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Fund Times: Equity Offerings Fuel Growth of Closed-End Funds

Plus, news on Longleaf, Fidelity, Rainier, Vanguard, American Century, and more.

Morningstar Analysts, 03/27/2006

Assets in closed-end funds continue to grow, according to a new report by the Investment Company Institute, and surprisingly, closed-end equity funds are fueling the increase.

At year-end 2005, assets in closed-end funds had grown to $276 billion, the fourth consecutive year that assets have increased, according the ICI report. The report also said that although nearly two thirds of closed-end assets are still housed in bond funds, "from year-end 2000 through 2005, assets in closed-end equity funds increased by $68 billion, or 186%, while assets in closed-end bond funds rose by $65 billion, or 61%."

Over the same time period, the number of closed-end funds on offer had also increased dramatically, according to the report, from 482 at the end of 2000 to 643 at the end of last year, a 33% increase. It is estimated that these funds are held by as many as 2 million households in the United States, making them an important segment of the investment marketplace.

Longleaf Funds Struggle with Fairfax Holdings

Southeastern Asset Management's Longleaf Partners International LLINX and Longleaf Partners Small-Cap LLSCX are struggling under the weight of exposure to Fairfax Financial Holdings FFH.

On Wednesday, Fairfax announced that it received "an additional subpoena from the Securities and Exchange Commission regarding the accounting of its nontraditional insurance contracts at its nSpire Re and Odyssey Re ORH subsidiaries," according to Morningstar stock analyst Justin Fuller.

These regulatory troubles have been partly to blame for the greater-than-20% decline in Fairfax's stock price for the year to date through March 22. This decline hits the two Longleaf funds particularly hard, because they both hold positions in excess of 4.5% of net assets in each fund. Added to this, Small-Cap also holds a small position in Odyssey Re, Fairfax's reinsurance unit. Odyssey's stock price is down 15% for the year to date.

Fidelity Laptop Holding Customer Data Stolen

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