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regard, Mr. Frazier acknowledges that “lack of the ability to
liquidate [is an] investment characteristic shared by
* * * publicly-traded closed-end investment funds [and] closely-
held corporations.” Lack of liquidity, however, is a
marketability factor and should not be considered in connection
with lack of control. Further, other factors relating to the
comparables could cause them to trade at a discount, such as a
riskier investment strategy as described above, uncertain
management, or some company-specific risk.14
Nevertheless, we generally agree that there are similarities
between closed-end funds and CCC. Like CCC, closed-end funds
operate with a finite amount of capital, and they cannot increase
or decrease the size of their portfolios. This reduced
flexibility in comparison to traditional mutual funds may warrant
some discount in price for the increased risk, and although it is
difficult to categorize this discount, it could fit within the
concept of lack of control. However, it is difficult to quantify
the amount of discount that is attributable to lack of control.
Although we are not convinced that the discounts reflected
in the funds Mr. Frazier compared to CCC were due solely to lack
of control, we note that Tri-Continental, Adams Express, General
14 For example, some funds that have above-average
performance trade at a premium, indicating that even though
investors do not control closed-end funds, some company-specific
factors such as an expectation of future performance are
considered in the fund’s price relative to its net asset value.
See Malkiel, “The Valuation of Closed-End Investment Company
Shares”. J. Fin. 851 (June 1977).
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