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range of discounts, while Dr. Bajaj concludes that such discount
factor should derive from the lower end of the range of
discounts. Once again, we find neither expert’s arguments
convincing on this point.
Mr. Frazier states that, according to his regression
analysis, the three factors that are the most determinative of
discounts with respect to the closed end funds in his sample are
(1) distributions as a percentage of NAV, (2) built-in gain as a
percentage of NAV, and (3) 3-year average annual return. We see
no error in Mr. Frazier’s calculation of his first factor,
although he seems to take the same factor into account as an
aspect of the discount for lack of marketability. With regard to
the second two factors, Mr. Frazier provides no data with respect
to MIL’s bond portfolio that can be compared to the data from his
sample funds. Mr. Frazier also repeats factors that he deemed
relevant in the context of MIL’s equity portfolio,
notwithstanding the fact that his own regression analysis
indicates little, if any, correlation between those factors
(management quality and the size of the fund) and the level of
discounts in his bond fund sample.23
23 Mr. Frazier’s regression analysis produced R-squared
calculations of 0.29 for the Morningstar rating (management
quality) variable and 0.01 for the fund size variable. Elsewhere
in his direct testimony, Mr. Frazier indicates that an R-squared
calculation of 0.34 is “relatively low”, leading to the
conclusion of “no clear correlation” between the variable in
question and the level of sample fund discounts.
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