Closed-end Funds paying hefty dividends

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An often-sleepy corner of the mutual-fund world is enjoying a sudden boom: "closed-end" funds. Like exchange-traded funds, or ETFs, closed-end funds trade on a stock market but may have certain trading quirks, limiting their appeal. Now, fund companies are overhauling these funds' investment strategies and rolling out new offerings, and investors are snapping them up.More than $13 billion has been raised in closed-end funds this year, or more money than was raised in all of 2006. More than 30 such IPOs are expected at the NYSE this year. One of the biggest quirks of closed-end funds -- their tendency to trade at a discount to the underlying portfolio -- is also improving.In March, the median discount for all closed-end funds narrowed nearly a full percentage point, to 2.34% -- the lowest discount in the past 12 months. Today, about 35% of such funds are trading at a premium, compared with about 20% in 2005, according to fund researcher Lipper.Closed-end-fund providers have been focusing on a strategy searching out stocks that pay big dividends. One goal is to take advantage of recent tax-law changes that can lower taxes on dividend income if funds hold the stocks for a certain amount of time- Wall Street Journal

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