CYC, Unfortunately, the rip-off rights offering is the bane of CEF investors. What happens is for every share you own, you are allowed to buy a number of extra shares below the market price. By itself, that is simply management forcing you to cough up cash so they can have a larger base on which to charge mgt. fees. However, it gets worse than that. They often pay brokers up to 7% to get the deal out to their customers. That means that whether you take part in the offering or not, you lose an amount up to 7% of the new money raised.
I hate rights offerings with a passion. It is simply a legal way for mgt. to steal from customers to line their own pockets. Some such as Royce do rights offering for much lower costs, but a ripoff is a ripoff, whether it is 2% or 7%. Why the SEC allows it is beyond me, but, the shareholders had to vote for it, so they are really to blame for their losses.
The discount usually widens until the day of the offering. A good time to buy is usually soon after the deal is done. |
