This presentation on closed end funds is not a form of solicitation, nor is it intended to be a recommendation to purchase or sell any investments. This presentation is merely intended as a form of sharing of research to the AAII-SIG Again, the ultimate purpose of this presentation was to share information with a group of investors that get together and look to share ideas. The intent of this presentation is merely as a learning tool. It very well might have material errors.

 

PLEASE DO NOT MAKE INVESTMENT DECISIONS BASED ON THIS REPORT. PLEASE DO YOUR OWN DUE-DILIGENCE

Unlike our typical investments, the closed end funds that are fixed income oriented in our portfolios, are traded with a greater frequency than our typical desire for buy and hold. If BGT went from a 10% discount today, to nearly no discount on the next trading day, you can probably assume we would be sellers of these shares. Of course, when investing in closed ends, one needs to consider so much more than just a discount.

Please see Disclaimer at bottom of this page

Presentation of Closed End Funds (CEF) to AAII-SIG
May 21, 2005
Prepared by Ronald R. Redfield CPA, PFS
908 276 7226
rredfield@rbcpa.com
www.rbcpa.com

I. Definition of Closed End Fund

Closed-End Investment

When an investment company issues a fixed number of shares in an actively managed portfolio of securities. The shares are traded in the market just like common stock.

Most mutual funds are open-end funds, not closed-end. The main difference with closed-end funds is that market price of the shares is determined by supply and demand and not by net-asset value (NAV).

Also known as a “closed-end mutual fund” or “closed-end fund”.

II. I keep a site of closed end fund resources on my companies web page. It is useful for me to use as a starting place. Several of the links require subscriptions. The section on my site is closedendfunds.html . I printed out the text of the page in the handouts.

III. Some possible reasons for investing in closed ends:

a. Diversification

b. Lack of expertise in area you want to invest in. For example, I will often use closed ends as a means in investing in geographic regions. Examples of some of my holdings over the last few years (many no longer exist as positions) are India Fund (IFN), Templeton Dragon Fund (TDF), Morgan Stanley Asia Pacific Fund (APF) and Scudder New Asia Fund (SAF).

c. You might enjoy the advisors strategy.

d. You might like the discount to Net Asset Value (NAV)

IV. Some things to know:

a. This is a specialized area. I have been studying Closed End Funds since 1990. I still have areas where my understanding is limited. Be careful, it is a jungle out there with closed ends.

b. I have found it quite easy to buy into closed ends, but often difficult to sell at your desired price. I will often accumulate positions in excess of $1M. It is very difficult for me to eliminate a position. It will often take weeks or months for a full liquidation. Be careful on market orders. I have found this difficulty to exist, even when I am trying to sell a position of less than $10K.

c. I am speculating that hedge funds and other investors, both professional and private investors are going into CEF’s. I often feel that these investors are not familiar with the potential lack of liquidity. If my theory is correct, you may be able to find buying opportunities in funds which are being “dumped” by these hedge funds or other large holders.

V. Example analysis and discussion of Blackrock Global Floating Rate Income Trust (BGT): Please keep in mind that most of my portfolios, and my portfolio have a concentrated position in BGT. If the discount were to narrow to less than 5%, I would gather that I would be an immediate seller. I generally hold closed end bond funds as temporary positions, and will move in and out of them as I see needed.

a. Handout number 1. Closed End Fund Association (CEFA) on Blackrock Global Floating Rate Income Fund (BGT 17.19 current price 12:00pm est. 5/20/05, NAV is 18.98 as of 5/19/05 close (this can often be found by symbol surrounded by “x” for example BGT’s NAV can be found via symbol “XBGTX”. This handout gives a brief snapshot of the fund. Notice how the discount is at 9.43%. CEFA report up until very recently (I just noticed), used to give a more detailed report. It would discuss average credit quality. BGT has low credit quality, more of a high yield fund. One could not necessarily see this by looking at the CEFA snapshot. In my opinion, this missing snapshot, makes the CEFA site, much less valuable than previously.

b. No handout. Form N-Q. This is available on SEC Edgar database. This is the quarterly report. This is good to read to get a look at the holdings, managers comments (not all funds will comment quarterly), discussions, etc.

c. Handout number 3. Form N-CSR . This is basically an annual report with full disclosure, discussion, etc. Good to look at holdings, expenses, footnotes, etc.

d. Handout number 4. BGT snapshot from their web page.

e. Handout number 5. Various Herzfeld pages.

f. Handout number 6. Investment notes of mine. These are informal, and serves as a source of information for me to look back on. I will often put notes like these on my website. CEF’s are unique in nature, hence they hardly appear as specific notes on my website. I will often review these notes as years pass.

Summary

1. Be careful.

2. Be thorough in your analysis.

3. Read the annual reports closely

4. Keep up to date on material filings, proposals, shareholder activism.

5. Understand the underlying portfolio.

6. Understand the philosophy of the fund.

7. Getting out is harder than getting in.

8. Watch the discounts. Understand the reasons for the discounts.

Miscellaneous Handouts

1. Herzfeld resource of historical premium /discounts of closed end funds. This has been placed here with permission from Herzfeld.

2. Various CEFA pages of interest for discussion on May 21, 2005

Click on the link below

a. Templeton Dragon Fund (TDF)

b. Morgan Stanley Asia Pacific Fund (APF)

c. Scudder New Asia Fund (SAF)

d. Gabelli Multimedia Trust (GGT)

e. Blackrock Income Opportunity Trust (BNA)

f. ASA Limited

3. Mainstay article on Floating rate funds. Keep in mind that this article could be biased.

Disclaimer

Unlike our typical investments, the closed end funds that are fixed income oriented in our portfolios, are traded with a greater frequency than our typical desire for buy and hold. If BGT went from a 10% discount today, to nearly no discount on the next trading day, you can probably assume we would be sellers of these shares. Of course, when investing in closed ends, one needs to consider so much more than just a discount.

If you are a client of ours, and if you have questions regarding Lucent, please call our office. If you are not a client of Redfield, Blonsky & Co. LLC Investment Management Division and are reading this report, we urge you to do your own research. We will not be responsible for any person making an investment decision based on this report. This report is a “by-product” of our research. We are not responsible for the accuracy of this report. We are not responsible for errors that may occur in this report. Please do not rely on us to monitor or update this or any other report we may issue. In theory, we could come across some type of data or idea, which causes us to eliminate any of the investments mentioned above from our portfolios. This report has undergone revisions starting on May 21, 2005. We will not notify readers of future revisions. We are not responsible to keep readers of this report updated for changes or material errors or for any reason whatsoever. This report is dated May 21, 2005; it is possible that by May 23, 2005, we could have eliminated our entire position of the investments mentioned without giving notice to any reader of this report. We manage portfolios for clients, and those clients are our greatest concern as it relates to investing. Certain clients of Redfield, Blonsky & Co LLC may not have the investments mentioned above in their portfolios. There could be various reasons for this. Again, if you would like to the investments mentioned above, please contact Ronald R. Redfield, CPA, PFS (partner in charge of investment management division).

Information herein is believed to be reliable, but its accuracy and completeness cannot be guaranteed. Opinions, estimates, and projections constitute our judgment and are subject to change without notice. This publication is provided to you for information purposes only and is not intended as an offer or solicitation. Redfield, Blonsky & Co. LLC and Ronald R Redfield, CPA, PFS, may hold a position or act as an advisor on any investments mentioned in a report or discussion.