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By Mike Taggart, CFA | 11-12-2010 06:37 AM

Walk-Through of Our New Closed-End Fund Report Pages

Morningstar CEF strategist Mike Taggart highlights the new features and data in our enhanced reports.

Mike Taggart: Hi. I'm Mike Taggart, close-end fund strategist at Morningstar.

We've recently relaunched our quote pages for closed-end funds on our website, Morningstar.com. And I'm here today to discuss some very exciting new features and enhancements that we've made for closed-end fund investors.

From the morningstar.com home page, simply enter in the ticker symbol of the closed-end fund that you're interested in, and that will direct you to the quote page for the closed-end fund.

So, lot of information here that's very exciting and in many cases, it makes the close-end fund more transparent than it ever has been. Let me just direct your attention to a few things.

First, in the header, we have the Total Leverage Ratio; that's going to be the 40 Act Leverage, the bonds and the preferred shares that a fund uses for leverage, but also it's going to include the non-40 Act Leverage that funds in most cases don't disclose to the public, other than just kind of bearing it in their financial statements. We've actually pull that out, that's going to be part and parcel of the Total Leverage Ratio up there.

We also obviously, then show in that header, the Discounts, but we also show the 6-Month Average Discount, the 3-Year Average Discount, and then also, because a lot of closed-end fund investors are interested in income, we show the Total Distribution Rate at the current share price.

Going down, we come across the Morningstar category on the right hand side. That is interesting because we can click on 'View Other Funds in this Category' and this particular funds competitor's will then appear, and we can choose those as well. So, it makes it very easy to see what other alternatives might be available for our investment needs.

Under Key Statistics, we break down the leverage even further, so we break it down into the 40 Act Leverage and the Non-40 Act Leverage. Under Expenses, we show the Total Expense Ratio reported, as well as the Adjusted Total Expense Ratio, which I'll mention here in a couple of minutes in more depth.

If we go back up to the top, and then go to the Distribution tab and click on that, this will show us exactly the source of our distributions, and this is very important, because as closed-end fund investors we know, that a lot of time, closed-end funds like to return capital to investors. So, what we've done here is we've shown the year-to-date estimate, as well as the prior four years' histories of the distributions, breaking them down by income, short-term capital gain, long-term capital gain, special distribution, and then the return of investor capital. We also show this graphically in charts; beneath we show a bar graph, and then you can also look at is a pie graph.

If you look at the Performance page, one thing that's very interesting here is we show the returns graph, but we also then show the monthly premium and discount percentage, and this is there rather interesting because, you can look at this and if your fund is trading at a 5% premium, you might think, oh, well, that's expensive, if it's trading at a premium. But in just one look at that chart, we might be able to tell you that, this fund's history is that it's always traded in a premium. It's just a quick graphic look at that. It's a very nice representation of the premium and discount history there.

If we click on now the 'Total Returns' under Performance, we get the past up to 10 years of data for the fund's share price, the fund's net asset value, its category's price and net asset value returns, as well as its benchmark returns. It's a very good way to see if a fund's performance compared to its benchmark was just because of out-performance in one single year or whether that it's because it consistently outperforms its benchmark. So, we just kind of see that with one glance of the eye.

If you click on 'Portfolio', you come up to the summary page, and depending on whether the fund invests in bonds or equities or both, the page will render in different ways. If it's a fixed-income fund and you click on Portfolio, you get the fixed-income style box. It's going to show you everything you need to know about bond investments. It's going to show you, credit quality, different bond statistics, the bond maturity dates, the bond called profiles, different sector ratings, and it's also going to show that graphically comparing it against its benchmark and its category average.

On the bottom of the page, there is a map of the United States. This is handy for Municipal Funds. If you want to invest a national municipal fund, and you live in New York State, for example, you might be interested to know what percentage of the bonds are from New York State because this might be indicative of what percentage of the income is going to be from New York, for tax purposes.

If it's a fund that invests primarily in equities, when you click on the Portfolio tab, you come to the summary, you're going to get the asset allocation, the equity style box and then it's going to show you the sector breakdown of the underlying equity investment portfolio.

If we then click on the Management & Fees, this is the last thing I'd like to talk about that is exciting. Closed-end funds have different ways of having to report their expense ratios. If it's a leveraged fund and it's used debt to gather that leverage, then its interest expense has to be reported as part of that total expense ratio. This makes it very difficult to compare a fund levered with debt with any other type of closed-end fund, and with any other open-end fund or ETF, so we prefer to look at the total adjusted expense ratio.

So, what we've done on our Management & Fees page, under the Fees and Expenses is, we've gone ahead and we have shown you what the fund has to report, then we go ahead and show the interest expense, then we showed the adjusted return as well. We also have taken the liberty to express the top three expenses as a percentage of their funds' average annual assets and then sort it and show our subscribers the top three expenses there.

These expenses will not equal the total expense ratio reported because, the expense ratios reported typically are based on either average weekly or average monthly net assets, whereas, our top three expenses are going to be showing based on average annual net asset value. But still we thought it would be interesting to use as a comparison between different funds and to let investors know where their money is going, with regard to fund expenses.

That's really it; those were highlights. There is a lot of new, interesting things; a lot of ease of comparability between funds. So, thanks for watching today. Thanks for listening, and you can always click on 'Feedback' underneath these pages to give us feedback on what you think of the new pages. Thank you.

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