QUARTERLY CLOSED END FUND REVIEW & OUTLOOK

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1 QUARTERLY CLOSED END FUND REVIEW & OUTLOOK 2011 Review and First Quarter 2012 Outlook January 10, 2012 John Cole Scott, CFS Portfolio Manager, Executive Vice President Closed End Fund Advisors, Inc.

2 Disclaimer Important: The information in this presentation is not for general circulation and should not be considered an offer, or solicitation, to deal in any of the mentioned funds. The information is provided on a general basis for information purposes only, and is not to be relied on as advice, as it does not take into account the investment objectives, financial situation or particular needs of any specific investor. Any research or analysis used to derive, or in relation to, the information herein has been procured by Closed End Fund Advisors ( CEFA ) for its own use, and may have been acted on for its own purpose. The information herein, including any opinions or forecasts have been obtained from or is based on sources believed by CEFA to be reliable, but CEFA does not warrant the accuracy, adequacy or completeness of the same, and expressly disclaims liability for any errors or omissions. As such, any person acting upon or in reliance of these materials does so entirely at his or her own risk. Any projections or other forward looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. No warranty whatsoever is given and no liability whatsoever is accepted by CEFA or its affiliates, for any loss, arising directly or indirectly, as a result of any action or omission made in reliance of any information, opinion or projection made in this presentation. The information herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others without CEFA expressed written permission. CEFA reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice. 2

3 Current Closed End Fund Options 2011 Ended with 632* US listed Closed End Funds 52 US Equity Funds 106 Specialty Equity Funds 65 Non US Equity Funds 223 Total Equity Funds 153 Taxable Bond Funds 105 National Municipal Bond 150 State Specific Municipal Bond 408 Total Bond Funds Source: ICI Source: CEFA s CEF Universe Report 12/30/11 (cefuniverse.com) 3

4 2011 Closed End Discount Trends 2011 Ended with an average CEF Discount of 2.59% Source: Rivernorth ( 4

5 2011 Closed End Year End Discount CEF Group Year End Discount Average 4Q Discount US Equity Funds 9.78% 8.31% Specialty Equity Funds 6.24% 5.62% International / Non US Equity Funds 10.07% 8.62% Average Equity Closed End Fund 8.19% 7.12% Taxable Bond Funds 0.72% 1.76% National Municipal Bond Funds +2.18% +0.43% State Specific Municipal Bond Funds +0.48% 1.02% Average Bond Closed End Fund +0.47% 0.93% Average Closed End Fund 2.59% 3.10% Source: CEFA s CEF Universe Report 12/30/11 (cefuniverse.com) 5

6 2011 Closed End Year End Dist. Yields CEF Group Income Only Yield Total Dist. Yield US Equity Funds 3.6% 7.7% Specialty Equity Funds 3.5% 8.3% International / Non US Equity Funds 3.7% 7.1% Average Equity Closed End Fund 3.6% 7.8% Taxable Bond Funds 7.4% 8.1% National Municipal Bond Funds 6.2% 6.2% State Specific Municipal Bond Funds 5.8% 5.8% Average Bond Closed End Fund 6.5% 6.8% Average Closed End Fund 5.5% 7.1% Source: CEFA s CEF Universe Report 12/30/11 (cefuniverse.com) 6

7 2011 vs Closed End Dividend Increases vs. Decreases Source: Morningstar Tradeable Fund Center 7

8 Closed End Fund Year End Return of Capital & Relative UNII CEF Group Average % Dividend ROC Average % Relative UNII US Equity Funds 25.3% Not Informative Specialty Equity Funds 34% Not Informative International / Non US Equity Funds 6.3% Not Informative Average Equity Closed End Fund 23.7% Not Informative Taxable Bond Funds 6% 13.4% National Municipal Bond Funds 0% 19.8% State Specific Municipal Bond Funds 0% 18.7% Average Bond Closed End Fund 2.3% 7.0% Average Closed End Fund 9.8% Not Informative Source: CEFA s CEF Universe Report 12/30/11 (cefuniverse.com) 8

9 2011 Closed End Fund Total Return Performance CEF Group Net Asset Value (NAV) Market Price US Equity Funds 0.3% 2.2% Specialty Equity Funds +3.5% +1.3% International / Non US Equity Funds 2.3% 15.5% Average Equity Closed End Fund +0.1% 4.5% Taxable Bond Funds +3.0% +5.3% National Municipal Bond Funds +16.8% +20.4% State Specific Municipal Bond Funds +15.9% +19.2% Average Bond Closed End Fund +11.4% +14.4% Average Closed End Fund +6.7% +7.9% Source: CEFA s CEF Universe Report 12/30/11 (cefuniverse.com) 9

10 Closed End Fund Activist Update Closed End Fund Investor Notes Asia Pacific Fund (APB) City of London 22.7% (increase) BlackRock Inv Qual Muni Inc (BJZ) Karpus 32% of ARPS First Opportunity Fund (FF) Lola Brown Trust 14.9% Greater China Fund (GCH) City of London 40.6% Jardine Fleming China Fund (JFC) City of London 34.9% Liberty All Star Equity (USA) Karpus 2.9% (decrease) Liberty All Star Growth (ASG) Karpus 6.2% (decrease) Macquarie Global Infrastructure (MGU) Western 6.4% (increase) Malaysia Fund (MF) City of London 32% (decrease) Mexico Fund (MXF) Lazzard 10% (increase) Source: Altman Group Activist Report: 12/30/11 10

11 Closed End Fund Activist Update Continued Closed End Fund Investor Notes Pimco Income Strategy Fund (PFL) Brigade 33% Pimco Income Strategy II (PFN) Brigade 25% Pimco Income Strategy II (PFN) JMB Capital 9% Putnam Municipal Opp (PMO) Karpus 14% (decrease) Sun America Focused Alpha (FGI) Karpus 23% (decrease) TS&W Claymore Tax Adv Balanced Bulldog 10% (increase) Western Asset Claymore Inflation Cascade 14% (increase) (WIW) Western Asset Inflation Management (IMF) Karpus 20% (increase) Source: Altman Group Activist Report: 12/30/11 11

12 Closed End Fund Deaths Period Average Number of Funds funds per year per year per year per year per year per year Source: Herzfeld Research Causes: Open ending, liquidation & conversion 12

13 Closed End Fund Mergers Period Average Number of Funds funds per year per year per year per year per year Reasons to Merge: 1. Reduce expense ratio 2. Increase liquidity 3. Reduce bid/ask spread 4. Improve cost of future leverage Source: Herzfeld Research 13

14 Closed End Fund Historical IPOs Number of IPOs Average Assets In $ millions Total New CEF IPO Assets in $ Billions $316 $451 $200 $131 $690 $506 $452 $462 $591 $209 $6.0 $7.7 $2.6 $0.3 $27.6 $10.6 $21.2 $23.1 $28.4 $ Year Average: 33.4 Funds per year, $401M Ave Fund, $14.4 Billion Per Year Source: CEF Association 14

15 2011 Closed End Fund IPO s 19 funds* raised $6.002 billion in new closed end fund assets The Average CEF IPO was: $315.8 million Sources: CEF Association (cefa.com), yahoo finance, Telemet Data 15

16 Closed End Fund Advisors CEF IPO Guidelines Is the strategy unique? What is the manager s record on other funds? What are peer funds discount / premium levels? How will the fund avoid deep discounts? What are your thoughts on the investment objectives & near term NAV performance? Is the income expected to be above peer averages? Why? Why will the fund trade at a 1% 5%+ Premium in the first few days of trading? 16

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