Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (103808)	4/11/2006 10:15:01 AM
From: Knighty Tin	Respond to of 132070

Shane, Lots of answers on the rights thing. 1. Shareholders are sheep and vote for any scamola management puts on the ballot. 2. Closed end funds pay out dividends and capital gain distributions. Since most are not reinvested, that means the fund's assets will decline over time, no matter how well the fund is managed. An old fund like GAM has probably paid out its net assets several times during its lifespan. Rights offerings sound sensible to keep the fund afloat and large enough to pay decent managers. The problem is the cost. There is no free lunch and rights offerings cost the shareholders 2-7% of NAV to process. And, they will reduce the premium or increase the discount, so they are very pricey. Many people think they are actually making out by oversubscribing to the rights offerings. It is true that you lose less if you oversubscribe, but you still lose. 3. Rights sounds like a positive thing, like in "don't give up your civil rights." <G> Just like "collateral damage" doesn't sound as bad as "we're killing innocent non-combatants." 4. Brokers will often push rights to shareholders because that's where the 2-7% goes. 5. If a fund is at a premium, traders will short it in the market and buy the rights, for purchase at NAV or some other much lower price. This kills the share price. For an example, look at JOF's chart from last year. etfconnect.com Looking at how the price went down and the huge premium went negative, you can track the announcement and final execution of the rights offering. Sad. Great fund management, horrible administrative scamaroo.