Closed-end funds (CEFs)
are professionally managed investment companies that offer investors an array of benefits unique in the investment world. While often compared to traditional open-end mutual funds, closedend funds have many distinguishing features. They offer investors numerous ways to generate capital growth and income through portfolio performance, dividends and distributions, and through trades in the marketplace at beneficial prices.

Advantages of CEFs
Opportunity to Buy at a Discount--When closed-end funds can be bought at a discount to net asset value, investors are buying a dollar's worth of assets for less than a dollar. This can be attractive for two reasons:

1. In income-oriented funds, the yield will be higher when calculated on actual dollars invested at a discount, compared to NAV. To take an example, suppose a fund has a NAV of $20 per share, market price of $18 a share, and generates income of $1 per year. The yield based on NAV is 5% ($1 divided by $20). If you bought a mutual fund at NAV, this is the yield you would receive. But in the closed-end fund, the yield based on actual dollars invested is 5.6% ($1 divided by $18).

2. If during the holding period of your closedend fund shares the discount narrows, the reduction in the discount gives a small boost to the fund's performance when you sell the shares. Using the same example in the paragraph above, suppose you bought the closed-end fund at a $2 discount to NAV. Several years later, you sell it at a $1 discount to NAV. Your capital gain would be the change in NAV over this period plus the $1 reduction in the discount.

Efficient Portfolio Management
Unlike mutual fund managers who must worry about constant inflows and outflows of cash, closed-end fund managers are responsible for a stable pool of capital. Although fund shares trade actively, that doesn't affect the fund manager because no assets are flowing into or out of the portfolio. Therefore, closed-end fund managers can put capital to work in a long-term strategy; without worrying whether their fund will have enough liquidity to pay back investors who suddenly sell (redeem) shares. This can lead to superior investment results. It also makes the closed-end fund structure advantageous for investing in specialized areas such as less liquid securities or markets, venture capital opportunities, real estate, and private placements. Regardless of the trading volume or market price fluctuations in such areas, closed-end fund managers are never forced to sell securities in a declining market to meet redemptions. Conversely, in a bull market, closed-end fund managers aren't inundated with new cash they must invest at rising prices.

Is a closed-end fund "closed" to new investors?
There is often confusion between closed end funds and open-end funds that are "closed." CEFs have fixed amounts of capital and shares but are open to new investors through customary securities trading procedures. Conversely, open-end funds that are "closed" do not allow new investors into the funds.

Can you make money buying closed-end
Fund shares by purchasing when discounts are "deep" and then selling when discounts narrow?
Perhaps. But short-term trading of these shares can be very risky. For starters, your commissions will reduce any returns you earn. Also, the factors which produce discounts in closed-end fund shares can take time to change. You may find that you bought a fund for the wrong reason--because it sells at a deep discount--rather than because it meets your investment objective.