Douglas G. Ober, Chairman, Adams Express Company and Petroleum & Resources Corporation President, Closed-End Fund Association

In recent days, a number of mutual fund complexes have faced troubling allegations including facilitating illegal late trading by certain investors; permitting market timing trading when the fund prospectus prohibits the practice; paying brokers in exchange for preferential treatment of their funds; and paying hidden compensation at shareholder cost. Closed-end fund shareholders have rightfully asked whether such abuses have occurred in closed-end funds, too.

The answer is a resounding NO. Closed-end funds are not implicated in the investigation. The way that our shares are traded and priced precludes the type of market timing and late trading practices that have been uncovered. Whereas mutual funds are priced at net asset value once daily, closed-end shares are publicly traded on a stock exchange, continuously priced at market. This feature of the closed-end fund structure prevents the favored treatment of some shareholders over others.

If any investor wants to do short-term trading in closed-end funds, he does so at real-time prices and does no more harm than someone who short-term trades in GE, Microsoft or another security. Sales activity in closed-end funds has a hard deadline - closed-end funds are bought and sold in open market transactions and a purchase or sale is priced in real time and instantaneously - and the trading does not cause an inflow or outflow of assets from the fund. There is no rapid movement of assets in and out of the funds from the trading in a closed-end fund’s shares.

The second question concerns the way funds disclose fees to their shareholders. Closed-end funds carry an annual expense ratio that reflects all-in fund administrative costs and is reported in the fund’s annual report. Fund expense ratios and other relevant metrics for many funds are also carried on websites including this one (www.closed-endfunds.com), Morningstar and the fund’s own site. In addition, closed-end funds are purchased on an exchange, and the usual transaction costs to buy or sell the security apply.

Shareholders should know and understand the cost of various fund investments they own -- investment costs do matter. Even a difference of 1/4 of 1% (or, 25 basis points, to the initiated) can make a big difference. A couple that invested their $100,000 retirement nest egg for ten years and received an 8% annual return would receive an increase of almost $6,000 if their advisory fees were reduced by 25 basis points, according to testimony.

Some investment professionals have come to believe that closed-end funds are stodgy and out-of-favor. It is our belief there are advantages to both closed-end and open-end structures and a place for each in investors' portfolios. Closed-end funds are an effective, cost efficient way to outsource the professional management of a portfolio of securities and achieve diversification. And closed-end funds permit shareholders to benefit from a wide range of investment styles for domestic and international equities and bonds. We are proud of the history of the investment company industry and of closed-end funds; and remain committed to upholding the interests of our long-term shareholders.