Right, if there is a discount to net asset value, you get an interest above what you would get otherwise. Sometimes it can be substantial. In Barrons you might note some term trusts. Look on the pages dealing with closed end funds. I note Blackrock 2009 (BCT) selling at about 16% below net asset value. On or about the end of November 2009, this entity will have sold all assets and will make a final distribution of interest and principal to all shareholders and cease to exist. The goal is to distribute $15 per share, and in the meantime to pay a monthly dividend as high as practical consistent with the ending net asset value of $15. As 2009 approaches, you can be sure that that 16% below net asset value will gradually go away. Look at other similar ones, dates listed in Barrons. The ones that end in the next couple years have a low discount. Lower than they did 5 years ago, all of them. So in addition to the monthly dividends, you can figure a gradual appreciation of the stock price to meet net asset value. Where's the catch? These things, like all bond funds, pay dividends. That differs from bond interest in that the fund is not REQUIRED to continue to pay the same dividend, and historically, as their remaining life decreases, they lower the dividend progressively. If interest rates increase, the net asset value goes down. There would be another way to get rid of that discount, more applicable to funds without a preset closing date, and that would be to convert the closed end fund to an open end fund, thus getting rid of the discount (open ended bond funds sell at net asset value) and giving a bonanza to shareholders. I have often been tempted to get together with friends to take over a closed end fund that sells at a significant discount (Tricontinental, TY?), vote out the board of directors, elect a new panel and convert to open end. Immediate 20% or so gain! Any takers? Best, Chris
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