Closed-end mutual funds are suddenly the darlings of the brokerage biz. After years of hardly rating a mention in the tip sheets, 47 new funds have been sold in the past 19 months and seven or eight more are in the pipeline. Nuveen's $1.5 billion Municipal Value Fund, brought to market in June, was the largest public offering in Wall Street's history.

How long can the romance last? As long as it takes new customers to learn that they're probably buying into a loss. You can find some great plays in older closed-end funds, but buying a new fund is like taking a dip in an alligator swamp. Eventually, you're going to get chomped.

The reason lies in the structure of closed-end funds. Unlike traditional mutual funds, they will not redeem your shares at net asset value (which reflects the current worth of the fund's investments). Instead, their shares trade on a stock exchange, priced according to supply and demand.

When interest is strong, the stock price can run higher than the fund's net asset value. It's then said to be trading at a premium -- the ideal state for a closed-end fund, but rarely reached.

More often, closed-end funds trade at a discount, which is something less than net asset value. For example, you could buy $10.08 worth of assets in the Growth Stock Outlook Trust last month for only $8.88 -- a 12 percent haircut. That fund came out in 1986 at $10 a share, so its first investors lost.

When brokers beat the drums for a new closed-end fund, they're always promising that it will sell for a premium. That's how they get investors to buy. But in fact, the life cycle of a typical closed-end fund runs roughly like this:

The initial buyers pay 6 to 8 percent more than the fund is worth to cover the broker's underwriting commission. There are no "no-load" (no underwriting commission) closed-end funds. A fund that borrows the money to pay the commission is not a no-load, although some brokers might claim that it is.

During the first three months, the fund tends to trade at a premium because the issuing brokerages support the price. Gladdened investors break out the champagne.

After that, the fund is left to find its own level, usually down. Buyers cork up the bubbly and complain to their brokers. The average discount on stock funds brought out in the past two years, and that have passed their three-month birthdays, is 14 percent, says Miami broker Thomas Herzfeld, who specializes in these investments.

The early money is made by sophisticated traders who sell the new funds short. They're betting that the price will drop, and they're usually right.

The later money goes to investors who let the fund drop to a substantial discount and then buy in. If its market value rises, so should your shares. With any luck, the discount might rise from, say, 15 percent below net asset value to only 5 percent below. That gives you an even better return.

One fascinating gamble is a trading system developed by Seth C. Anderson, a finance professor at Auburn University in Auburn, Ala. He studied what happens when you let closed-end stock funds drop to various discounts, buy them, then sell when the discounts narrow by a certain amount. Over each of the three time periods he tested, he handily beat the market averages, often by 200 to 300 percent.

His most successful strategy was buying closed-end stock funds when their discount exceeded 20 percent and selling them when the discount narrowed to 15 percent. From 1977 to 1984, that yielded a return of 447 percent, compared with 126 percent for Standard & Poor's 500-stock index.

Why do discounts shrink? Buyers get interested in the fund -- because of its performance, yield or some other reason. Discounts widen again when the market goes bad or buyers jump onto some other bandwagon.

The funds of the hour on Wall Street invest not in stocks but in bonds, and they seem to be defying the odds. Instead of selling at discounts, 23 out of 34 are selling at premiums to net asset value. Like the stock flacks before them, the bond flacks say that their new funds won't go to a discount, because investors pay extra for income.

But historically, closed-end bond funds have indeed sold at discounts, Anderson says, although not as large as the discounts on equity funds. Your best strategy on all closed-ends: Buy on deep discounts and hold for better time