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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: Dolomight who wrote (17057)	10/11/2001 5:00:31 PM
From: Bernie Goldberg	Read Replies (1) \| Respond to of 18931

Hi, NAV stands for Net Asset Value. When you look at the Mutual Fund Page in your newspaper, all of the prices you see there are Net Asset Values. What a mutual fund does at the end of every business day is to determine the total value of everything they own. They then divide that number by the number of shares that are outstanding. This is how the the NAV of each share of the fund is determined. There are two kinds of Mutual Funds. Open Ended and Closed Ended. ACG is a Close Ended fund. A CEF is generally started with a fixed amount of $$ and a fixed amount of shares. For example: $100,000,000 and 10 million shares. With these starting numbers the NAV of the CEF is $10. The fund manager has 100 million dollars in cash to start out with. If it is a bond fund like ACG he goes out to the market and buys bonds. Let's pretend it is day one and he buys 100 million dollars worth of bonds. On day one the NAV of the fund is $10. On day two Dolomight hears about the new bond fund and wants to buy 100 shares. He wants to get in at $10 but none of the share holders wants to sell since the fund is so new or perhaps any other reason you can think of. You have to realize that with a CEF there are no new shares issued. You really want to get into this fund so you offer $11 at the market. CEFs are bought and sold just like stocks even though they are mutual funds. Bernie is one of the shareholders and sees your offer of $11. He says to himself. Gee! 10% in one day is not to shabby. Bernie decides to sell you 100 shares at $11 each for a net profit of $100. The price of this fund is now $11 per share. Let us also assume that on day 2 the world bond market crashes and the price of all the bonds in fund decrease in value by 10%. The NAV of the fund is now $9 but the price of the fund is $11. This represents a premium of 22%. Now I would like to pose a question to you. Would you be willing to buy dollar bills from me at the price of $1.22 each? I don't think so! Bear in mind that the exact opposite could and does happen every day and there are CEFs selling at a discount to NAV. The only time NAV comes into the calculation is with CEFs. the reason for this is that there is usually a discrepancy between the market price and the NAV. I like to look at CEFs that are selling at a discount somewheres between 10-20%. Once the discount starts getting much higher than that there is usually some serious problems in the area covered by the fund. There are some very good sites on the web that cover Closed End Funds. Try site-by-site.com If you want or need more than this one provides. Using google just type closed end funds. Here is a difinition from Forbes:Closed-end fund An investment company that sells shares like any other corporation and usually does not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or below its net asset value. Hope this helps Bernie After typing all of this I just thought of a shorter answer. You walk into a store to buy a sweater. Your reason for buying the sweater is that winter is coming and you want to keep warm. On the counter you see two identical sweaters. One is on sale for $11 and the other is on sale for $9. The reason for the purchase of the sweater is warmth. The reason for the purchase of a CEF is usually income. Which sweater would you buy? Another unasked question you had referred to your "base". IMO Bond funds don't make a very good "base" for an investing pyramid. I believe you would be better off starting you pyramid with a strong, financially secure company.

To: Dolomight who wrote (17057)	10/11/2001 5:09:17 PM
From: OldAIMGuy	Respond to of 18931

Hi Scott, RE: ACG Maybe this will help on the "smart shopping" issue: --------------------------------------------------- Since first buying ACG (and previously GSF) I've collected dividends well beyond my initial costs. I've also collected periodic capital gains. Being a closed end fund, there's always a Net Asset Value (NAV) just like all other funds. It's based upon what the value of the portfolio of bonds is on any particular day. Beyond that, closed end funds sell at a price that's determined by supply and demand, just like all other exchange traded equities. There can be quite a difference between what the market will bear and what the value of the bond portfolio is on any particular day. At the depths of ACG's lows it was selling at a "discount" to its NAV of over 10% and maybe as much as 15%. I don't remember for sure. Recently, it was selling at about $8.90 which was a "premium" above its NAV of about 4% or so. In other words, the discount meant people were only willing to pay about 85% of what the underlying bonds were valued at the time. Recently, because people expected interest rates to drop further, they were valuing ACG's assets with a premium and were willing to pay as much as a 5% extra above what the portfolio was worth just to own the fund. These two points define opportunity for those who want to Buy from the Scared and Sell to the Greedy. :-) One can look up the premium and discount values in BARRONS each week in their Closed End Funds section. Please note that most closed end funds sell at a discount more time than they sell at a premium. So, just because something is selling at a discount doesn't mean that it's necessarily a bargain. In Value Line, they plot the NAV along with the Price/Share, so you can look at the "cross-over" points a bit more closely. Generally the Price/Share "chases" the NAV. So, then when the Price/Share crosses the NAV line, it usually is signaling a change in trend. It makes for a good time to then ask AIM how many shares it should buy or sell. You can also use these "cross-over" points to help determine when is a good time to start AIMing a "CEF." Again remember, not all CEF's close the gap between their price and NAV and ever sell at a premium to NAV. In those cases, you should then look at the size of the discount to NAV at various times. If the CEF ranges from -25% to -10% of NAV, then it would be best to wait until you again see near -25% discount before starting. Best regards, Tom PS: Thanks Bernie for the extra information on CEF's. tv