Letters

To the Editors:
After reading a Seeking Alpha November 5 article about APLS Alerian MLP [an exchange-traded fund that invests in master limited partnerships, discussed in “New Fund Added to the Model ETF Portfolio,” by James B. Cloonan, November 2010 AAII Journal] and the very high expenses of 37% on the profits, I wondered: Did you consider this when you added it to the Model ETF Portfolio?

Dale Jeremiah

James Cloonan Responds:
While I think the Seeking Alpha articles perform a service in pointing out the taxability of earnings received by APLS Alerian MLP (AMLP), I think that it is a bit headline-seeking to suggest this tax expense (which all regular corporations have) is a fee paid to the fund managers as is the case in hedge funds. There is a letter from the fund printed in Ron Rowland’s column in Seeking Alpha, September 6, 2010, that deals with a number of the issues that have been raised. There are quite a few closed-end funds that hold master limited partnerships (MLPs), and all of them are taxed as regular corporations.

The major issue that creates questions is the fact that earnings will be taxed at the corporate level and will then be taxed again at the individual level. The taxes will not be assessed in exactly the same way as taxes on dividends from regular corporations, but they will be significant. All of this is covered in detail in the prospectus. I believe that for individuals who lean toward mutual funds and ETFs, the ultimate return will be competitive with our other ETFs and will provide diversification and lower risk.

Comment Posted Online to “The First Cut: Cash Flow Kings With Rising Dividends,” by John Bajkowski, November 2010 AAII Journal:
This is very good article for individual investors like myself. However, this article has no print option.

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