Closed End Funds

Closed End Fund Questions and Answers from the American Stock Exchange

How do closed end funds differ from open-end funds?
Closed end funds issue a fixed number of shares whereas open-end funds constantly offer new shares for sale and redeem outstanding shares on any business day at net asset value (NAV). Purchases and redemptions of open-end funds typically take place only once a day at NAV. In contrast, closed end funds can be bought or sold continuously throughout the trading day on an exchange. During the trading day, closed end funds trade at prices that can be at NAV, above NAV (trading at a premium), or below NAV (trading at a discount).

How do closed end funds differ from exchange traded funds (ETFs)?
While both closed end funds and ETFs are investment companies whose shares trade in the open market, they differ in how their shares are issued and redeemed. Closed end funds issue a fixed number of shares in an IPO, which sometimes trade at a premium or discount to NAV in the secondary market. ETFs have a unique creation and redemption process that allows ETF shares outstanding to increase or decrease and prevents a significant premium or discount to NAV. Closed end funds and ETFs also differ in the types of products available. For example, at present most ETFs are based on index portfolios, whereas Closed end funds are usually based on actively managed portfolios. Also, at present no ETFs are available based on municipal securities.

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What influences the share prices of closed end funds?
A closed end fund's share price may increase or decrease based on market demand, which can be influenced by many factors, including market perception of the holdings, investment manager, types of securities or region in which the fund invests, interest rates, as well as its investment performance, net asset value, and dividend and capital gain distributions.

Where can I find net asset values (NAVs) for closed end funds?
NAV data can be obtained from the website of the closed end fund (which is included on the fund's company description page on amex.com, if available) or from the Closed end Fund Association's website, www.cefa.com.