
    If you had a choice of buying a new issue mutual fund that did the exact same thing and the identical trading strategy as ETY ....you would essentially get " clobbered " by huge capital gains taxation ( assuming the fund had a good year ) ....because capital gains, especially short term capital gains ...are designed to be taxed at a very high rate ...estimated 30% under the President's proposed tax plan ..( ouch ) ...but by using some of the older funds which have built in capital losses that can be washed against gains ...you will pay ZERO capital gains ...NADA / NUNCA / ZIPPO ....LOL
    Its an unintended benefit of coming out of a recession and having big losses ...( who didn't in 2008 ? ) ...and probably the reason the Federal government will get no where near their tax revenue projections from raising the tax rates as they expect ....Investors will have capital loss carry-forwards from all those investments that tanked back in 2007 / 2008 ....
    Why would you pay a 30% tax on your at risk gains ? ..when you could pay ZERO ? and get some benefit from all the losses endured a few years ago ? ...
    Hope this helps ..and thx for the comment
    Nov 30 12:18 PM | 3 Likes Like |Link to Comment
  • Looking Closer At The Closed-End Buy-Write CEFs [View article]
    Paulo - Thanks for the updated article and the companion piece by Doug Albo on ROC. A few comments and reinforcement points on ETY in specific and Buy-Write funds in general:
    1.No adjustment of cost basis is required as the fund ONLY sells S&P 500 index CALLS against its portfolio. ( approx 70,000 contracts per year ) - PUT contracts are different but since the fund management does not use that strategy ...no point in discussing.
    2.When call contracts are exercised ...the premium is tacked on or added to the strike price and the net proceeds are taxed as Capital Gains ( typically short term and at a very high rate ) - Index calls, however, are subject to the raw 60/40 - long / short term tax treatment regardless of holding period - even one or two days of duration.
    3.The average holding period / duration for ETY index call contracts is TWO WEEKS ...and they close out 90-95% of their open positions for a loss or a gain ...then SELL another months CALL options at the next closest strike price out-of-the-money ...so ...12 times each year they ' reload ' S&P 500 Index calls....Individual investors seeking to replicate this tactic would necessarilly expose themselves to " UNLIMITED RISK " that a short / naked index option provides ...( suitability / financial resources / experience and the necessity of having a large asset base would preclude most small investors from such a naked strategy ) and would almost certainly guarantee a major hit should the underlying market make a sudden move upwards ( + 244 points on Dow the other day for example )
    4. Leverage - Closed End funds typically borrow heavily to magnify their positions and then issue preferred shares to further amplify the risk / reward equation. ETY does not use any significant form of leverage or borrowing ...( many CEF's wind up having an aggregate 50% overvaluation due to this type of risk and makes them subject to large and distressing price swings ...especially in down markets.)
    5.Liquidity - ETY has approximately $1,700,000,000 in assets and an average volume of 400,000+ shares per day ....In a tight / down market, smaller CEFs will experience problems executing orders...not so with larger funds. ( ever recieved a " nothing done " or stock ahead notice ? )
    6. Capital Loss Carryforwards - probably the secret weapon for investors in the coming years ...ETY has over $445,000,000 in carryforwards and investors buying the fund can participate in these carryforward losses thru 2018 ...thus avoiding the "taxmaggedon" that our intrepid lawmakers have in mind for us in six short months.
    7. ETY publishes the estimated tax characteristics of each distribution quarterly and sends a separate letter / notice of distribution to each shareholder. Thats how we know that the ytd estimate of ROC is 87% of the total distribution ( unaudited )
    6.Discount to NAV - a 15% discount in buying shares of APPLE / EXXON / COCA-COLA / JP MORGAN /PFIZER / IBM / AMAZON and McDonalds which compose the largest positions in ETY make this fund worthy of consideration ...if the discount expanded to 20% to NAV ....the fund would be more attractive for investors like me ...conversely ...a few years ago ...ETY was trading at a PREMIUM to NAV ...that is a danger / warning sign of overvaluation.
    7. Anger / brokerage statements - many investors purchased this fund on the IPO and paid $20 per share ....when they see the monthly statement - ETY is typically the " BIGGEST LOSER " by a wide margin ...$11 per share loss / into a $20 purchase price = a raw 55% loss despite the significant market rally since March 2009.
    Especially true if they have been taking cash from the distributions instead of reinvesting the dividends ...plus it seems that every time fund management reduces the dividend ...the market price takes a big hit ...( again ) ...even dividend reinvestments show up on the statement as new purchases in a fast declining market price ..( ouch ) - The net result being a distortion to the extreme of the actual LOSS taken ...
    Summary - ETY is invested in large cap ( blue chip ) US companies to the tune of 77.8% of total portfolio and another 6.9% in the UK ...so it can be considered a proxy most similiar to the S&P 500 index ...with a bit more concentration ...if an investor believes that the US economy will rally, especially the cash heavy companies like APPLE / EXXON ...its a good way to participate in a very impressive stock portfolio ...AND ...use the naked index CALL strategy that most small investors are loathe to risk ....AND ...when everyone else in the US is paying 33-43% federal taxation on their distribution of income and capital gains in 2013 ...we will be paying Federal taxes on roughly $0.13 of every dollar of income distributed from ETY in 2013.( assumes 87% ROC ) Even at an average 40% mandatory tax rate that works out to $0.05 in tax due for every DOLLAR we earn ... and that makes these so-called Buy-Write funds a compelling story ...
    Hope this helps - your comments appreciated - Mike
    Jul 2 12:17 PM | 3 Likes Like |Link to Comment
  • Assessing Covered Call Closed-End Funds To Enhance Retirement Income [View article]
    Very nice article on the so-called Option Income funds ...and a further point in their favor ( Eaton Vance funds anyway ) is the large / aggressive -on-going share re-purchase program ...Fund management is literally buying back shares each month ...and there remains about 6-7% of the total 10% repurchase authorization made in the late summer of 2013.
    EV management is booking a very nice profit on the re-purchase thus far ....
    EV management switched to a monthly distribution from the quarterly payment starting Jan 2013 ...this reduced the huge amount of dividend only " chicken hawks " who would swoop in claim the dividend ...then dump the shares ...creating huge volume and price swings in the market price ....
    ETY holds over $500,000,000 in capital loss carryforwards on their books from the 2009 market crash ....and can wash these losses against capital gains going forward for several years to come ...they just published their quarterly report detailing over $200,000,000 in Capital gains over the previous NINE months ....The net result will be ZERO capital gains taxation and ZERO to Ms Pelosi's 3.8% NIIT tax ....Our net out-of-pocket taxation on the roughly $1 per share in dividends paid by the fund in 2013 will be $0.04-0.05 per share ....
    It makes these funds very hard to ignore ....and for a strong investment thesis.
    Thanks for the comprehensive article on these funds ...
    Dec 4 07:41 PM | 2 Likes Like |Link to Comment
  • Equity CEFs: The Insanity Of CEF Investors [View article]
    Respectively , and as you said,....ETY did start out at $20 and is now trading a bit above $10 per share ...

    My brokerage statement shows a long term unrealized capital loss on the investment of ($8,248) ...making ETY one of the biggest LOSERS in my portfolio ...

    But wait ...I have $3,614 MORE dollars of current value than on DAY ONE of the IPO .....how can that be possible ?

    The accounting rules treat each dividend reinvestment of new shares as if you wrote a new check for the purchase ...

    Over time ....we have collected numerous dividend checks resulting in many / many new shares of ETY ....The new aggregate number of ETY shares, even at $10 per share ...is greater than the initial investment ...by about $3,614.

    So .... I could SELL my shares of ETY and realize a Capital Loss of $8,248 ....wash that loss against any other capital gains I may have had ...reducing my tax bill by about $2,000 ( 25 % tax bracket ) and still have $3,614 more dollars than when I started....call it a $5,600 hard dollar gain ...thru one of the worst recessions in US history.

    Not too shabby ....

    The simple truth is that if you purchased ETY on the IPO ...and reinvested your dividends ....you have MORE money or cash value today than when you started ....not rocket science ...but it " beats-the-sox off " actually losing money ....

    Now your arguement against ETY is that ..." well, yes I made some money ..( + 6-7% net ) ...but I could have done better buying something else ..."

    Ok ...you got me ....( said in good humor and not intended to be offensive )

    Hope this helps explain why so many people pour HATE on the fund ....the monthly statements really do show this investment as a huge LOSER ....despite you having more money than when you started ...

    You just gotta love accounting ....

    Regards - Mike
    Jan 31 03:09 PM | 2 Likes Like |Link to Comment
  • Equity CEFs: The Insanity Of CEF Investors [View article]
    Doug - Interesting article on ETY / AOD comparison. A few points to consider and emphasize .....
    1. ETY purchased about 1.5 million of its own shares during Sept & Oct 2012 and was booking for accounting purposes some nice short term unrealized gains ....They stopped reporting their monthly purchases after the Nov 5 announcement ...but by my estimate...they have the authority to purchase another 9% of the outstanding shares of the public float in the market which should further reduce that large discount to NAV, and improving the market price ...Interesting that they stopped doing public disclosure monthly of their re-purchase activity...we will have to wait for the semi-annual report to update that buying activity.
    2.We recently passed the Jan ex-dividend date for the first monthly distribution ....and the fund's market price held steady ...even moved up along with the market a bit. While early, this may be vindication of fund management's decision to go to a monthly distribution vs quarterly. In the past, we were whip-sawed by price movement / volume around the ex-dividend dates ...as I believed the dividend " chicken-hawks " would swoop in ...buy the shares and then dump them within a few days / weeks ....Looks like this day-trading has slowed down or even stopped ...and thats good news for the longer term holders.
    3. Another unintended consequence of the disastrous markets of 2007-2008 is the reality that many mutual funds, but particularly CEFs have huge / outsized capital loss carryforwards to wash against future capital gains for 4-5 years going forward ....ETY has approximately $450,000,000 for example ....on a fund with $1.6 billion in assets ....( AWP has $1.2 Billion with only $666 million in assets ) This is a huge advantage for new investors who can buy the fund and effectively pay ZERO capital gains taxes for 60 or more months ....the only taxes would be on the dividend stream earned by the portfolio itself ...about 15% of the 2012 distribution ..call that about $1.04 per share so ( roughly ) $0.88 is considered Other Capital and $0.16 is taxable ...say at 25% Federal rate = you owe the IRS about $0.04 for every $1.04 in distribution received ...an effective rate of 3.8% ....thats real tax efficiency.
    4. Comparing ETY with municipal bonds in a tax advantaged account ....ok ....10 yr maturity / AAA muni bonds are yielding 2% and that would be tax free ...so after 10 yrs investment duration...you would have about $12,201 in total return value with the AAA muni ..( unless, of course they were Stockton CA or any Chicago / Detroit bonds ...where zero is a more likely investment result ) ....ETY ...with market risk and assuming the same $10,000 investment and an exactly FLAT market price over the entire 10 yr duration...but with monthly dividends of $0.083 ...would have a value of $19,960. And ...what if the market return was greater then zero % for the next 10 years ? say a paltry + 5% annualized ? ( we did after all just book a +16% 2012 ) well ...your value would be $29,358 ...I understand the premise that tax free investments inside a tax sheltered account don't make a lot of sense ...ETY is tax advantaged, not tax free...and its defensive / cautious tactic of using S&P index calls to partially protect the portfolio make it a good choice for IRA accounts ( in my opinion ) just as the Feds ALLOW covered call writing inside IRA accounts as a " conservative income strategy "
    5. Lastly, There will be NO ADJUSTMENT of COST BASIS with this mutual fund because of ROC or OTHER CAPITAL received ..Its an accounting nightmare and an urban myth that has impeded the performance of the market price. The tax law on index options was settled in the US Supreme Court back in the early 1990s ....think about it ....the thousands of ETY shareholders artifically reducing their cost basis by a made up number ...The IRS trying to determine the exact cost basis ...ETY reporting by 1099 a totally different number ??? It would be a disaster ...and an open invitation to an IRS audit ...every year. ETY is closing out 95-97% of their Index Call options each month ...TAX LAW calls this a capital gain or loss transaction ....no adjustment of cost basis is allowed or permitted ....( that happens with PUT contracts ) ...ETY is therefore " washing " any generated capital gains from the sale of stock or index option transactions AGAINST carryforward capital losses with the net result being ZERO capital gains ...and no capital gains taxation for the next 60 months ...at least.
    This inherent debate over ROC / OTHER CAPITAL continues to "dog" the fund...first it was that the fund was cannibalizing itself with excessive distributions that would lead the NAV to zero in a few years ....( AOD anyone ? ) ...then this mantra of "reducing the cost basis " amount of non-taxable income paid ....started to appear on discussion boards and in articles ....NEITHER is true ....but this ROC debate is particularly deceptive ....and inaccurate. The IRS absolutely loves the tax structure of these Option Income funds ...they get to tax the gains at a very high short term capital gains rate ....but...because of the capital loss carryforwards ...there are NO GAINS to tax ....

    Thanks for the interesting article ...Regards - Mike
    Jan 29 12:19 PM | 2 Likes Like |Link to Comment
  • Comparing Dividend CEFs With ETFs: Which Are Better? [View article]
    Good morning John and thanks for the informative article from an analytic but perhaps short term perspective. ( numbers don't lie ) Here are some additional numbers to consider when considering AOD:

    AOD has perhaps the absolute worst reputation in the mutual fund industry having been incepted as one of the largest closed end offerings of all time ...with a feverish bull market dividend capture investment tactic that recorded portfolio turnover at 650% ...in an attempt to grab dividends ...then dump the stock a day or three later ...The SEC would call that " Selling Dividends " if a broker called to recommend that tactic it would be a violation of post 1929 securities regulation but incredibly ...its totally OK for a mutual fund to do it and have small investors buy the fund.
    AOD essentially got slaughtered in the bear markets of 2008 / 2009 ..racking up an audited $3 BILLION in capital loss carryforwards on a fund with a smidgen over $1 Billion in assets ...the market price ( split adjusted ) has fallen from $40 per share to roughly $9 where it stands today. ( performance was even worse as recently as Jan 2014 ) Audited returns based on market price being -0.32% in 2012, -2.19% in 2011, and -21.34% in 2010 ..( ouch ..and totally missing the market recovery post March 2009 )

    Under tremendous pressure from shareholders; Alpine management finally removed the "run & gun" portfolio manager and replaced her with two fairly young / smart / aggressive managers - Brian Hennessey and Joshua Duitz about 19 months ago.

    In their first 12 months on the job , and in conjunction with a strong market, they improved the NAV +17.60% ...with the fiscal year end 2013 delivering a + 9.11% total return versus the comparative index return of +23.89% over the same period. In other words ...AOD ended fiscal 2013 with a - 1,478 basis point market price underperformance against the MSCI world index. ( that's an ass-kicking by virtually any standard )

    But ...wait ...here is what the new managers have done in 2014 ....as you mention, the discount to NAV is -13.4% ...but it was -15.1% on 10/31/13 ..so some improvement there.
    1. They announced a REVERSE 1:2 stock split effective in Jan 2014 ...a wildly unpopular move that depressed their market performance significantly during the first quarter of 2014 ...but has yielded new investor interest.
    2. They INCREASED the monthly dividend by + 4.63% ...reversing the trend of constant dividend cuts the old management has inflicted on investors.
    3.They announced a 10% share buy-back plan after retiring 3,544,829 shares in fiscal 2013 ..roughly 295,000 per month ...and they are booking an average gain on those, accretive to investors, buybacks between 12-16% ...
    4. The new managers have abandoned the discredited dividend capture tactics and are now essentially a proxy for the S&P 500 index ...except at a 13% discount to market price ...holding mostly blue-chips and name brand stocks with a turnover of 192% versus 310% in 2012 ...( still eye popping but reflective of the new management change )
    5. They have DELIVERED an 11.2% total return YTD 2014 versus 9.08% for the S&P 500 ...Amazingly ...the YTD market performance of AOD is ALREADY better than the entire 2013, 2012, 2011, 2010 fiscal year total returns COMBINED ...so that is a good sign and start for the rookie portfolio managers.

    We started this note by stating that " numbers don't lie " ...and therefore, by most standards, AOD would and should be a PARIAH in the fund business ...The replacement of the portfolio manager with Brian & Joshua marked a new beginning for this fund ...NAV up over 20% since then, dividends up +4.63%, market performance up 11% YTD, share buyback plan removing 295,000 shares of common each month, Reverse 1:2 stock split in Jan 2014, new investment tactics reducing portfolio turnover significantly ...

    This was a " GUTS" move by Alpine to try and recover from the MASSIVE underperformance ...and reflective of the pressure on Alpine to do something / anything to help fix the fund performance ...

    I own and hold AOD ...having found the discount to NAV compelling back in March 2009 ...but the numbers versus the S&P index indicate that during that 5 year period, where I received a +14.70% average total return from AOD ...the S&P 500 index DELIVERED a +24.52% average annual total return over the same time line. ( 5.36 years and an average -982 basis point underperformance each and every year thru Friday... )

    Investors who purchased AOD on the IPO have a -40.25% Total return or -6.87% per year ...

    Those numbers should have been included in your article as historic yield is important ...but a managed fund that routinely posts a 1,000 basis point underperformance each and every year versus the unmanaged S&P 500 index should not be touted as a top performer ...It would be similar to saying that Brazil scored a goal on the German team in the final minutes of World Cup competition ...but neglecting to mention that The Germans had scored SEVEN earlier goals in the same game ...

    AOD is essentially, at its core, a RECOVERING ALCOHOLIC mutual fund story and they have done some fun and interesting things over the past 19 months of leadership ...but can they " stay on the wagon" and avoid the temptation of going back to the 400-600% portfolio turnover days to capture yield ?

    The numbers I want to see from AOD in 2014 :

    1. Pay the dividends ...( no cuts for any reason )
    2. Outperform the S&P 500 index by a measurable and significant amount
    3. Complete the 10% share buy-back
    4. Stay away from the giant / excessive portfolio turnover
    5. Earn the dividend distribution without inflicting too much ROC on investors.
    6. Continue to grow the NAV while reducing the discount to NAV.

    Summary - Its too early to put TOP PERFORMER and AOD in the same sentence ...but the trend has been favorable over the past 12 months ...

    Thanks again for the interesting article - Mike




    Jul 20 01:59 PM | 1 Like Like |Link to Comment
  • Cynapsus Therapeutics Shares Will Soar - Here's Why [View article]
    Thanks for the detailed article ...
    From a purely analytics viewpoint ...

    The concept of the SL formulation and preliminary testing looks promising ...but am a bit concerned ..they have about 39 million shares outstanding with warrants for approximately 21 million more and options to buy about 2.5 million more ...
    So ...when exercised ...about 60% more shares on the market ...and the company could conceivably raise about $12,000,000 if all 21 million were struck at $0.57 and subsequently exercised ...( just some guesswork ...but you get the idea )
    While not absolute ...the company is reporting that 125,000 or so warrants struck at $0.57 per share were exercised last month ...the implication being that many of these 21,000,000 stock warrants were priced at $0.57 per share ...hard to be 100% sure but with the stock recently trading at $0.40 ...and now at $0.90 ish in the market ..that would impute almost a +60% gain for these warrant holders to exercise and simply sell the shares ...while diluting the overall shares and reducing market value ...
    I understand that the company needs to raise cash ...an estimated $10,000,000 is required according to the one report I reviewed and your report mentions $16,000,000 will be required ... ...which is very likely to happen when a + 60% gain is to be had ...( $0.57 strike price to the current $0.90 market price = + 60% )
    That scenario will still leave them a bit short of your estimated funding requirement ...requiring more warrants ? secondary stock offerings ? or a loan ...What do you think they will do to fill any financial shortfall ?

    Also - Their Chief Scientist seems to have resigned ...after five years with the firm ..and after being an integral part of the process to develop this SL formulation ...That does NOT look good ...or feel right to me ...What is the company saying about that potential loss of critical technical talent ?

    Jason - as always ..enjoyed the descriptive detail in your articles ...Thx
    Feb 12 10:39 AM | 1 Like Like |Link to Comment
  • Assessing Covered Call Closed-End Funds To Enhance Retirement Income [View article]
    Wow ...Thanks Brad for the kind words ...was taken by surprise ....lol

    I do in fact sell covered calls on a portion of my equity portfolio ....and have enjoyed using various option related strategies in the past ...sometimes a painful experience I do admit ...
    ETY is essentially SELLING INDEX CALLS ...as many as 10,000 contracts in a given month ....As you are aware ....so called " naked " Calls are potentially very hazardous and risky ...requiring a financial net worth far in excess of my ability to sustain ...( I also hope to keep the hair I have remaining ...lol )
    In 2013 ...we collected a + 28% Total return with ETY ....and I believe 2012 was around + 15% ...good work for a mutual fund ....

    I do manage to torment EV management with pesky questions from time to time ...and I believe they would like to see me " off-their-case" ...but that's not likely to happen for a while ...

    Regards - Mike
    Feb 9 02:09 AM | 1 Like Like |Link to Comment
  • Assessing Covered Call Closed-End Funds To Enhance Retirement Income [View article]
    Good am wkirk500 ...
    Yes ...I did also received that letter / notification from EV ESTIMATING that 92% of the Jan 2014 was thought to be ROC.
    EV had previously sent out monthly letters estimating that approximately 82% of the aggregate 2013 distribution was ROC ...
    I was reading the fiscal 2013 annual report when I noticed that the huge capital loss carryforward amount ( $500,000,000 ish ) had "disappeared" ...and was wondering how exactly they had made that happen from an accounting viewpoint. Page 18 of the annual report details the 2013 distribution as : $59,722.778 ordinary income and $ 104,673,449 long term capital gains ..with ZERO tax return of capital. ( 57% ordinary income / 43% long term gains )
    I went to the EV homepage and wrote out a long question to the customer service staff and was surprised when, a few hours later, a representative called me and went over the data in specific detail.
    First - He pointed out that the letters we shareholders had received regarding the ROC component of the fiscal year distributions were in fact mere 'estimates' and not fully audited statements to be used with the IRS.
    Secondly - he advised me that ETY management had made an "executive decision" back in the fall to essentially blow out their considerable unrealized capital gains in the portfolio and wash them against the carryforward losses ....
    Third - the monthly distributions from Nov & Dec 2013 would revert back to the earlier methodology of ROC and managed distribution of the dividends ...so we are back to the 92% ROC letter we recently received ...business as usual ...
    Fourth - I asked for the specific tax component of the fiscal 2013 distribution and he mentioned that we would be getting the detailed specifics in our 1099-DIV ...and when I suggested that 80% plus must therefore be considered capital gains instead of ROC ..he responded that LTCG was still " tax advantaged " as compared to ordinary income and the fund was well within its rights to re-characterize the estimated distributions made earlier.
    Summary - I spoke directly with the EV representative ...he was working with a ' talking points ' memorandum and seemed very prepared to deal with questions like mine that would arise from the audited / certified annual report ...They were ready for the questions ...and he even commented that he was surprised that more folks had not ,as yet, called ..the fact that they called me instead of simply e-mailing me back ...and they called within a few hours of my question is very interesting to me.
    My earlier comment was more of a review as to the aggressive steps ETY was taking to make the fund more popular ...switch to monthly dividends / share repurchase program / improving the NAV / and this dynamic decision to REALIZE essentially all of the unrealized capital gains in their portfolio to wash against the aggregate losses ...in one gigantic swoop ...I nearly jumped out of my chair when I saw the fund had a net realized gain of $560,378,480 in fiscal 2013 ( page 14 )
    But ....the annual report makes NO MENTION of this , what just has to be, a huge, decision process or the practical consequences of it ...just the accounting portion they were required by law to provide.
    I would hope that a portfolio manager's letter or at least the quarterly update report would contain some mention of it ....but ...so far ...not a word.
    Perhaps there were legal or HR considerations and other factors involved ....I like the use of those 2007 / 2008 capital losses before they started to expire in the years ahead ...its clever ...but it tends to obscure the "normal" performance of the fund in a solid market year ...netting out a plus 28% in calendar 2013 was very nice ...but now the question arises ..." have they essentially shot their load ?" ....pulled out all the stops and accounting gimmicks to make the fund more attractive ? They did improve the NAV 20.61% in 2013 ...and added a bit more than $120,688,000 in assets to the fund ...
    Just something to consider ...oh ...one more thing...the possibility that the EV rep was misinformed or mistaken ( or that I was - LOL ) ...is negated by the audited annual report ( page 18 ) which generated my written question in the first place ...we should be seeing our 1099-DIV forms in the next few weeks to further confirm ...
    Hope this helps explain / answer your question - I appreciate the interest ....
    Feb 6 12:01 PM | 1 Like Like |Link to Comment
  • How To Trade The 8% Yielding Alpine Total Fund Before It Splits And Raises Its Payout [View article]
    I was first attracted to AOD back in March 2009 ...when Alpine management announced a large share re-purchase plan designed to get the massive 15% + discount to NAV reduced to a more manageable level ...back then they were sort of a "Run & Gun " fund looking to essentially buy dividends / dump the stock / buy more dividends ...then buy special dividends / dump the stock / repeat the process ...they had been crushed in the falling markets of 2008 and early 2009 ...
    So ..I very gingerly purchased 2,500 shares on 3/09/09 priced at $4.45 per share ...call it $11,126 invested.
    Since that time ..reinvested dividends have delivered 2,350 additional shares to my holding with a cost basis of $5.60 - call it $13,165 cost basis.
    The overall position is valued at $20,322 with an investment duration of 4 years 11 months ...or a $ 9,196 gain on an $11,126 investment - +82% or 16.5% per annum ...

    I anticipate getting $3,288 annual dividends in 2014 from AOD and incredibly ... I even have an unrealized ( 3,969 ) capital loss to offset other portfolio gains should I sell the shares.

    Ok ...Here is some interesting data from the 2013 Annual report ...( sounds familiar in many parts )

    1. They have installed new mangers effective December 12, 2012 - Brian Hennessey and Joshua Duitz and from the time they took control until 10/31/13 the NAV of AOD GREW +17.07% ...
    2.Alpine has been buying shares very aggressively and " retiring them " according to their annual report ....some 3,544,829 shares between Apr and Oct fiscal year end 2013 ...ballpark it at 440,000 shares per month ....so it may be possible that, as of this writing, Alpine has " retired" around 5,000,000 shares ...fewer shares ..better valuation for shareholders is the thinking.
    3. The Reverse 1:2 stock split ...ouch ...Investors HATE this ...and typically punish the company by dumping the shares over the next few months ...See Citigroup and Telephones De Mexico a few years back for an instructional on how shareholder value actually diminished post split ... It takes a while ...but...its like taking cod liver oil ...its good for you but its tastes so bad ....LOL
    4.AOD has over $3 billion in Capital Loss Carryforwards on the books ...to wash against future capital gains ...incredible but true ...so very little taxation will be passed thru to us from capital gains anyway. This could be important later ...
    5.The fund ACTUALLY made money in 2013 ...Their net investment income was $0.71 per share ...BY FAR ...their best year over the last five. They actually made more than they paid out ...( $0.41 distribution )
    6.The new managers reduced portfolio turnover to 192% ( and falling ) from 310% in 2012 ...and compared to the old ' Run & Gun ' days when it was 653% ....If you are flipping your portfolio 600% per year ...it hardly matters what you hold ...you don't have any time for capital appreciation ...no investment thesis ...no holding period ...lol
    7.They boosted their post-split dividend a little over 4% ...first RAISE in years ...lol ...and a good sign.
    8.The fund is BACK trading at a 15% ish discount to NAV ....hanging the " ON SALE " sign next to their stock symbol ...
    9. The fund distributes an 8% dividend paid monthly ...essentially " Dollar Cost Averaging " 12 times per year back into the fund ...when market price is lower ...we buy more shares ...when higher ...we buy fewer ...over time ...say FIVE YEARS and 60 dividend payments ...this could and SHOULD make a nice incentive for us ...

    Summary - New management ( about one year of being in charge ) where they have grown the NAV by 17% ....dividend increase ...always welcome ....solid financials in 2013 at least ...15% discount ...8% yield ....and a recent 1:2 reverse stock split ...ALMOST sure to erode the post split price even more in the weeks ahead ....
    Oh ...they have all but abandoned that whacky ' Buying Dividends ' approach ....( really good news as now ...they can manage money ...NOT TRADE )

    Really a FALLEN ANGEL ....but with a young / aggressive management team looking to prove themselves ....makes for an interesting story ...

    I would wait for the market price to erode a bit further ...let the yield move up to 8.5% or thereabouts ...Investors will see the results of the post split shares on their Jan end statements ...and will UNIVERSALLY HATE it ....they always do.

    Someone said they would not be surprised to see a $7.50 market price ....That would be optimal for us LONG investors ...but ...I expect to be ADDING shares incrementally below the $7.75 price tag ...

    We are literally getting the proverbial " Second Bite of the Apple " ...and hopefully the performance listed earlier ( from Mar 2009 ) will repeat itself ....

    Hope this proves helpful
    Feb 3 09:23 PM | 1 Like Like |Link to Comment
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