Sapphire

Understanding Closed-End Funds

Good article - I have owned a few closed-end funds for years which pay a decent dividend but are now highly discounted. As with many things, now seems to be a good time to buy, but God help you if you have to sell - which is why I"m holding onto mine.

The present discounts and dividends make many closed-end funds appear as though they are now they deal of a lifetime - and maybe some of them are. But one thing which confused me, until I found cefa.com on which to research them, was that many closed-end funds include a return of capital in their dividend, making the dividend appear much higher than it actually is.

With the high dividends and present discounts to NAV, I'm tempted to buy more closed-end funds in case those huge discounts narrow someday. But I'd like to know from the author or someone familiar with them - what is the probability of one of these funds closing if some of its holdings fail and just disappear? Do they replace that stock, preferred stock, or bond holding with another, as is done with open-end funds? The "closed-end" part, and what disadvantages or drawbacks that may possibly entail, is a little mysterious to many investors like myself.