at its best
John Hancock closed-end funds
A look at the benefits of closed-end fund discounts
There is no definitive answer as to why closed-end funds typically trade at
discounts to their net asset values (NAVs). While investors tend to view the
discount as a disadvantage, it can in fact be beneficial.
Investors often consider the income potential of closed-end funds when deciding
to invest. Closed-end fund income and capital gains distributions are always made
on a per share basis. When investors purchase closed-end fund shares trading at a
discount to NAV, they receive a higher yield on their investment. Sounds too good
to be true? The example below will show you it’s not.
Assume Joe and Mary each purchase 1,000 shares in a closed-end income fund paying steady monthly dividends of $0.05.
Joe invests at a NAV of $10 per share, at a total cost of $10,000. Mary purchases the fund at a 20% discount to NAV, at a
total cost of $8,000.
Which investor will earn a greater return?
Joe Mary When Mary purchases closed-end fund
Closed-end at NAV Closed-end at 20% discount shares at a 20% discount to NAV, she is
$10,000 $8,000 able to buy the same number of shares
(1,000 @ $10 per share) (1,000 @ $8 per share)
as Joe did, but for $2,000 less, and
Monthly dividend payment
$50 $50 receive the same monthly dividend
at $0.05 per share
payment as Joe.
Closed-end at NAV Closed-end at 20% discount
Price per share* $10 per share $8 per share Based on the example above, we can
further demonstrate the benefit of
Annual dividend $0.60 $0.60
closed-end fund discounts by looking at
Annual dividend yield 6.0% 7.5% Joe’s and Mary’s annual dividend yield.
* All commissions are excluded.
Many investors purchase closed-end Long-term benefit of investing at a discount
fund shares for their ability to pay $30,000
dividends on a monthly, quarterly,
$10,000 investment with a 20% discount
semiannual or annual basis. Whether $10,000 investment without discount
investors choose to reinvest their
dividends or take them in cash, the $20,000
long-term benefit of investing in a
closed-end fund trading at a discount
can be extremely profitable, as
illustrated in the chart on the right. 5 years 10 years
The example is for illustrative purposes only. It assumes an annual rate of return of 10%, with 5% in dividends
Joe and Mary each invest $10,000 reinvested in the fund and 5% in capital appreciation. All taxes and commissions are excluded. This example is
not indicative of John Hancock’s closed-end funds or typical net asset values and market prices.
in a closed-end fund. Joe invests at
a NAV of $10 per share and receives
Ticker Inception Distribution Listed
1,000 shares. Mary purchases the John Hancock Closed-End Funds
year schedule exchange
fund at a 20% discount to NAV for
Bank and Thrift Opportunity Fund Bto 409735107 1994 Quarterly Nyse
$8 per share. She receives 1,250
shares. The example assumes both Income Securities Trust JHs 410123103 1973 Quarterly Nyse
funds consistently pay annual dividends
Investors Trust JHI 410142103 1971 Quarterly Nyse
of $0.50 per share which are reinvested
in the funds and have identical Patriot Premium Dividend Fund II PDt 41013t105 1989 Monthly Nyse
performance records, with both funds Preferred Income Fund HPI 41013W108 2002 Monthly Nyse
appreciating 5% per year.
Preferred Income Fund II HPF 41013X106 2002 Monthly Nyse
Although Joe and Mary both invest an
Preferred Income Fund III HPs 41021P103 2003 Monthly Nyse
initial $10,000, the discount allows
Mary to purchase additional shares Tax-Advantaged Dividend
HtD 41013v100 2004 Monthly Nyse
and receive more in dividend income.
Over a 10-year period, Mary would Tax-Advantaged Global
Hty 41013P749 2007 Quarterly Nyse
receive an additional $2,300.
If you are interested in investing in any of the John Hancock closed-end funds, please contact your
financial professional. For current fund information, including daily NAVs and market prices, or to
request closed-end fund literature, call 1-800-843-0090 or visit our Web site at www.jhfunds.com.
Closed-end fund shares are not redeemable, but instead are traded in the secondary market and frequently trade at a discount to
net asset value. Specialized funds may carry additional risks.
Not FDIC INsureD. May lose value. No BaNk guaraNtee. Not INsureD By aNy goverNMeNt ageNCy.
John Hancock Funds, LLC
601 Congress street n Boston, Ma 02210-2805
1-800-225-6020 n www.jhfunds.com rMs34 11/07