CEM Return of Capital

BenWP

@Old Joe: Not too long ago, I mentioned CEM in the following post:

"I am hanging on to CEM, the Clearbridge MLP CEF. Price of this fund irrationally follows the price of oil, even though the MLPs in the fund are in the business of transporting oil and gas, not exploration or production. The yield is good and the fund can be bought at a significant discount. No K-1 to worry about."

By way of an update, the fund just announced that its entire distribution (around 41 cents per share) will be a return of capital. I'm not so sure my advice about purchasing this fund was much good.

msf

The fund estimated (11/2014) that about 3/4 of its distribution is ROC. (It passes through the ROC of its underlying MLPs.)

The change to 100% suggests either a change in the MLPs' distribution percentages (which one might check), or that the MLPs reduced their distributions, and CEM is liquidating some holdings to return principal. Sight unseen (I haven't checked), the former seems rather likely, since CEM just increased its distribution amount, which it would not be motivated to do if it had to eat into principal. (Especially since it had just increased its dividend the previous quarter.

But I don't follow closed end funds or MLPs, so all of this should be checked.

BenWP

In 2013, all distributions were income, in 2014, most were ROC, as you pointed out. This year, all are ROC. It is quite possible that the MLPs held by CEM have passed through capital. The ROC affects the basis, so it becomes a tax headache when I sell the fund. Maybe a test for TurboTax to prove its mettle.