Glossary

Capital Shares

Capital Shares benefit from capital appreciation in the market price of the portfolio shares after payment of administrative and operating expenses of the Company, and the dividend on the Preferred Shares.

Closed-End Funds

A closed-end fund (CEF) is a publicly traded investment company. It collects money from investors through an initial public offering (IPO) and uses this money to invest in securities. CEFs issue only a fixed number of shares and trade on stock exchanges.

Discount/Premium

Sometimes, when demand exceeds supply, the market price at which the share of a CEF trade may be at a premium to the NAV. That is, the shares of the CEF cost more than its NAV. Likewise when supply exceeds demand, the shares of the CEF may trade at a discount to its NAV, that is the shares of the CEF cost less than its NAV. For example, if the NAV of a CEF is $10 and its market price is $12, the CEF is trading at a premium of 20%. If the NAV is $10 and its market price is $8, the CEF is trading at a discount of 20%. The premium/discount may be computed using the following formula:

Premium/Discount = (Market Price - NAV) / NAV

Though some funds trade at a premium, the majority of CEFs trade at a discount.

Downside Protection

Downside protection is the amount by which the value of the underlying portfolio of common shares can decline in value before the redemption value of the preferred share is affected. For example, if a split preferred share has downside protection of 50%, it means that the underlying portfolio can decline in value by 50% before the principal value of the split preferred share is affected.

Leverage

The magnified return (positive or negative) that investors will derive from any subsequent change in the market value of the portfolio shares.

Net Asset Value

The net asset value (NAV) is the current worth of a share of the CEF. It is computed by deducting the total liabilities from the total assets of the CEF, and dividing the result by the number of outstanding shares/units.

NAV = (Total Assets - Total Liabilities) / Shares Outstanding

Preferred Shares

Shares that rank ahead of common shares in their claims on dividends and in their claim on assets in the event of liquidation.

Retractions

Retractions are designed to ensure that the capital shares trade at their intrinsic value. There are monthly retractions at a large discount, usually 5%, and annual retractions at intrinsic value.

Even though both the capital and preferred shares are listed, they are also redeemable at any time. Because of the listing and the manner in which the retraction prices are calculated, investors are almost always better off selling their shares on the market rather than retracting them.