How A Closed-End Fund Tender Offer Works

I just received a message from Neuberger Berman, notifying me of a coming tender offer for several of their closed end funds. 

SEC rules allow closed end funds to repurchase their own shares that are trading at a discount to Net Asset Value (NAV). As an example, I will use my own holdings in Neuberger Berman New York Muni Fund (NBO). I bought the fund in mid-November last year at an average price of about $10.05. At the time, the fund had a NAV of about $12.00, thus I bought my shares at a 16% discount $12.00/($12.00-$10.05). Shareholders are better off if the fund uses cash to buy shares in the fund instead of buying municipal bonds. Buying a dollar worth of shares at a 16% discount gives an instant 16% return to those shareholders.

The announcement has driven the discount to 10% (new NAV of $13.21 and price of $11.87.)  

A fund doesn't typically buy back all of its shares at once. The buy back has two effects: 1. It decreases the size of the fund and 2. It reduces the discount to NAV, which means an increase in price.

Closed end share buy backs are a good sign because it means the fund managers are working to benefit shareholder instead of their own fees. Thank you Neuberger Berman.

Neuberger Berman closed end funds affected by repurchase tender offers:

• Neuberger Berman California Intermediate Municipal Fund Inc. (AMEX: NBW)
• Neuberger Berman Dividend Advantage Fund Inc. (AMEX: NDD)
• Neuberger Berman High Yield Strategies Fund (formerly, Lehman Brothers/First Trust Income Opportunity Fund) (NYSE: NHS)
• Neuberger Berman Income Opportunity Fund Inc. (AMEX: NOX)
• Neuberger Berman Intermediate Municipal Fund Inc. (AMEX: NBH)
• Neuberger Berman New York Intermediate Municipal Fund Inc. (AMEX: NBO)
• Neuberger Berman Real Estate Securities Income Fund Inc. (AMEX: NRO)

Disclosure: I own NHS and NBO.  I may sell if the discount to NAV decreases to nearly zero.

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