It's not a coincidence that there was a jump in the number of closed-end bond fund IPOs last year. Bonds had a very good year and, in general, closed-end funds compete well against open-end bond funds. However, the rise also emphasizes the lack of closed-end equity fund launches, even when the market was soaring a couple of years ago. The drop off in new closed-end equity funds is due to the increased popularity of exchange-traded funds and increased regulatory scrutiny, which may have deterred managers from creating them, according to analysts.

There were 36 new IPOs for closed-end funds in 2001, the most since 1994 when there were 40, according to Lipper. [There were 40 in 1999 as well, but that number is skewed because many of them were loan participation IPOs, which include multiple share classes.] Of the 36 that were issued in 2001, 33 were bond funds. Closed-end bond funds compete well against their open-end counterparts because they have the ability to leverage investments and generally that creates higher yields, said Brian Smith, executive director of the Closed-End Fund Association.

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