MSTY distributions: payout, return of capital, and the 1099

How MSTY generates the payment

MSTY is an actively managed ETF whose reference asset is MSTR common stock. Its prospectus says the fund does not own the underlying security. It seeks to replicate 100% of the share price movements by buying call options and selling put options at about the same strike, with terms of one month to six months [1]. Against that position, the fund sells call options that generally expire in one month or less, struck approximately 0%-15% above the then-current share price [1].

The premium from the sold calls is the income. The prospectus states the trade plainly: if the stock rises past the strike, the fund loses money on the short calls, which caps its share of the gain [1]. If the stock falls 5%, the fund should be expected to fall approximately 5% before fees, beyond the premiums received [1]. Short-term Treasury securities are held as collateral for the options and generate interest [1].

The fee table lists a management fee of 0.99% and total annual fund operating expenses of 1.03% [1]. The prospectus also names what a distribution does to the share price. When the fund makes a distribution, its NAV will typically drop by the amount of the distribution on the ex-dividend date, and repeated distributions may significantly erode NAV over time [1]. That one sentence is the whole NAV erosion page.

The weekly estimate and why it is not final

The fund page prints a distribution table with an estimated return-of-capital share beside each payment. The payment declared on August 26, 2026 was $0.2836 per share, listed as 98.54% estimated return of capital and 1.46% income [2]. The distribution rate on the same page annualizes that one payment and divides it by the most recent NAV, and the page says the rate is not the fund’s total return [2].

Two consecutive weeks show what the estimate is worth. The payment declared on August 12, 2026 was listed at 98.74% estimated return of capital, and the payment declared on August 19, 2026 at 0.00% [2]. Same fund, same month, a week apart. The page says the figures are estimates and may later be determined to be taxable income, gains, or return of capital [2].

The reason is in the statute. Under section 316, a dividend is a distribution out of earnings and profits of the taxable year, computed as of the close of that year, without regard to the earnings at the time the distribution was made [4]. Return of capital is what is left after that computation, so nobody can know it during the year. The Form 1099-DIV instructions tell the payer to enter nondividend distributions in box 3 if determinable, which is the same fact from the form’s side [6].

What the audited statements say

The annual report is the only document in this set that states a tax character rather than an estimate. For the fiscal year ended October 31, 2025, the tax character of MSTY’s distributions was $144,166,337 of ordinary income and $3,054,672,201 of return of capital, with no capital gain distribution [3]. For the fiscal year ended October 31, 2024, the report shows $247,274,410 of ordinary income and a dash for return of capital [3]. One year almost none, the next year almost all of it.

The report also states what the ordinary slice is not. The percentage of dividends declared from ordinary income designated as qualified dividend income was 0.00% [3]. The prospectus says the same thing in words: shareholders should not expect any qualified dividend income [1]. The ordinary slice is taxed as ordinary income, and the fund’s own filings say so.

The table under this page prints both audited periods from the report, with the return-of-capital share computed from the row’s own figures and labelled computed. No document states that share, and this page does not infer a forward one from it.

What NAV per share did

The financial highlights show the erosion the prospectus warns about. In the fiscal year ended October 31, 2025, NAV per share began at $145.30 and ended at $54.39, with $119.48 per share distributed, of which $114.09 was return of capital [3]. The reported total return for that year was 4.95%, because total return assumes every distribution was reinvested [3]. A positive return and a share worth a third of what it was are the same row.

The per-share figures are on the post-split basis the report uses. After the year end, the fund effected a 1 for 5 reverse stock split on December 5, 2025, and all historical per-share information has been retroactively adjusted for it [3]. A price chart drawn from trade data will not show the adjustment. The report does.

Taxable account, traditional IRA, Roth IRA

In a taxable account, the character matters. The ordinary slice is income in the year it is paid. The return-of-capital slice is applied against the basis of the shares under section 301, and once basis reaches zero the rest is treated as gain from a sale [5]. The return of capital tax page walks the three tiers and the box 3 mechanics.

In a traditional IRA, the character is erased. Publication 590-B says distributions from a traditional IRA are taxed as ordinary income, apart from any nondeductible contributions [7]. Nothing the fund reports reaches the return, because the account, not the holder, owns the shares. The estimate on the notice is irrelevant there.

In a Roth IRA, a qualified distribution is not taxed at all. Publication 590-B sets two conditions: the 5-year period from the first Roth contribution, and one of the qualifying events it lists, with a separate 5-year period for each conversion [7]. The fund’s character never reaches the return in a Roth either. Which account a fund like this sits in is a decision the holder makes, and this page describes the mechanics only.

The calculator and the receipts

The ETF income calculator runs a position through the arithmetic: shares, cost basis, a return-of-capital range the reader sets, and the account type. It reads the same figures this page prints, dated, and it prints the same receipts. Nothing on it predicts the next payment.

The estimate on the fund page is a book-basis number. The audited report is the tax character for a closed year. The 1099-DIV, due to holders by the end of January, is the one that reaches the return. Those are three different documents, and only the last one counts.