Description

This article is from the A Guide to Closed-End Funds (CEFs).

Premium/Discount of the Austria Fund

The daily chart of the Austria fund below shows the four characteristic stages of a rights offering:

1) the shrinking of the discount as the market price climbs to reflect the benefits of the rights offering (namely, the ability to purchase shares of the fund at a discount to the market price and NAV),

2) the sharp drop in price on the ex-rights day (when the privilege of subscribing to the rights offering is no longer available),

3) the steady drop in price as the market absorbs sellers who are liquidating a portion of their holdings to raise money to subscribe to the rights offering, and the market prices in the dilutive effect of the rights offering on the NAV, and

4) the sharp drop in the NAV that reflects the adjustment of the NAV to the dilutive effects of the rights offering.

 

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