Avoid Closed-End Income Funds That Cut Dividends

In his syndicated newspaper column Malcolm Berko (malber@adelphia.net) proclaimed, "I wouldn't even wish this piece of trash on anybody" when writing about the Salomon Brothers High Income Fund II (HIX), a closed-end income fund. Berko's disdain for HIX resulted from the fund's immediate decline to between $11 and $12 from its offering price of $15, the repeated slashing of the monthly dividend and a annual management fee of 2.93 percent. Imagine the chagrin of the early investors as they watched their investment drop over 40 percent (the funded traded as low as $9), see their their income fall and realize that their returns were significantly reduced because of onerous fees (now at 2.3 percent).

Clearly HIX is a dog and several other Salomon Brother closed-end funds have similar mediocre records. Salomon Brothers High Income Fund (HIF) was offered at $15.50 and now trades at $9.45. HIF has cut its monthly dividend from 12.5 to 6 cents. Salomon Brothers Global High Income Fund (EHI) was offered at $15 and now trades at $13.05 and has cut its dividend from 10.6 to 8.5 cents.

Avoid these funds for they are examples of Wall Street products at their worst.

Related Articles:

Avoid Closed-End Bond Funds for Now
Mutual Fund Fees
The Wall Street Buy Machine

Posted October 15, 2006.