Q: What is a closed-end mutual fund?
A: A closed-end fund is an investment company that issues a fixed number of shares through an initial public offering (IPO). The assets of the fund (a portfolio of securities) are professionally managed. After the IPO, closed-end fund shares trade in the secondary market, either on an exchange or on the over-the-counter market, much like a stock. The trading price of the fund's shares is determined by its market price, not by the fund's net asset value (NAV).

Q: What is the difference between a closed-end mutual fund and an open-end mutual fund?
A: Open-end funds continuously sell and redeem shares for investors. Closed-end funds sell a fixed number of shares once, in an initial public offering. Closed-end fund shares cannot be redeemed directly, only sold in a secondary market, typically the American Stock Exchange, New York Stock Exchange or the Nasdaq. Open-end fund share prices are determined by the fund's net asset value (NAV), which is calculated at the end of each business day. Closed-end fund share prices fluctuate throughout the day, as they are driven by market price, which is determined by supply and demand.

Q: What is the difference between a closed-end mutual fund and an open-end mutual fund that is "closed"?
A: Closed-end mutual funds issue a fixed number of shares, which are bought and sold on a stock exchange or market. When an open-end mutual fund is "closed", this means the fund is no longer allowing new investors into the fund.

Q: What is the difference between net asset value (NAV) and the market price of closed-end mutual funds?
A: Per share net asset value (NAV) is the current value of a fund's assets, less liabilities, divided by the total shares outstanding. Market price is the price an investor pays or receives when he or she purchases or sells shares of a closed-end mutual fund. Again, this price is determined by supply and demand for the closed-end fund on a stock exchange or market. Both open-end and closed-end mutual funds calculate NAV per share, but only open-end mutual funds allow transactions at the fund's NAV.

Q: What does it mean when a closed-end mutual fund trades at a discount or premium?
A: A premium occurs when the market price of a closed-end mutual fund share is more than its net asset value per share (NAV). Conversely, a discount occurs when the market price of a closed-end mutual fund share is less than its NAV per share.