Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: accountclosed who wrote (36026)	11/12/1998 6:29:00 PM
From: Knighty Tin	Respond to of 132070

AR, As an old closed end fund manager, I can assure you that games are played. But what you are talking about is more in the nature of the beast. The German market was hot patootie last year, much bette than the American market. These guys are decent portfolio managers and they made lots of money. They sold the stocks that are most overpriced and took capital gains. However, by law, they are required to pay out those gains to shareholders. This part isn't a game. I would be real suspicious of a stock that had an up year of 26-54%, as the German CEFs had, that didn't pay out a capital gains distribution. The confusion comes because the cap gains distribution is treated by the folks who list the CEFs as dividends in the daily listings in the paper. They are, sort of, but not really. When you take a $2 capital gain, the fund NAV goes down by $2. Yes, that is also true of stock dividends, but cap gains tend to be a much bigger #. I can guarantee you that CEF managers are not encouraged to pad this number. Just the opposite, in fact. The mgt. co. is paid a fee based upon net assets. When you make a distribution in a fund, open or closed end, a lot of that money goes out the door and the fees on that money. Then you get to the tax problems. In a taxable account, you can sometimes get to pay taxes on money you didn't even make, if the gains were earned before you bought shares. I have always been pretty slick about this stuff. I tend to sell the shares, wiping out the distribution with the cap loss from the ex dividend price, and then covering with a similar fund. For some funds, this is real easy. HQH and HQL. With others, Chile Fund, for example, it is impossible, as they run the only game in the country. But even I was caught once. Thai Capital paid a dividend and neglected to tell anyone about it until he following year, making any dances impossible. I suspected a distribution in December and even called the fund manager, who I know slightly from when I was in that business, and she told me nothing had occured. Somehow she was out of the loop, which makes me very reluctant to ever buy that fund again. <G> YOu can reinvest in most CEFs, too, but that doesn't get rid of the tax liability and it is much more of a hassle than with an open end fund. This has nothing to do with rights offerings. The capital gains distributions are simply the manager selling winners. Rights distributions are the management co. ripping off shareholders to increase the asset base on which they receive fees, and, in some cases, to offer easy commissions to pet brokers. MB