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Closed-End Funds Still Scary-Cheap

Do you think that tax-loss selling has already begun?

Yes. Our studies show that CEFs most vulnerable to tax-loss selling are those with low discounts or small premiums. Whereas most CEFs have recovered from their mid-August lows, many low-discount funds haven't. Examples abound in the small- and mid-cap sector such as the Royce Value Trust (RVT) and the covered-call writing sector in names like the Nuveen Equity Premium Opportunity Fund (JSN). So that's evidence to us that tax-loss selling has begun.

These CEFs have discounts that are, on average, 7% to 8% wider than their July average, before the general widening happened. They seem to be such bargains that we have positions in many of them, even though we fear that may be "catching a falling knife."

Anything new in trading opportunities?

Most recently, we've taken advantage of increased volatility in certain international equity funds. It's been possible to trade positions with holding periods of less than two weeks and pick up discount differences of 5% or more. Funds we traditionally traded -- and have been very friendly to us the past few weeks -- are Chile Fund (CH) and Emerging Markets Telecommunications Fund (ETF). But we also made good profits in three newcomers to us: Spain Fund (SNF), Aberdeen Australian (IAF) and Indonesia Fund (IF).

Our largest position is in Zweig Fund (ZF), a domestic equity fund. It is recovering nicely from the selling pressure from its rights offering.

You maintain a significant exposure to emerging markets in your portfolios. Does talk of a "China bubble" worry you?

I, personally, believe that Asia ,ex cluding Japan is a great place to be, but we don't have the expertise to comment knowledgably. We have a standard allocation we suggest to clients, but we allow them to decide how much exposure to emerging markets they want. For us, the Asian funds, and the Chinese funds in particular, provide frequent trading opportunities that are too lucrative to ignore. Sometimes China Fund (CHN), sometimes Templeton Dragon Fund (TDF), sometimes JF China Region Fund (JFC) is our Asian largest position.

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