Defensive Closed-End Funds Finish First

While it was no surprise that precious metals and energy/natural resources led the closed-end fund categories in the second quarter, some surprising groupings climbed to near the top of the performance array.

With an average gain of 6.30% for the three months, closed-end funds in the precious metals classification led the 21 investment objectives in the accompanying table. Rising inflation, the tumbling U.S. dollar and general uncertainty over the economy propelled the group higher during the period.

Anyone who has filled up a gas tank shouldn't be surprised that runner-up honors went to the energy/natural resources group, which climbed 5.68% on averaged during the quarter. The group's leading performer, the BlackRock Global Energy & Resources FundBGR spurted 25.39% for the quarter, lifting it 34.93% for the latest 12 months. BGR's largest holdings include popular Consol EnergyCNX, Peabody EnergyBTU and Massey EnergyMEE.

The two leading "hard asset" groupings were followed by a pair of conservative "defensive" categories during the period of elevated economic turmoil. The utilities sector, which shined in 2007 but backed off during the first quarter of this year, rebounded 5.49% while closed-end government bond funds advanced 4.47% on average.

Some surprises appear near the top of the listings. Loan participation funds, which were hammered for months because of exposure to subprime mortgages, gained an average of 3.88% during the quarter. That grouping was followed by a quartet of other fixed-income categories that are ordinarily considered to be on the riskier end of the spectrum: high-yield corporate bond funds, up 3.74% on average; high-yield municipal bond closed-ends, ahead 2.74%; global income, boosted by the cascading value of the U.S. dollar, up 1.08%; and emerging-market income --also benefitting from the ailing greenback -- 0.85% in the plus column on average.

Despite the economic and investment uncertainty, 12 closed-end fund classifications achieved positive average gains during the second quarter while nine fund groupings suffered losses.

Not surprisingly, as the credit-crunch-inspired woes of the banking industry compounded in recent months, the financial services sector tumbled 17.95% on average over the three months.

Of the individual funds that led their respective groupings, the best performer after BGR was the surprising Cornerstone Total Return FundCRF. Bid to premiums close to 80% above its net asset value per share, it vaulted 17.45% during the quarter, leaving its investors ahead 37.52% for the year to date.

CRF achieved its stellar market performance with blue-chip top holdings that include Exxon MobilXOM, General ElectricGR, MicrosoftMSFT, AT&TT and Johnson & JohnsonJNJ.

SECOND QUARTER SUMMARY OF CLOSED-END FUND INVESTMENT OBJECTIVE CATEGORIES
INVESTMENT CATEGORY	3-MO. AVG. GROUP RET'N (%)	LEADING FUND: NAME, TICKER & TheStreet.com RATINGS GRADE	3-MO. TOTAL RET'N (%)	YR.-TO-DATE TOTAL RET'N (%)	12-MO. TOTAL RET'N (%)
Sector - Precious Metals	6.30	Gabelli Global Gold,Nat Res&Income (GGN) A+	15.24	5.39	21.12
Sector - Energy/Natural Res	5.68	BlackRock Global Energy & Resources (BGR) A+	25.39	21.18	34.93
Sector - Utilities	5.49	Evergreen Utilities & High Income (ERH) B	13.30	-3.18	11.81
Government Bond	4.47	Western Asset/Claymore Inflation Linked Secs. (WIA) C+	4.81	8.66	15.77
Loan Participation	3.88	LMP Corporate Loan Fund, Inc (TLI) C-	10.16	-3.25	-15.69
Corporate - High Yield	3.74	BlackRock High Yield Trust (BHY) E	11.81	7.18	-9.19
Municipal - High Yield	2.74	Western Asset Municipal High Income Fund (MHF) A+	9.78	18.84	11.68
Global Income	1.08	Pioneer High Income Trust (PHT) C+	9.55	4.95	-5.36
Emerging Market Income	0.85	Western Asset Emrg. Mkts Floating Rate Fd. (EFL) B+	15.44	23.05	13.54
General Bd - Investment Grade	0.68	John Hancock Investors Trust (JHI) C	2.60	7.89	4.00
Growth - Domestic	0.68	Royce FocusTrust (FUND) B	10.60	1.39	-3.75
Global Equity	0.64	Clough Global Equity Fund (GLQ) B	13.98	0.02	11.15
Equity Income	-0.02	Cornerstone Total Return Fund (CRF) C-	17.45	37.52	-22.16
Corporate - Investment Grade	-0.56	Rivus Bond Fund (BDF) C	-0.56	-2.38	-1.77
Growth & Income	-0.57	Clough Global Allocation Fund (GLV) B-	16.32	2.63	15.08
Sector - Health/Biotechnology	-1.34	BlackRock Health Sciences Trust (BME) B	1.77	-6.41	-0.13
General Mortgage	-1.55	BlackRock Income Trust (BKT) C	2.94	9.23	5.29
Non-US Equity	-2.40	Third Canadian General Investment Trust Ltd. (T.THD) C+	14.30	0.12	-6.28
Emerging Market Equity	-3.00	Morgan Stanley Emerging Markets Fund (MSF) C+	3.55	-10.64	8.69
Multi-Sector Bond	-4.67	Highland Credit Strategies Fund (HCF) D	6.14	-9.71	-23.31
Sector - Financial Services	-17.95	RMR F.I.R.E. Fund (RFR) E	-16.56	-20.49	-45.46
Source: TheStreet.com Ratings - Data as of 6/30/2008. For an explanation of our ratings, click here.