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Subject:  Re: Closed End Mutual Funds Date:  3/19/2001  12:59 PM
Author:  buy2win Number:  6389 of 20604

I am familiar with the workings of a "regular" mutual fund but not a closed end fund. How do closed end mutual funds work compared to a "regular" mutual fund? What are the advantages and disadvantages of a closed end fund?

An open-end mutual fund can acquire any number of shares based upon the inflow and outflow of money into and out of the fund. It's net asset value (NAV) is published in the newspaper and online based upon the the value of the shares it holds. So, if a fund has 1,000,000 shares of CISCO and CISCO closes at 20, the NAV of that fund is $20,000,000.

A closed-end mutual fund acquires a fixed number of shares at the time it closes (it could have been an open-end fund at one time). This fund may not add to the shares in the fund. So, if our open-end mutual fund with 1,000,000 CISCO shares closes, it will always have 1,000,000 shares except for splits of course. The fund then trades like a stock on a stock exchange and can be traded during the day. The strange thing about a closed end fund is that it will almost always trade at a discount to its NAV ! Wiser men than myself have attempted to answer this seemingly bizarre behavior.

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