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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (88551)	1/16/2001 1:42:35 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

Ild, I get the preferreds on SI's quotes, the box in the upper left of this screen. I misspoke. Royce Global and Royce Focus are the same fund with different names. RGL- is the symbol on SI. When I said Royce Global, it was an accident. I meant Microcap, which is ROY- on SI. The preferreds are fairly simple critters. CEFs want to use leverage, so they sell preferreds with a set payout to the public. By law, they are restricted to 25% of the fund's assets and in fact, none are above 15% of the fund's assets. All have a buyout price where the fund can de-leverage. They also have break points where the fund has to take action to get the preferreds back up to some % of the buyout price. If there is a market decline and the fund's assets do not cover the preferred 3 times over, the funds have to redeem them. Most of the dividend is paid out of realized capital gains on the fund's holdings. Those are mostly long term, hence the tax advantage to other interest bearing AAA securities. The preferreds are only as good as their holdings. A severe decline could cause some problems. But, since it would have to be an 85% drop to hit the preferred shareholder, and many of these funds hold cash positions of nearly that amount, it isn't a great risk. In fact, if you look at the quality value stocks that Royce buys, I consider it very little risk at all. The stocks he buys are all going concerns with little downside left in their stock prices. General American is big growth, but their coverage of the preferred is closer to 94% than 85%, and they have 7% cash. A very attractive, fairly high yielding, tax advantaged, highly liquid and greatly misunderstood asset class. I love them.