Summary of Closed-End Funds

Closed-end funds are investment companies that buy a fixed amount of securities for their portfolios, then sell shares in the whole portfolios. They are like mutual funds because they sell shares of a portfolio of investments. But because they do not take in additional capital to buy new securities for the portfolio, the number of shares of the fund are fixed. This means that investors must buy or sell their shares on the secondary market through a brokerage firm. In this respect, closed-end funds are like common stock. Mutual funds sell and redeem new shares of the fund because they add new securities to its portfolio daily.

Closed-end funds allow investors to participate in specific investment markets at a fraction of the cost to buy all the securities representing those market segments. The value of the portfolio is the value of the individual securities held; however, shares of the fund can trade higher or lower than that value on the secondary market. This provides unique opportunities for some investment strategies.

Unless you purchase closed-end fund shares during an initial offering, you will not receive a prospectus, so you must do your own homework to determine whether a fund is suitable to your investment goals, objectives, and financial position. Closed-end funds are an interesting blend of mutual funds and common stock.