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Theres something just lovely about the humble quotation mark throw a couple of em around a word, and you can put that word wherever you want and apparently face no consequences.

This ad is for the Safe Haven Investor newsletter from Taipan, which is now edited by Kent Lucas, and, as usual, its pretty far over the top heres the start of the ad:

How to Legally Trick a Mutual Fund Into Paying for Your Retirement

This little-known siphoning method can pay 10 times more than the best mutual funds without charging you any inflated fees. Thats probably why youve never heard of it before.

Follow the instructions in this letter and you can siphon your first payment as soon as July 31.

Worried about a depreciating dollar, rising taxes and stingy investment yields? Try [siphoning]. Wall Street Journal

So how do we trick a mutual fund into doing this? Well, as you might have guessed this strategy has almost nothing at all to do with mutual funds, but that almost and the quotation marks apparently go a long way. Its about a high-yielding asset class, lets look at some more of their pitch.

The wealthy love using it to generate steady, risk-free monthly income. But this perfectly legal method can be used by investors of any income level to collect large checks, every month of the year, hassle-free.

I call it siphoning because it takes a portion of income from some of the biggest mutual funds in the country and siphons it directly to you.

Instead of paying some hotshot fund manager outrageous fees, youre actually getting mutual funds and other institutional investors to pay you.

Ah, so because youre not paying a management fee its like youre siphoning some of your own money back into your pocket? Hmmmm.

So what is this investment? Well, they say in the ad that you could have gotten 123% returns from this investment in the past two years, so that sounds lovely. And you get monthly checks, which I know many folks just adore.

Heres some more of the convolution:

Heres how the process works: After you sign up, youll have to designate whether you want the profits mailed to you, deposited directly to your bank account, or reinvested into the process to make your payments larger and larger every month.

Then, on the designated pay day every month, youll receive your siphoned profits. No penalties, no fees. Just cash siphoned from the profits of some of the largest mutual funds in the country.

If you sign up now, you can get your first check on July 31

So how is siphoning able to pay out huge income checks to you with the same low-risk attitude of a mutual fund?

Because when you siphon youre actually lining up to receive indirect payments straight from the mutual funds themselves.

Its still hard to get through the logic here without lots of big question marks popping up above your head, cartoon-style but they go on to describe this as if youre buying something that theyre secretly buying instead of paying them for management, and therefore somehow these payments youre getting are some kind of indirect payment from the mutual funds. Ooooohh, my head hurts.

Here, try their words:

When these mutual funds continue to pile into their secret investment, you can use it to siphon off profits, every month.

Dont worry, this isnt some fly-by-night investment fad.

In fact, siphoning has crushed the S&P 500 over the past 14 years, making double the money even in a down market.

So what is this secret investment?

How Section 7704(d) of the Internal Revenue Code Can Pay You

The Tax Reform Act of 1986 and the Revenue Act of 1987 created a special business sector in the United States.

Mostly devoted to the natural resource industry, these businesses get a unique tax break outlined in Section 7704(d) of the Internal Revenue Code.

The companies covered under Section 7704(d) do not have to pay corporate taxes. Because their industry is deemed vital to the future of the United States, they get a hugely beneficial tax break

With one condition: 90% of the profits must be redistributed back to shareholders.

You can see why mutual funds love these investments. And now you can profit off their love by siphoning mutual fund money through these investments.

Nope, still hurts. I can tell you what theyre teasing, of course, but I cant make the logic linear for you at all sorry.

Theyre teasing Master Limited Partnerships, which weve seen teased by just about every energy and income newsletter over the past couple years and Ive got no qualms with that, I own some MLP shares myself and even profiled one of the stranger ones for my paying members a while back.

And the teaser implies that one of the reasons youll continue to outperform mutual funds is because although theyre buying MLP shares as well and making lots of money from their secret investment in this sector, they have to diversify so they cant focus just on this type of investment (as if you should).

Heres how they explain that little tiptoe through the tulips:

For example, as of November 2009, Oppenheimers Main Street Fund held nearly 2 million shares of Enterprise Products Partners.

Those shares were worth over $58 million. And over the past six months alone theyve increased 13.7% in value.

But that hasnt seemed to help the fund.

Oppenheimers Main Street Fund is down over 5% over that same period. And shares in Oppenheimer, the parent company, are down nearly 10%.

If that portion of the funds investment did so well, why dont these funds put all of their money into this investment?

The truth is, they cant. Mutual funds diversify their holdings to minimize risk and to make their shareholders feel safer.

If a mutual fund were to advertise that 100% of their money was in one company, who would buy that mutual fund? You would just buy the company and save the fees.

So they try to spread the fund out amongst a multitude of investments. And they arent able to stay in this one investment, collecting 63% a year.

But you dont have to play by the mutual fund industrys rules. You can invest in one of these companies and collect the juicy returns.

In fact, the more mutual funds that plow shares into the investment, the higher your return will be.

OK, well take that at face value: If you just buy one of a mutual funds better performing stocks, youre going to do better than the mutual fund. Theres a flip side, of course, but well leave that to you.

Youre waiting for something to buy to profit from these MLPs though, right? Weve talked about dozens of them over the years, and theres a lot to like about these firms that mostly own energy infrastructure assets (pipelines, storage, etc.) and pay out most of their cash flow to shareholders with almost total tax deferral.

But then the teaser gets interesting, because theyre not just touting one of the big-name MLPs like Enterprise Products Partners (EPD) or Kinder Morgan (KMP). Apparently, theres a Siphon Fund

These kinds of gains are nearly impossible to make just siphoning off one of these mutual funds. You need to siphon from as many as possible.

Luckily, Ive found a way to do that in just one step. I call it the Siphon Fund.

It works like a mutual fund in some ways but with no fees or performance payments. Theres no minimum investment. You can put in as much or as little as you want.

You purchase the Siphon Fund on the stock market like any other investment. And your returns are still tax-deferred.

But the Siphon Fund doesnt profit from just one mutual funds investment.

It actually siphons from multiple mutual funds at the same time

Instead of collecting 30% yearly returns by siphoning off just one mutual fund You hoard all that income together, which would have made you 123% over the past two years.

And remember, youll collect these checks every month, for the foreseeable future

If you get in today, you can get your first siphoned check as soon as July 31.

But dont call your broker and expect him to known anything about the Siphon Fund. Hes probably never heard of it. And if he has he wont tell you.

So what the heck is this? Master Limited Partnerships trade like stocks, but theyre not really stocks theyre partnership units in these companies that own (usually energy-related) assets like pipelines, storage facilities, even propane distributors or tanker ships. And there is some connection to mutual funds and the envy mutual fund managers used to feel about MLPs and their market-beating performance in recent decades but its just that mutual funds in the past werent allowed to own MLPs because of some tax rules. Still, that rule changed about three years ago and funds are welcome to own MLPs now if they like, though it arguably hasnt exactly been a rush to the door most MLPs are still overwhelmingly owned by individual investors, largely since thats who benefits most from the tax advantage and the regular return-of-capital income.

And, as you might imagine, there are funds of MLPs available as well the exchange-traded fund revolution hasnt skipped by this sector. BUT and this is a fairly substantial but (insert your own joke here) there isnt a direct index ETF for the sector.

There are several diversified ways to buy MLPs with a single investment, which seems clearly to be whats teased here though all of these ways do, indeed, involve paying a substantial fee for management, there are no cheap index funds in the MLP space. The most well-known index for Master Limited Partnerships is the Alerian MLP index, and the exchange-traded vehicle thats available for that index is offered by JP Morgan, but its an Exchange Traded Note, not a fund. The difference is that this is really an exchange traded bond offered by JP Morgan, which trades as a promise on JP Morgans part to track the value of the index, and to pay you income based on the disstributions spit out from the component MLPs in that index (minus the management fee, which is a pretty high .85%)

Still, though, once you start looking at the closed-end funds in the MLP arena that .85% starts looking kind of cheap these are high-income investments, and investors tend to be quite loyal as long as they get a good dividend, so many folks dont realize (or care) about the often insanely high management fees charged by the closed end funds, sometimes as high as 3-4%.

Here are the closed-end funds Im aware of, or the funds that are at least primarily invested in MLPs.

SRV Cushing MLP Total Return Fund

FEN Energy Income & Growth

FMO Fid/Claymore MLP Opportunity

KYE Kayne Anderson Energy Trust

KYN Kayne Anderson MLP

MTP MLP & Strategic Equity Fund

TYY Tortoise Energy Capital

TYG Tortoise Energy Infrastructure

TYN Tortoise North American Energy

Do note that as far as I can tell, all except MPT carry leverage (meaning, the fund borrows money to amplify its returns, often about 20-30% of net asset value), and MPT is also by far the cheapest (expense ratio around 1.35%, the others are all in the 3-5% range), and the only one that currently trades near the net asset value. It also, not surprisingly, has the lowest yield at a bit over 5% which makes sense, since theyre not borrowing money to amplify that yield, the average yield for the index is about 7% and the management fee is taken out of that income. Thats why the JP Morgan ETN is a little bit of a higher-yielder, theyve got essentially the same components but the ETN has a .85% fee, so the yield is more like 6%.

And in case youre finding MPT compelling in that group, do note that their mandate allows them to get a bit more tricky they can trade derivatives, so although they got out of that (in the form of selling forward contracts) during the market crash, they could always start it up again as a way of leveraging their portfolio and I dont know that theyre forbidden from borrowing per their prospectus, they just reportedly dont have any leverage right now.

There is hope for a real MLP ETF coming sometime soon, ALPS Advisors has filed for an ETF to track part of the Alerian Index, though there arent many details available yet and I dont imagine its a sure thing that it will go forward.

If this MPT closed end fund really is the solution that the Safe Haven Investor folks are teasing and its my best guess based on the limited clues then yes, they do pay monthly and the monthly distribution is paid on the last day of the month (it will be 7 cents for this month), with an ex dividend date of about two weeks before the payment date (so technically, youve got a couple days left to catch the June dividend if youre so inclined though remember, its only seven cents on a fund thats currently priced at about $15.60 (as of today thats a 5.3% annualized yield, by the way).

And according to a quick look at MTPs annual report, it looks like just like the MLPs themselves they do classify substantially all of the distributions as a return of capital. So that means you do get a similar tax advantage when buying this fund your dividends are really return of capital distributions so instead of being taxable when you receive the income they just reduce your cost basis in the shares (meaning that when you sell, youll owe that much more in capital gains).

Personally, if I were to commit more of my portfolio to MLPs Id probably just want to buy three or four of the relatively large ones (I currently own one). Since many investors treat MLPs as buy-and-hold income investments, or investments that can provide serious dividend reinvestment leverage over time, and because almost all of these partnerships tend to trade as a bloc anyway, it seems silly to pay over 1% for the privilege of having a fund choose them for you or (with the ETNs) nearly 1% to have your tax-advantaged investments turned into taxable income.

Of course, with a closed-end fund or ETN (or ETF, if it eventually shows up) you do also get to sidestep the dreaded (by some) K-1s and the hassle and delay those partnership income forms sometimes bring to your tax-filing. Since each closed-end fund is a corporation, that corporation scrubs off the partnership hassle and passes along the dividend to you, which still may be return of capital but is apparently removed of the partnership responsibility to be clear: IM NOT A TAX EXPERT, this is just my opinion from reading up on the topic, so dont count on me for the specifics that apply to you.

And theres always room for active management that pays for itself, so if youre sold on one of the closed-end funds thats aggressive with leverage and distributions and charges a 4% fee, more power to you its your money, and that strategy has certainly worked for some folks in the past (especially if they were able to buy those funds at a discount to net asset value, which is not currently an option).

The big picture is, as youll hear said by every investment newsletter that ever mentions this topic, is that MLPs as a group have beat the pants off of the S&P over the past 10 years and tend to have very predictable and growing distributions, so if income or stability matter to you theyve probably got a place in most portfolios. Whether you want to buy a siphon fund to try to get that income and performance (assuming it continues), or just pick up a few MLPs for your taxable portfolio, is up to you.

If youre curious about Safe Haven Investor. Ive covered them a few times over the years including the special reports theyre still teasing in this ad about Crisis Bonds and the Gulf Coast Vaults . A number of Stock Gumshoe readers have also shared their opinions about this newsletter with brief reviews the reviews are not so hot but, to be fair, they came in just about a year ago so we might assume the performance was particularly poor right then.

P.S. If you want to know more, those articles that are quoted in the teaser are also available, though of course they dont use the siphon term theres the Wall Street Journal article they quoted here. the Forbes article quoting James Early is here (Early is to some extent a competitor he works for one of the Motley Fool income newsletters), and Barrons did a nice article pushing MLPs back near the market bottom in October 2008. and they followed up on the juicy yields a little over a year ago .

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