So many things one could say about the Court and the count and all that. But in the excellent spirit of the Vice President, President and Governor Bush Wednesday night, let’s skip most of that. Still, I can’t resist noting what you probably already have read. The December 12th deadline? So monumentally important it was worth the Supreme Court’s diminishing its credibility? Turns out only 29 of the 50 states filed their certified returns by that deadline. No biggie.

Michael Joy: ‘That speech was the clearest example of why I voted for Mr. Gore. If the country had been able to see that side of him more often during the campaign, there would have been no contest. He would have won by a landslide.’

John Ebert:‘I’ve taken the bait at least twice before on closed-end funds selling at a discount, and I’ve never made a dime on them. Somehow it sounds great on paper but the reality doesn’t seem to live up to the potential. Maybe there’s money to be made if you really know what you’re doing here, but I’m staying clear.’

LJ Kutten: ‘You said, ‘If you’d pay $50 for a 9% return, how much would you pay for an 8% return? Maybe you’d be willing to pay only eight-ninths as much — $45, if that. The overall point was: closed-end funds should generally sell at a discount to their net asset value, because they are siphoning off their management fee from the return you could get if you owned the underlying stocks directly. OK . . . but how does this differ from an open mutual fund? Assume I had an open end mutual fund that only invested in GM. The return was 9% but the fund had a 1% expense ratio. How much should I pay for this open-end fund?’

☞ You shouldn’t. I recommend VERY low expense mutual funds — index funds, that nick you only 0.20% a year, if that, which is the price you pay for diversification and convenience.

Steve Samuels: ‘While I agree to most of your comments regarding closed-end funds, I think you make one MAJOR mistake. My partners and I have been very successful in ‘forcing’ these fund managements to realize Net Asset Value. We have done this by either running proxy contests or in some cases just suggesting one. The ability to actually make managers do the ‘right thing’ is becoming more and more common. Over last year we have run 8 proxies and have been 8 for 8. The following funds can be looked at in Free Edgar and Dow Jones News. I will list the symbols:

1. CLM
2. UKM
3. EMG
4. MXE
5. CGF
6. LNV
7. ITA
8. DSF
9. CRRR (our first Real Estate Investment Trust)

‘In some we won board seats, in others the fund merged into another at NAV, and in some we are still active. The bottom line is that in each and every one we have been able to significantly reduce discount. I humbly think that we can run a proxy contest as well and as cheaply as anyone.’

T. Brown: ‘I think that you missed a major point on the closed-end fund discussion that few people focus on and which can play a major role in the discounts at which they trade. This is the ’embedded’ tax liability in each fund. What I mean is, in a closed-end fund, GM purchased two weeks ago at 50 is valued in the NAV calculation at 50 and so is GM purchased 3 years ago at 25 but “worth” today 50. However, if the fund sold the GM purchased 3 years ago at 25 for 50 today, they would pay capital gains tax on the 25. Hence, each GM share valued at 50 in the NAV calculation is not really worth 50 to the investor. Older closed-end funds often have very, very large imbedded tax liabilities.’

☞ Regular open-ended mutual funds also often have huge imbedded capital gains. But there’s no dramatic consequence. The tax is only due if and as the gain is realized by the fund and then passed through to the shareholder. When that happens, the share price should simultaneously drop by a like amount. (Would be fine if it didn’t, but it will.) So if you paid $50 for a share in a fund that distributed $10 in long-imbedded capital gains it had finally decided to realize, you would suddenly have $10 in cash plus one share valued at $40. The $10 would be taxable. But if you sold the share, you would have a counterbalancing $10 loss, zeroing it out. Not to say you’d be thrilled to buy shares Monday, get a huge distribution, and then sell shares a few weeks later. But in tax-free accounts this is not a consideration. And even in taxable accounts, it hardly justifies a 30% discount from Net Asset Value – at least not in my mind. (As for foreign taxes, I think they can generally be recouped as a ‘foreign tax credit’ on your tax return – although I’m not certain you can do that if the tax was assessed against distributions made to your tax-free account. You may be able to; I don’t know.)

FLORIDA: If you think we can’t vote, wait till you see us drive.


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