Finance

Alerian MLP ETF Adjusts Deferred Tax Liability, Reflecting Future Income Characterization

DENVER, May 15, 2024 /PRNewswire/ -- The Alerian MLP ETF (AMLP), an established fund known for its focus on Master Limited Partnerships (MLPs), has recently made a significant adjustment to its financial statements. As of May 16, 2024, AMLP announced a recalibration of the Fund's deferred tax liability assessment by approximately $32.1 million, equivalent to $0.18 per share, factoring into the Fund's net asset value (NAV). This revision stems from comprehensive tax information received from the MLPs within the Fund's portfolio, indicating an expectation for a larger percentage of future realized gains to be taxed as ordinary income instead of capital gains.

The importance of precise deferred tax liability calculations cannot be overstated as they heavily influence the NAV, a vital metric for investors. AMLP largely depends on the data reported by its MLP investments to inform these estimates, which historically arrive on a time-lagged basis and may not always mirror current conditions. Given the nature of such reports, the Fund's Adviser periodically reassesses and amends deferred tax liability estimates based on fresh information, market conditions, statutory carryforward duration, and shareholder transactions, among other considerations.

Although these reassessments are conducted in good faith, it is essential to acknowledge that the daily estimation of the Fund’s deferred tax liability may exhibit significant discrepancies from the actual tax liability owed. This financial nuance underscores the inherent complexity and dynamic character of managing an MLP-focused ETF.

For inquiries, ALPS Portfolio Solutions Distributor, Inc., the distributor of both the Alerian Energy Infrastructure ETF and the ALPS | Alerian Energy Infrastructure Portfolio, can be reached at [email protected] or by calling 1-866-759-5679.

Important Disclosures for Investors

Before any decision to invest, it's advised that investors take heed of the investment objectives, risks, charges, and expenses of the fund. Prospective investors are encouraged to call 1-866-759-5679 or visit www.alpsfunds.com to obtain and thoroughly inspect the fund's prospectus.

Trading ETF shares occurs at market price, not at NAV, and these shares are not individually redeemable from the Fund. Investors must be willing to bear the risks - including loss of principal and potential loss of the full amount invested.

Specific risks associated with MLP investments are distinct from common stock. These risks include potential conflicts of interest as MLPs are directed by their general partners, which could result in decisions that are more favorable to the general partner than the MLP itself.

For federal income tax purposes, it's beneficial when MLPs are treated as partnerships as they aren't obligated to pay federal income taxes, enhancing the cash flow available to distribute to investors. Conversely, if MLPs are reclassified as corporations for tax reasons, the Fund's operation and investor distributions could be adversely affected. The implications of regulatory, judicial, or administrative shifts, and the possible retroactive effects on the tax treatment of MLP investments underscore further complexities and potential devaluation risks.

Focusing investments in the energy infrastructure sector, the Fund could be more volatile compared to a more diversified investment approach. Moreover, the sector is susceptible to a variety of risks, such as changes in regulatory frameworks, weather extremes, volume fluctuations of natural gas or other energy commodities for transport, storing, or processing, and the ramifications of rising interest rates.

Investors must be informed that all K-1 forms are processed by the Alerian MLP ETF, which provides its shareholders with a single Form 1099. This statement serves informational purposes only and should not be treated as tax advice. Always consult a tax advisor for individual guidance.

Changes in tax laws or other unforeseen reasons that result in an MLP being recognized as a taxable corporation could lead to a reduction in cash distribution to the fund, diminishing the fund’s overall value. AMLP, unlike most investment companies, does not operate as a regulated investment company to avoid entity-level taxes; thus, the NAV of fund shares is reduced by deferred tax liability accruals.

AMLP's Tax Classification and Deferred Tax Liability

The Fund is deemed a taxable corporation or "C" corporation federally, presupposing deferred tax liabilities on capital appreciation and distributions deemed as return of capital from MLP equity securities. Recognizing unrealized portfolio gains or losses, alongside investment income and market conditions, forms part of the dynamic daily NAV per share. However, deferred tax expenses or benefits are subject to variability and cannot be accurately predicted year over year.

AMLP adheres to a passive management strategy that aims to mirror its underlying index's performance (before fees and expenses). Unlike actively managed funds that adjust portfolios based on market analysis and investment strategy, AMLP may only alter holdings if a constituent is added to or removed from the underlying index.

ALPS Advisors, Inc., the Fund's investment adviser, along with ALPS Distributors, Inc., and ALPS Portfolio Solutions Distributor, Inc., are interconnected yet remain unaffiliated with VettaFi and the Alerian Index Series. Notably, ALPS Portfolio Solutions Distributor, Inc. is the designated distributor for AMLP.

Unreserved Risks and No Guarantees

Investment in the Fund is not assured by the FDIC, nor is there any bank guarantee, and there is a risk of losing value. Investing prudently requires awareness of all potential risks and an appreciation for the long-term nature of market investments.

A Word About SS&C Technologies and SS&C ALPS Advisors

SS&C Technologies, the global vendor servicing the financial service and healthcare sectors since 1986, possesses a commanding presence with offices spanning the globe. Renowned for its specialized technology and scale, SS&C supports thousands of the world's largest to smaller firms. For more about SS&C (Nasdaq: SSNC), please visit www.ssctech.com.

SS&C ALPS Advisors, a fully-owned subsidiary of SS&C Technologies, is a recognized leader in offering investment solutions to advisors and institutions. With assets under management exceeding $24.5 billion as of March 31, 2024, SS&C ALPS Advisors takes pride in its open architecture boutique-style management, offering a spectrum of investment strategies from sustainable income to thematic and alternative growth. Visit www.alpsfunds.com for more details.

The provided information is valid until May 15, 2025, and sourced directly from Alerian MLP ETF.

In conclusion, AMLP's recent re-assessment of its deferred tax liability paints a detailed picture of the rigorous and evolving procedures involved in managing such an investment vehicle. By adjusting the liabilities based on the latest data from underlying MLPs, AMLP remains transparent with its investors and proactive in maintaining accurate financial reporting. Prospective and current investors are encouraged to closely monitor these updates as they could have substantial implications on the performance and stability of their investments.

Considering the intricate and fluctuating nature of the MLP investment landscape, measures such as AMLP's recent adjustment spotlight the fund's commitment to financial diligence. As the regulatory and tax environments continue to evolve, AMLP's ability to adapt and communicate changes underscores its dedication to safeguarding its investors' interests. For those navigating the domain of energy infrastructure investments, keeping abreast of such developments is paramount for informed decision-making.

Delivered by AMLP's various communication channels, this insight into the fund’s inner workings and external dependencies should be a reminder to the investment community of the necessity for ongoing vigilance. The Alerian MLP ETF remains a significant player in the realm of energy infrastructure investment, determined to manage its deferred tax challenges and market positioning with meticulous attention to ensure investment clarity and potential for their shareholders.

Investment decisions of such magnitude warrant a comprehensive understanding of all involved variables. AMLP's recent adjustments and disclosures serve as a testament to its commitment to this principle, ensuring that the fund's stakeholders possess the necessary information to navigate the investment terrain ahead effectively.