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Author: nnn12345 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75379  
Subject: MLP info Date: 5/9/2003 2:28 PM
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Anyone here know much about Master Limited Partnerships??? They are featured in this months SmartMoney magazine. Apparently they represent a REIT like investment with tax free yield of as much as 8%.
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Author: andyz151 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 36285 of 75379
Subject: Re: MLP info Date: 5/9/2003 6:43 PM
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Anyone here know much about Master Limited Partnerships??? They are featured in this months SmartMoney magazine. Apparently they represent a REIT like investment with tax free yield of as much as 8%.

I know enough that I will not invest in LPs [limited partnershops, not the vinyl ;-)].

There are several problems with LPs. First is the tax issues. LP's require the user to pay tax in EVERY state the LP does business in. I for one am not up for that. If you have a good accountant and don't mind this then maybe this isn't an issue for you like it is for me.

Second, LP's are really not set up with you in mind. What I mean is that the owner of the assets sets on of these up to maximize THEIR profits. An example of an LP would be TEPPCO. TEPPCO is a pipeline owning company set up by Duke Energy and Phillips. The LP was set up to move slow to no growth assets that throw off lots of cash but are capital intensive off the owners books. The idea is that you move the asset and the debt off your books, sell some shares to the general public - which the owner keeps - and then the owner, Duke in this case, gets dividend payments which look real nice on the balance sheet. Duke gets the income but doesn't own the asset or the debt so its growth rate is not "impaired" by this large slow slow growing asset. To further flesh this example out a bit, the reason these are such slow growing is that if a pipeline is fully used, there is no more growth to be had other then price increases. You can't really expand the pipe so you can't sell more space if its fully leased.

Anyway, these finally, set ups are as I said made for the benefit of the GP not the LP [that would be you] some LPs have sweet arrangements whereby the old owner get a nice hefty "management fee" or has maximum control over how big a dividend is paid. I am not saying that none of them are run well - in fact TEPPCO is said to be really well run and has a fairly independent oversight board, but again the focus is not your well being but rather the GPs best interests.

Anyway these are just some of my concerns about LPs. Hope if it is helpful.

Andy

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