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Closed-end fund

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Definition of Closed-end fund

Closed-end Fund Image 1

Closed-end fund

An investment company that sells shares like any other corporation and usually does not
redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above or
below its net asset value. Related: Open-end fund.



Related Terms:

Rights offering

Issuance of "rights" to current shareholders allowing them to purchase additional shares,
usually at a discount to market price. Shareholders who do not exercise these rights are usually diluted by the
offering. Rights are often transferable, allowing the holder to sell them on the open market to others who may
wish to exercise them. Rights offerings are particularly common to closed end funds, which cannot otherwise
issue additional common stock.


Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.


Balanced fund

An investment company that invests in stocks and bonds. The same as a balanced mutual fund.


Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.


Beta (Mutual Funds)

The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means
the fund's total return is likely to move up or down 70% of the market change; 1.3 means total return is likely
to move up or down 30% more than the market. Beta is referred to as an index of the systematic risk due to
general market conditions that cannot be diversified away.



Beta equation (Mutual Funds)

The beta of a fund is determined as follows:
[(n) (sum of (xy)) ]-[ (sum of x) (sum of y)]
[(n) (sum of (xx)) ]-[ (sum of x) (sum of x)]
where: n = # of observations (36 months)
x = rate of return for the S&P 500 Index
y = rate of return for the fund


Calendar

List of new issues scheduled to come to market shortly.


Closed-end Fund Image 2

Calendar effect

The tendency of stocks to perform differently at different times, including such anomalies as
the January effect, month-of-the-year effect, day-of-the-week effect, and holiday effect.


Capital expenditures

Amount used during a particular period to acquire or improve long-term assets such as
property, plant or equipment.


Cash dividend

A dividend paid in cash to a company's shareholders. The amount is normally based on
profitability and is taxable as income. A cash distribution may include capital gains and return of capital in
addition to the dividend.


Cash-surrender value

An amount the insurance company will pay if the policyholder ends a whole life
insurance policy.


Closed-end mortgage

Mortgage against which no additional debt may be issued.


Cost of funds

Interest rate associated with borrowing money.


Cum dividend

With dividend.


Cumulative dividend feature

A requirement that any missed preferred or preference stock dividends be paid
in full before any common dividend payment is made.


Dependent

Acceptance of a capital budgeting project contingent on the acceptance of another project.


Closed-end Fund Image 3

Detrend

To remove the general drift, tendency or bent of a set of statistical data as related to time.


Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.



Dividend

A dividend is a portion of a company's profit paid to common and preferred shareholders. A stock
selling for $20 a share with an annual dividend of $1 a share yields the investor 5%.


Dividend clawback

With respect to a project financing, an arrangement under which the sponsors of a project
agree to contribute as equity any prior dividends received from the project to the extent necessary to cover
any cash deficiencies.


Dividend clientele

A group of shareholders who prefer that the firm follow a particular dividend policy. For
example, such a preference is often based on comparable tax situations.


Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.


Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.


Dividend limitation

A bond covenant that restricts in some way the firm's ability to pay cash dividends.


Dividend payout ratio

Percentage of earnings paid out as dividends.


Dividends per share

Amount of cash paid to shareholders expressed as dollars per share.


Dividend policy

An established guide for the firm to determine the amount of money it will pay as dividends.


Dividend rate

The fixed or floating rate paid on preferred stock based on par value.



Dividend reinvestment plan (DRP)

Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
holder.


Dividend rights

A shareholders' rights to receive per-share dividends identical to those other shareholders receive.


Dividend yield (Funds)

Indicated yield represents return on a share of a mutual fund held over the past 12
months. Assumes fund was purchased 1 year ago. Reflects effect of sales charges (at current rates), but not
redemption charges.


Dividend yield (Stocks)

Indicated yield represents annual dividends divided by current stock price.


Dividends per share

Dividends paid for the past 12 months divided by the number of common shares
outstanding, as reported by a company. The number of shares often is determined by a weighted average of
shares outstanding over the reporting term.


Economic dependence

Exists when the costs and/or revenues of one project depend on those of another.


Employee stock fund

A firm-sponsored program that enables employees to purchase shares of the firm's
common stock on a preferential basis.


Endogenous variable

A value determined within the context of a model.


Endowment funds

Investment funds established for the support of institutions such as colleges, private
schools, museums, hospitals, and foundations. The investment income may be used for the operation of the
institution and for capital expenditures.


End-of-year convention

Treating cash flows as if they occur at the end of a year as opposed to the date
convention. Under the end-of-year convention, the present is time 0, the end of year 1 occurs one year hence,
etc.


Exclusionary self-tender

The firm makes a tender offer for a given amount of its own stock while excluding
targeted stockholders.


Extendable bond

Bond whose maturity can be extended at the option of the lender or issuer.


Extendable notes

Note the maturity of which can be extended by mutual agreement of the issuer and
investors.


Extra or special dividends

A dividend that is paid in addition to a firm's "regular" quarterly dividend.


Ex-dividend

This literally means "without dividend." The buyer of shares when they are quoted ex-dividend
is not entitled to receive a declared dividend.


Ex-dividend date

The first day of trading when the seller, rather than the buyer, of a stock will be entitled to
the most recently announced dividend payment. This date set by the NYSE (and generally followed on other
US exchanges) is currently two business days before the record date. A stock that has gone ex-dividend is
marked with an x in newspaper listings on that date.


Federal funds

Non-interest bearing deposits held in reserve for depository institutions at their district Federal
Reserve Bank. Also, excess reserves lent by banks to each other.


Federal funds market

The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess reserves.


Federal funds rate

This is the interest rate that banks with excess reserves at a Federal Reserve district bank
charge other banks that need overnight loans. The Fed funds rate, as it is called, often points to the direction
of U.S. interest rates.


Fixed-price tender offer

A one-time offer to purchase a stated number of shares at a stated fixed price,
usually a premium to the current market price.


Forward Fed funds

Fed funds traded for future delivery.


Fund family

Set of funds with different investment objectives offered by one management company. In many
cases, investors may move their assets from one fund to another within the family at little or no cost.


Fundamental analysis

Security analysis that seeks to detect misvalued securities by an analysis of the firm's
business prospects. Research analysis often focuses on earnings, dividend prospects, expectations for future
interest rates, and risk evaluation of the firm.


Fundamental beta

The product of a statistical model to predict the fundamental risk of a security using not
only price data but other market-related and financial data.


Fundamental descriptors

In the model for calculating fundamental beta, ratios in risk indexes other than
market variability, which rely on financial data other than price data.


Funded debt

Debt maturing after more than one year.


Funding ratio

The ratio of a pension plan's assets to its liabilities.


Funding risk

Related: interest rate risk


Funds From Operations (FFO)

Used by real estate and other investment trusts to define the cash flow from
trust operations. It is earnings with depreciation and amortization added back. A similar term increasingly
used is funds Available for Distribution (FAD), which is FFO less capital investments in trust property and
the amortization of mortgages.


Global fund

A mutual fund that can invest anywhere in the world, including the U.S.


Hedge fund

A fund that may employ a variety of techniques to enhance returns, such as both buying and
shorting stocks based on a valuation model.


High-coupon bond refunding

Refunding of a high-coupon bond with a new, lower coupon bond.


Homemade dividend

Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.


Income fund

A mutual fund providing for liberal current income from investments.


Independent project

A project whose acceptance or rejection is independent of the acceptance or rejection of
other projects.


Index fund

Investment fund designed to match the returns on a stockmarket index.


Indicated dividend

Total amount of dividends that would be paid on a share of stock over the next 12 months
if each dividend were the same amount as the most recent dividend. Usually represent by the letter "e" in
stock tables.


International fund

A mutual fund that can invest only outside the United States.


International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.


Lend

To provide money temporarily on the condition that it or its equivalent will be returned, often with an
interest fee.


Liability funding strategies

Investment strategies that select assets so that cash flows will equal or exceed
the client's obligations.


Load fund

A mutual fund with shares sold at a price including a large sales charge -- typically 4% to 8% of
the net amount indicated. Some "no-load" funds have distribution fees permitted by article 12b-1 of the
Investment Company Act; these are typically 0. 25%. A "true no-load" fund has neither a sales charge nor
Freddie Mac program, the aggregation that the fund purchaser receives some investment advice or other
service worthy of the charge.


Low-coupon bond refunding

Refunding of a low coupon bond with a new, higher coupon bond.


Liquidating dividend

Payment by a firm to its owners from capital rather than from earnings.


Match fund

A bank is said to match fund a loan or other asset when it does so by buying (taking) a deposit of
the same maturity. The term is commonly used in the Euromarket.


Money market fund

A mutual fund that invests only in short term securities, such as bankers' acceptances,
commercial paper, repurchase agreements and government bills. The net asset value per share is maintained at
$1. 00. Such funds are not federally insured, although the portfolio may consist of guaranteed securities
and/or the fund may have private insurance protection.


Mutual fund

Mutual funds are pools of money that are managed by an investment company. They offer
investors a variety of goals, depending on the fund and its investment charter. Some funds, for example, seek
to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest
in companies that are growing at a rapid pace. funds can impose a sales charge, or load, on investors when
they buy or sell shares. Many funds these days are no load and impose no sales charge. Mutual funds are
investment companies regulated by the Investment Company Act of 1940.
Related: open-end fund, closed-end fund.


Mutual fund theorem

A result associated with the CAPM, asserting that investors will choose to invest their
entire risky portfolio in a market-index or mutual fund.


Net advantage of refunding

The net present value of the savings from a refunding.


No load mutual fund

An open-end investment company, shares of which are sold without a sales charge.
There can be other distribution charges, however, such as Article 12B-1 fees. A true "no load" fund will have
neither a sales charge nor a distribution fee.


No-load fund

A mutual fund that does not impose a sales commission. Related: load fund


Nonrefundable

Not permitted, under the terms of indenture, to be refundable.


Objective (mutual fund)

The fund's investment strategy category as stated in the prospectus. There are
more than 20 standardized categories.


Open-end fund

Also called a mutual fund, an investment company that stands ready to sell new shares to the
public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of
its portfolio, which is computed daily at the close of the market.


Open-end mortgage

Mortgage against which additional debts may be issued. Related: closed-end mortgage.


Overfunded pension plan

A pension plan that has a positive surplus (i.e., assets exceed liabilities).


Path dependent option

An option whose value depends on the sequence of prices of the underlying asset
rather than just the final price of the asset.


Perfect market view (of dividend policy)

Analysis of a decision on dividend policy, in a perfect capital
market environment, that shows the irrelevance of dividend policy in a perfect capital market.


Planned capital expenditure program

Capital expenditure program as outlined in the corporate financial plan.


Prerefunded bond

Refunded bond.


Private Export Funding Corporation (PEFCO)

Company that mobilizes private capital for financing the
export of big-ticket items by U.S. firms by purchasing at fixed interest rates the medium- to long-term debt
obligations of importers of U.S. products.


Purchase fund

Resembles a sinking fund except that money is used only to purchase bonds if they are selling
below their par value.


Pure index fund

A portfolio that is managed so as to perfectly replicate the performance of the market portfolio.


Refundable

Eligible for refunding under the terms of indenture.


Refunded bond

Also called a prerefunded bond, one that originally may have been issued as a general
obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S.
government obligations that are sufficient for paying the bondholders.


Refunding

The redemption of a bond with proceeds received from issuing lower-cost debt obligations
ranking equal to or superior to the debt to be redeemed.


Regional fund

A mutual fund that invests in a specific geographical area overseas, such as Asia or Europe.


Residual dividend approach

An approach that suggests that a firm pay dividends if and only if acceptable
investment opportunities for those funds are currently unavailable.


Revenue fund

A fund accounting for all revenues from an enterprise financed by a municipal revenue bond.


Single country fund

A mutual fund that invests in individual countries outside the United States.


Signaling view (on dividend policy)

The argument that dividend changes are important signals to investors
about changes in management's expectation about future earnings.



 

 

 

 

 

 

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