
Consider the following example:
Investment A is an openend mutual fund selling for $1 a share that provides a total return of 10% a year on average, of which 6% is price appreciation and 4% of the NAV (or 4 cents a share) is an annual income distribution. If one were to invest $10,000 in this fund, he or she would have 10,000 shares, and after the average year's results (for simplicity, disregarding taxes and commissions or fees [or figuring most would be offset due to the purchase being a nofee fund for a taxdeferred account]) the asset would be worth $10,600 and would have provided $400 of income, that is 4.00% of the $10,000 investment.
Investment B is a closedend fund selling for $0.90 a share, i. e at a 10% discount to its NAV of $1 per share. It also provides a total return of 10% a year on average, of which 4% of the NAV (or 4 cents a share) is an annual income distribution. If one were to invest $10,000 in this fund, he or she would start with 11,111 shares ($10,000 divided by $0.90), and after an average year's returns the asset would be worth $10,600 and would have provided $444 of income, that is, 4.44% of the $10,000 investment.
In short, everything else being equal, the closedend fund selling at a discount to its NAV provides an income advantage over openend funds approximately equal to the percentage discount.
Due to the power of compounding of the principal, the differences in annual income distributions between the open and closedend funds would over time be significant.
 