Closed End Fund or Ponzi Scheme? (CFP)

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July 16, 2012 3:21pm NYSE:CFP

We received an email this morning from Kid Dynamite  tipping us off to a recent article in the WSJ. The article details the questionable mechanics of a certain set of Closed End Funds that may come as a shock to you. According to the WSJ, Cornerstone

Advisors of Asheville, N.C. currently has the three highest-yielding of the 657 closed-end funds in the U.S. The article focuses on the Cornerstone Progressive Return (NYSEAMEX:CFP) whose payouts in the past five years eclipsed what it earned in net income investment by more than ten times.

What’s their secret? Well it was found that the yield has not come from its investments. In past years, it came from giving investors some of their original assets back. Now, it comes out of money the funds’ investors have just added. This is spelled out in their prospectus as a potential scenario, so they are really not breaking their own rules. They are really just duping those who opted not to do their DD, of which there seems to be many.

Kid Dynamite spells it out pretty simply as follows: “Just in case it’s not clear, what these Cornerstone closed end funds are doing is making huge payouts, but not from dividends earned – rather they’re pulling the old Teddy KGB and “paying you with your money.”   And the “beauty” of it, if you can use that word to describe this sad exhibition of investor ignorance, is that investors are so drunk on pseudo-yield that they are willing to pay a huge premium to net asset value for the funds!  Amazing.” (full story here)

You can find the WSJ article: HERE


Cornerstone Progressive Return Fund (NYSEAMEX:CFP)

The Fund seeks as high a level of current income for its shareholders as is consistent with prudent risk through investments in a diversified portfolio consisting largely of debt securities which the Company considers to be of good quality.

Top Holdings (as of 6/30/2011)

  • Exxon Mobil (NYSE:XOM) ORD: 3.96%
  • Wal-Mart Stores(NYSE:WMT) Inc ORD: 3.01%
  • Int Bus (NYSE:IBM) ORD: 2.78%
  • Apple Inc (NASDAQ:AAPL) ORD: 2.72%
  • Microsoft Corp (NASDAQ:MSFT) ORD: 2.53%
  • JPMorg Chas (NYSE:JPM) ORD: 2.52%
  • Eaton Vance Risk-Managed Diversified Equity Inc Fd: 2.23%
  • AT&T Inc (NYSE:T) ORD: 2.18%
  • Wells Fargo & Co (NYSE:WFC) ORD: 2.16%
  • Eaton Vance Tax-Managed Buy-Write Oppty Fund: 2.08%

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