In article <2008100410072516807-genef@verizonnet>,
Michael <g...@v...net> wrote:

> Would someone explain the difference between closed-end funds and
> straight ahead mutual funds to me? My closed-end funds took an enormous
> hit while my managed (not index) mutual funds only took hits that seem
> to be commensurate to the times we're in. Thanks in advance.

Closed end and open end funds are both types of mutual funds.
In an open end fund, when someone buys a share, a new share is
created, you get ownership of that share, and the net asset value
is set based on your fraction of the total value of the fund.

A closed end fund starts with a fixed basket of stocks and bonds,
then establishes a fixed number of share. There is an IPO, much
like a new company going public. The shares are sold, and they
trade on the market like stocks.

Key behaviors of closed end funds are that they often sell for
a premium at IPO, but later sell at a discount because they are
thinly traded. Also due to being thinly traded, they are harder
to get rid of, so they often drop more in value than their NAV.
They also tend to not be actively managed, so if they get a dog
stock in the mix, they can ride it down to zero.

The attraction to closed end funds is that they often sell for
a discount compared to NAV. The idea is to buy in, then
convince the other share holders to liquidate the fund. This
allows you to take the discount as a profit.

-john-

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John A. Weeks III           612-720-2854            j...@j...com
Newave Communications                         http://www.johnweeks.com
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