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I regularly track SEC filings of activist activity and insider buying of closed-end funds. Recently there has been little or no insider activity in most closed-end funds, but there are three equity closed-end funds that stand out as exceptions.

Each of these funds had at least six separate insider buys this year. The funds are fairly illiquid with low trading volumes, and the insider buying has been a good percentage of the total trading volume. These funds all trade at double digit discounts to net asset value.

1) First Opportunity Fund

Ticker: (OTCPK:FOFI)

Total Common Assets: 264 Million

Expense ratio= 1.24%

Leverage: None

Discount= -20.1% (as of 4/13/2012)

Annual Distribution Rate (market price) = 0.00%

I wrote an article about FOFI last November where I discussed the steady insider buying by the Mildred B. Horejsi Trust during October and November.

The insider buying has continued since then and if anything has intensified. There have been over 50 insider buys in 2012.

The FOFI insider buying reminds me of tag team wrestling. The Mildred B. Horejsi Trust bought heavily last year and the beginning of this year. Then in late January, the Lola Brown Trust started buying. Starting in April, the baton has been passed to the portfolio manager Nick Adams, who has already bought over 50,000 shares in five separate purchases.

The heavy insider buying could be signaling upcoming changes to the fund such as reinstating a managed distribution policy. But it is also possible the insiders just like the idea of purchasing the underlying hedge funds at a 20% discount.

Recent Insider Activity in April 2012

Insider

Date

 

# Shares

Price

Nick Adams

4/16/2012

BUY

13,435

7.21

Nick Adams

4/10/2012

BUY

11,233

7.09

Nick Adams

4/09/2012

BUY

10,911

7.31

Lola Brown Trust

4/03/2012

BUY

9,500

7.34

Nick Adams

4/03/2012

BUY

13,001

7.23

Nick Adams

4/02/2012

BUY

14,772

7.11

Lola Brown Trust

4/02/2012

BUY

5,000

7.11

Top 5 Portfolio Holdings (as of 12/31/2011)

Wolf Creek Investors LP (hedge fund)

16.30%

Bay Pond Partners LP (hedge fund)

16.12%

J Caird Partners LP (hedge fund)

6.99%

North River Investors LP (hedge fund)

6.56%

JP Morgan Prime Money Market

6.49%

2) MVC Capital

Ticker: (MVC)

Total Net Assets: $471 million

Total Common Assets: $409 Million

Leverage: 13%

Expense Ratio= 3.37%

Discount= -24.6% (very rough estimate, NAV from 1/31/2012)

Annual Distribution Rate (market price) = 3.65%

Portfolio Overview

Equity

79.8%

Debt

20.2

MVC is really more of a business development or private equity company than a traditional closed-end fund. It provides long term equity and debt investment capital to fund growth, acquisitions and re-capitalizations of small and middle market companies in a variety of industries mostly located in the US. MVC may serve as lead investor for some transactions, as well as a co-investor along with other private equity sponsors.

Aside from the insider buying, an activist firm is a large investor in MVC. Western Investments LLC (Art Lipson's firm) has about $20 million invested. To my knowledge, there has not been any activist activity yet, but it could occur in the future if the discount remains wide.

Top 5 Portfolio Holdings

US Gas & Electric cvt pfd

17.5%

Summit Research Labs common

16.6%

Ohio Medical cvt pfd

8.8%

MVC Automotive common

7.7%

Security Holdings BV common

7.4%

Insider Activity in March, April 2012

Insider

Date

 

# Shares

Price

Robert Knapp

4/09/2012

BUY

5,000

12.96

Michael Tokarz

4/09/2012

BUY

10,108

13.04

William Taylor

4/03/2012

BUY

1,000

13.20

Emilia Dominianni

3/28/2012

BUY

2,000

13.09

Emilia Dominianni

3/27/2012

BUY

3,000

13.14

3) Global Income Fund

Ticker: (GIFD.PK)

Total Common Assets: $36.3 Million

Leverage: None

Expense Ratio= 2.30%

Discount= -18.5%

Annual Distribution Rate (market price) = 6.48%

Portfolio Overview

Closed-end Funds

49.14%

Debt

15.67%

Business Development Companies

11.73%

Preferred stock

1.59%

Money Market Fund

14.98%

Other

6.9%

GIFD has traditionally operated somewhat like a fund of funds. It tries to provide a high level of income by investing primarily in other fixed income closed-end funds along with a global portfolio of investment grade fixed income securities.

But on February 29, 2012, the shareholders voted to approve a proposal to change the company from a closed-end fund to an operating company that will own, operate, manage, acquire and develop professionally managed self storage facilities.

There were not enough shareholder votes to fully convert to a real estate investment trust format. GIFD plans to begin to pursue its new business and eventually qualify as a REIT for tax purposes. In the short run, GIFD plans to invest in other publicly traded REITs, and gradually sell off portions of the portfolio that are not real estate assets. Over time, it will sell other REIT holdings and acquire and operate self-storage facilities.

In March of 2012, there were six insider buys of GIFD by Mark Campbell Winmill. The Winmill family has traditionally controlled GIFD.

Top 5 Portfolio Holdings

Money Market Fund

14.98%

Trade Payables

6.90%

Prov of Ontario 5.5%

4.08%

ING Bank 5.5%

3.81%

Western Asset Global Corp Def

3.42%

Insider Activity in March, 2012

Insider

Date

 

# Shares

Price

Mark Campbell Winmill

3/27/2012

BUY

2,380

4.07

Mark Campbell Winmill

3/26/2012

BUY

7,620

4.07

Mark Campbell Winmill

3/16/2012

BUY

841

4.02

Mark Campbell Winmill

3/15/2012

BUY

1,000

4.07

Mark Campbell Winmill

3/09/2012

BUY

2,400

4.00

Mark Campbell Winmill

3/07/2012

BUY

5,000

4.00

Source: 3 Equity Closed-End Funds With Recent Heavy Insider Buying