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

: Why do companies like VanKampen and Royce have both open-end and closed-end funds? It seems the closed-end funds are less profitable since no new money is coming in. It seems a manager could manage the fund better since money is not coming in or leaving.?

: Good question. We believe that the managers of closed-ends, with little promotional activity necessary, can and do focus their energies on the portfolio.  As you correctly point out, with no inflows or outflows of cash, we can plan better, maintain less cash on hand (if we choose), and take a longer term view of our investments. In today's environment, with great volatility of cash flows in and out of mutuals, managers never know when they might have to liquidate positions. (This is, of course, more true of smaller funds than large ones.) We have the luxury of knowing that we can hold a position as long as we want. The danger of that is that we may fall in love with the stock and not sell it when we should, but most try to be aware of that.

Why both closed and open? While the closed-end funds tend to be less profitable, they are also like an annuity for the advisor, guaranteed income in good times and bad. There are also situations in which organizations started out with a closed-end and later decided that it made sense to have an open-end as well. In most of the specific situations I've looked at, the closed-end has had slightly better performance than the open-end, which makes logical sense if what I've said above is to the advantage of the investor and the manager. There are some groups of investors who simply feel more comfortable with one form of fund or the other, and the advisors are trying to capture both types.

Doug Ober
President,
Closed-End Fund Association

We welcome your question or opinion to webservices@cefa.com.