Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of GAMCO Global Gold,
Natural Resources & Income Trust (the “Fund”) as of December 31, 2022, the related statement of operations for
the year ended December 31, 2022, the statement of changes in net assets attributable to common shareholders for each of the two
years in the period ended December 31, 2022 , including the related notes, and the financial highlights for each of the five years
in the period ended December 31, 2022 (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, the
results of its operations for the year then ended, the changes in its net assets attributable to common shareholders for each
of the two years in the period ended December 31, 2022, and the financial highlights for each of the five years in the period
ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers;
when replies were not received from the brokers, we performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/PricewaterhouseCoopers
LLP
New
York, New York
March
1, 2023
We
have served as the auditor of one or more investment companies in the Gabelli Fund Complex since 1986.
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Unaudited)
Delaware
Statutory Trust Act – Control Share Acquisitions
The
Fund is organized as a Delaware statutory trust and thus is subject to the control share acquisition statute contained in Subchapter
III of the Delaware Statutory Trust Act (the DSTA Control Share Statute). The DSTA Control Share Statute applies to any closed-end
investment company organized as a Delaware statutory trust and listed on a national securities exchange, such as the Fund. The
DSTA Control Share Statute became automatically applicable to the Fund on August 1, 2022.
The
DSTA Control Share Statute defines “control beneficial interests” (referred to as “control shares” herein)
by reference to a series of voting power thresholds and provides that a holder of control shares acquired in a control share acquisition
has no voting rights under the Delaware Statutory Trust Act (DSTA) or the Fund’s Governing Documents (as used herein, “Governing
Documents” means the Fund’s Agreement and Declaration of Trust and By-Laws, together with any amendments or supplements
thereto, including any Statement of Preferences establishing a series of preferred shares) with respect to the control shares
acquired in the control share acquisition, except to the extent approved by the Fund’s shareholders by the affirmative vote
of two–thirds of all the votes entitled to be cast on the matter, excluding all interested shares (generally, shares held
by the acquiring person and their associates and shares held by Fund insiders).
The
DSTA Control Share Statute provides for a series of voting power thresholds above which shares are considered control shares.
Whether one of these thresholds of voting power is met is determined by aggregating the holdings of the acquiring person as well
as those of his, her or its “associates.” These thresholds are:
| ● | 10%
or more, but less than 15% of all voting power; |
| ● | 15%
or more, but less than 20% of all voting power; |
| ● | 20%
or more, but less than 25% of all voting power; |
| ● | 25%
or more, but less than 30% of all voting power; |
| ● | 30%
or more, but less than a majority of all voting power; or |
| ● | a
majority or more of all voting power. |
Under
the DSTA Control Share Statute, once a threshold is reached, an acquirer has no voting rights with respect to shares in excess
of that threshold (i.e., the “control shares”) until approved by a vote of shareholders, as described above, or otherwise
exempted by the Fund’s Board of Trustees. The DSTA Control Share Statute contains a statutory process for an acquiring person
to request a shareholder meeting for the purpose of considering the voting rights to be accorded control shares. An acquiring
person must repeat this process at each threshold level.
Under
the DSTA Control Share Statute, an acquiring person’s “associates” are broadly defined to include, among others,
relatives of the acquiring person, anyone in a control relationship with the acquiring person, any investment fund or other collective
investment vehicle that has the same investment adviser as the acquiring person, any investment adviser of an acquiring person
that is an investment fund or other collective investment vehicle and any other person acting or intending to act jointly or in
concert with the acquiring person.
Voting
power under the DSTA Control Share Statute is the power (whether such power is direct or indirect or through any contract, arrangement,
understanding, relationship or otherwise) to directly or indirectly exercise or direct the exercise of the voting power of shares
of the Fund in the election of the Fund’s Trustees (either
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Continued) (Unaudited)
generally
or with respect to any subset, series or class of trustees, including any Trustees elected solely by a particular series or class
of shares, such as the preferred shares). Thus, Fund preferred shares, including the Series B Preferred Shares, acquired in excess
of the above thresholds would be considered control shares with respect to the preferred share class vote for two Trustees.
Any
control shares of the Fund acquired before August 1, 2022 are not subject to the DSTA Control Share Statute; however, any further
acquisitions on or after August 1, 2022 are considered control shares subject to the DSTA Control Share Statute.
The
DSTA Control Share Statute requires shareholders to disclose to the Fund any control share acquisition within 10 days of such
acquisition, and also permits the Fund to require a shareholder or an associate of such person to disclose the number of shares
owned or with respect to which such person or an associate thereof can directly or indirectly exercise voting power. Further,
the DSTA Control Share Statute requires a shareholder or an associate of such person to provide to the Fund within 10 days of
receiving a request therefor from the Fund any information that the Fund’s Trustees reasonably believe is necessary or desirable
to determine whether a control share acquisition has occurred.
The
DSTA Control Share Statute permits the Fund’s Board of Trustees, through a provision in the Fund’s Governing Documents
or by Board action alone, to eliminate the application of the DSTA Control Share Statute to the acquisition of control shares
in the Fund specifically, generally, or generally by types, as to specifically identified or unidentified existing or future beneficial
owners or their affiliates or associates or as to any series or classes of shares. The DSTA Control Share Statute does not provide
that the Fund can generally “opt out” of the application of the DSTA Control Share Statute; rather, specific acquisitions
or classes of acquisitions may be exempted by the Fund’s Board of Trustees, either in advance or retroactively, but other
aspects of the DSTA Control Share Statute, which are summarized above, would continue to apply. The DSTA Control Share Statute
further provides that the Board of Trustees is under no obligation to grant any such exemptions.
The
foregoing is only a summary of the material terms of the DSTA Control Share Statute. Shareholders should consult their own counsel
with respect to the application of the DSTA Control Share Statute to any particular circumstance.
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Unaudited)
SUMMARY
OF FUND EXPENSES
The
following table shows the Fund’s expenses, including preferred shares offering expenses, as a percentage of net assets attributable
to common shares. All expenses of the Fund are borne, directly or indirectly, by the common shareholders. The table is based on
the capital structure of the Fund as of December 31, 2021. The purpose of the table and example below is to help you understand
all fees and expenses that you, as a holder of common shares, would bear directly or indirectly.
| Shareholder Transaction Expenses | |
|
| Sales Load (as a percentage of offering price) | |
-% (a) |
| Offering Expenses Borne by the Fund | |
|
| (excluding Preferred Shares Offering Expenses) (as a percentage of offering price) | |
-% (a) |
| Dividend Reinvestment and Voluntary Cash Purchase Plan | |
|
| Fees | |
|
| Purchase Transactions | |
$1.00(b) |
| | |
|
Annual Expenses (as a percentage of net assets
attributable to common shares) | |
Percentages of Net Assets
Attributable to Common Shares |
| Management Fees | |
1.14 | %(c) |
| Other Expenses | |
0.24 | %(c) |
| Total Annual Expenses | |
1.38 | % |
| Dividends on Preferred Shares | |
0.71 | %(d) |
| Total Annual Expenses and Dividends on Preferred Shares | |
2.09 | % |
| (a) | If
common shares are sold to or through underwriters or dealer managers, a prospectus or prospectus supplement will set forth any
applicable sales load and the estimated offering expenses borne by the Fund. |
| (b) | Shareholders
participating in the Fund’s automatic dividend reinvestment plan do not incur any additional fees. Shareholders participating
in the voluntary cash purchase plan would pay $1.00 plus their pro rata share of brokerage commissions per transaction to purchase
shares and just their pro rata share of brokerage commissions per transaction to sell shares. See “Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan.” |
| (c) | The
Investment Adviser’s fee is 1.00% annually of the Fund’s average weekly net assets, with no deduction for the liquidation
preference of any preferred shares. Consequently, since the Fund has preferred shares or notes outstanding, all else being equal,
the investment management fees and other expenses as a percentage of net assets attributable to common shares are higher than
if the Fund did not utilize a leveraged capital structure. “Other Expenses” are based on estimated amounts for the
current year ended December 31, 2022. |
| (d) | Dividends
on Preferred Shares represent the estimated annual distributions on the existing preferred shares outstanding. |
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Continued) (Unaudited)
For
a more complete description of the various costs and expenses a common shareholder would bear in connection with the issuance
and ongoing maintenance of any preferred shares or notes issued by the Fund, see “Risk Factors and Special Considerations—Leverage
Risk.”
The
following example illustrates the expenses you would pay on a $1,000 investment in common shares, assuming a 5% annual portfolio
total return.* The actual amounts in connection with any offering will be set forth in the Prospectus Supplement if applicable.
| | |
1
Year | |
3
Year | |
5
Year | |
10
Year |
| Total Expenses Incurred | |
$21 | |
$66 | |
$113 | |
$243 |
| * | *The
example should not be considered a representation of future expenses. The example is
based on total Annual Expenses and Dividends on Preferred Shares shown in the table above
and assumes that the amounts set forth in the table do not change and that all distributions
are reinvested at net asset value. Actual expenses may be greater or less than those
assumed. Moreover, the Fund’s actual rate of return may be greater or less than
the hypothetical 5% return shown in the example. |
The
example includes Dividends on Preferred Shares. If Dividends on Preferred Shares were not included in the example calculation,
the expenses for the 1-, 3-, 5- and 10-year periods in the table above would be as follows (based on the same assumptions as above):
$14, $44, $76, and $167.
The
Fund’s common shares are listed on the NYSE American under the trading or “ticker” symbol “GGN.”
The Fund’s Series B Cumulative Preferred Shares are listed on the NYSE American under the ticker symbol “GGN PrB.”
See “Description of the Securities” in the Prospectus. The Fund’s common shares have historically traded at
a discount to the Fund’s net asset value. Over the past ten years, the Fund’s common shares have traded at a premium
to net asset value as high as 14.05% and a discount as low as (25.36)%. Any additional series of fixed rate preferred shares or
subscription rights issued in the future pursuant to a Prospectus Supplement by the Fund would also likely be listed on the NYSE
American.
The
following table sets forth for the quarters indicated, the high and low sale prices on the NYSE American per share of our common
shares and the net asset value and the premium or discount from net asset value per share at which the common shares were trading,
expressed as a percentage of net asset value, at each of the high and low sale prices provided.
GAMCO
Global Gold, Natural Resources & Income Trust
Additional Fund Information (Continued) (Unaudited)
| | |
| |
| |
|
|
| |
| |
|
| | |
| |
| |
Corresponding | |
| |
|
| | |
| |
| |
Net Asset | |
Corresponding |
| | |
| |
| |
Value | |
Premium or |
| | |
Common Share | |
(“NAV”) Per | |
Discount as a % |
| | |
Market Price | |
Share | |
of NAV |
| Quarter Ended | |
High | |
Low | |
High | |
Low | |
High | |
Low |
| March 31, 2021 | |
$3.73 | |
$3.37 | |
$4.21 | |
$3.78 | |
(11.40)% | |
(10.85)% |
| June 30, 2021 | |
$4.29 | |
$3.52 | |
$4.00 | |
$3.97 | |
0.94% | |
(11.33)% |
| September 30, 2021 | |
$4.08 | |
$3.67 | |
$4.02 | |
$3.67 | |
2.00% | |
0.00% |
| December 31, 2021 | |
$4.02 | |
$3.65 | |
$4.05 | |
$3.73 | |
0.00% | |
(2.14)% |
| March 31, 2022 | |
$4.07 | |
$3.64 | |
$4.24 | |
$3.84 | |
(4.01)% | |
(5.21)% |
| June 30, 2022 | |
$4.12 | |
$3.59 | |
$4.35 | |
$3.64 | |
(5.29)% | |
(1.37)% |
| September 30, 2022 | |
$3.66 | |
$3.08 | |
$3.67 | |
$3.18 | |
(0.27)% | |
(3.14)% |
| December 31, 2022 | |
$3.63 | |
$3.27 | |
$3.87 | |
$3.34 | |
(6.20)% | |
(2.10)% |
The
last reported price for our common shares on December 31, 2022 was $3.63 per share. As of December 31, 2022, the net asset value
per share of the Fund’s common shares was $3.87. Accordingly, the Fund’s common shares traded at a discount to net
asset value of (6.20)% on December 31, 2022.
Outstanding
Securities
The
following information regarding the Fund’s authorized shares is as of December 31, 2022.
| | |
| |
Amount Held by | |
Amount Outstanding Exclusive of |
| Title of Class | |
Amount Authorized | |
Fund for its Account | |
Amount Held by Fund |
| Common Shares | |
Unlimited | |
— | |
154,158,319 |
| 5.00% Series B Cumulative Preferred Shares | |
Unlimited | |
— | |
3,416,423 |
Unresolved
SEC Staff Comments
The
Fund does not believe that there are any material unresolved written comments, received 180 days or more before December 31, 2022
from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act of 1934
or the Investment Company Act of 1940, or its registration statement.
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Continued) (Unaudited)
Selected
data for a common share of beneficial interest outstanding throughout each year.
| | |
Year Ended December 31, | |
| | |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| Operating Performance: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net asset value, beginning of year | |
$ | 5.68 | | |
$ | 5.34 | | |
$ | 7.35 | | |
$ | 9.94 | | |
$ | 13.26 | |
| Net investment income | |
| 0.06 | | |
| 0.03 | | |
| 0.02 | | |
| 0.03 | | |
| 0.07 | |
| Net realized and unrealized gain/(loss) on investments, securities sold short, written options, and foreign currency transactions | |
| 0.35 | | |
| 1.15 | | |
| (1.15 | ) | |
| (1.51 | ) | |
| (1.89 | ) |
| Total from investment operations | |
| 0.41 | | |
| 1.18 | | |
| (1.13 | ) | |
| (1.48 | ) | |
| (1.82 | ) |
| Distributions to Preferred Shareholders: (a) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net investment income | |
| (0.03 | ) | |
| (0.00 | )(b) | |
| (0.00 | )(b) | |
| (0.02 | ) | |
| (0.00 | )(b) |
| Net realized gain | |
| — | | |
| — | | |
| — | | |
| — | | |
| (0.05 | ) |
| Return of capital | |
| — | | |
| (0.04 | ) | |
| (0.04 | ) | |
| (0.02 | ) | |
| — | |
| Total distributions to preferred shareholders | |
| (0.03 | ) | |
| (0.04 | ) | |
| (0.04 | ) | |
| (0.04 | ) | |
| (0.05 | ) |
| Net increase/(decrease) in net assets attributable to common shareholders resulting from operations | |
| 0.38 | | |
| 1.14 | | |
| (1.17 | ) | |
| (1.52 | ) | |
| (1.87 | ) |
| Distributions to Common Shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net investment income | |
| (0.05 | ) | |
| (0.04 | ) | |
| (0.02 | ) | |
| — | | |
| (0.06 | ) |
| Net realized gain | |
| — | | |
| — | | |
| — | | |
| — | | |
| (0.75 | ) |
| Return of capital | |
| (0.55 | ) | |
| (0.80 | ) | |
| (0.82 | ) | |
| (1.08 | ) | |
| (0.63 | ) |
| Total distributions to common shareholders | |
| (0.60 | ) | |
| (0.84 | ) | |
| (0.84 | ) | |
| (1.08 | ) | |
| (1.44 | ) |
| Fund Share Transactions: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Increase in net asset value from issuance of common shares | |
| 0.00 | (b) | |
| 0.04 | | |
| — | | |
| 0.01 | | |
| 0.01 | |
| Increase in net asset value from repurchase of common shares | |
| — | | |
| 0.00 | (b) | |
| 0.00 | (b) | |
| — | | |
| 0.00 | (b) |
| Increase in net asset value from repurchase of preferred shares and transaction fees | |
| 0.00 | (b) | |
| 0.00 | (b) | |
| 0.00 | (b) | |
| 0.00 | (b) | |
| 0.01 | |
| Offering costs for preferred shares charged to paid-in capital | |
| — | | |
| — | | |
| — | | |
| — | | |
| (0.03 | ) |
| Adjustments to offering costs for preferred shares credited to paid-in capital | |
| — | | |
| — | | |
| — | | |
| 0.00 | (b) | |
| — | |
| Total Fund share transactions | |
| — | | |
| 0.04 | | |
| 0.00 | (b) | |
| 0.01 | | |
| (0.01 | ) |
| Net Asset Value, End of Year | |
$ | 5.46 | | |
$ | 5.68 | | |
$ | 5.34 | | |
$ | 7.35 | | |
$ | 9.94 | |
| NAV total return † | |
| 7.05 | % | |
| 22.67 | % | |
| (17.59 | )% | |
| (17.23 | )% | |
| (14.62 | )% |
| Market value, end of year | |
$ | 5.21 | | |
$ | 5.30 | | |
$ | 4.75 | | |
$ | 7.00 | | |
$ | 9.02 | |
| Investment total return †† | |
| 9.61 | % | |
| 29.39 | % | |
| (22.14 | )% | |
| (13.01 | )% | |
| (19.51 | )% |
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Continued) (Unaudited)
Selected
data for a common share of beneficial interest outstanding throughout each year.
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
Year Ended December 31, | |
| | |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| Ratios to Average Net Assets and Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net assets including liquidation value of preferred shares, end of year (in 000’s) | |
$ | 828,655 | | |
$ | 853,079 | | |
$ | 691,468 | | |
$ | 920,538 | | |
$ | 1,152,361 | |
| Net assets attributable to common shares, end of year (in 000’s) | |
$ | 740,746 | | |
$ | 764,312 | | |
$ | 601,745 | | |
$ | 828,027 | | |
$ | 1,057,668 | |
| Ratio of net investment income to average net assets attributable to common shares | |
| 1.13 | % | |
| 0.44 | % | |
| 0.30 | % | |
| 0.21 | % | |
| 0.59 | % |
| Ratio of operating expenses to average net assets attributable to
common shares | |
| 1.31 | %(c)(d) | |
| 1.32 | %(c)(d) | |
| 1.29 | %(c) | |
| 1.24 | % | |
| 1.20 | % |
| Ratio of operating expenses to average net assets including liquidation value of preferred shares | |
| 1.17 | %(c)(d) | |
| 1.18 | %(c)(d) | |
| 1.15 | %(c) | |
| 1.14 | % | |
| 1.11 | % |
| Portfolio turnover rate | |
| 214.6 | % | |
| 198.4 | % | |
| 36.0 | % | |
| 87.4 | % | |
| 83.7 | % |
| Cumulative Preferred Shares: | |
| | | |
| | | |
| | | |
| | | |
| | |
| 5.000% Series B Preferred | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year (in 000’s) | |
$ | 87,909 | | |
$ | 88,767 | | |
$ | 89,724 | | |
$ | 92,512 | | |
$ | 94,693 | |
| Total shares outstanding (in 000’s) | |
| 3,516 | | |
| 3,551 | | |
| 3,589 | | |
| 3,700 | | |
| 3,788 | |
| Liquidation preference per share | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | |
| Average market value (e) | |
$ | 24.13 | | |
$ | 23.81 | | |
$ | 22.03 | | |
$ | 21.28 | | |
$ | 21.00 | |
| Asset coverage per share | |
$ | 236 | | |
$ | 240 | | |
$ | 193 | | |
$ | 249 | | |
$ | 304 | |
| Asset coverage | |
| 943 | % | |
| 961 | % | |
| 771 | % | |
| 995 | % | |
| 1,217 | % |
| † | Based
on net asset value per share, adjusted for reinvestment of distributions at the net asset
value per share on the ex-dividend dates. |
| †† | Based
on market value per share, adjusted for reinvestment of distributions at prices obtained
under the Fund’s dividend reinvestment plan. |
| (a) | Calculated
based on average common shares outstanding on the record dates throughout the years. |
| (b) | Amount
represents less than $0.005 per share. |
| (c) | The
Fund received credits from a designated broker who agreed to pay certain Fund operating
expenses. For the years ended December 31, 2017, 2016, and 2015, there was no impact
on the expense ratios. |
| (d) | The
Fund incurred dividend expenses on securities sold short. If this expense had not been
incurred, the expense ratios for the years ended December 31, 2017 and 2016 would have
been 1.30% and 1.31% attributable to common shares, respectively, and 1.16% and 1.17%
including liquidation value of preferred shares, respectively. |
| (e) | Based
on weekly prices. |
CHANGES
OCCURRING DURING THE PRIOR FISCAL PERIOD
The
following information is a summary of certain changes during the most recent fiscal year ended December 31, 2022. This information
may not reflect all of the changes that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objective or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
On
August 17, 2022, the Board of Trustees of the Fund approved and adopted Amendment No. 1 (“Amendment No. 1”) to the
Fund’s Third Amended and Restated By-Laws (“By-Laws”), as filed with the Securities and
GAMCO
Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Continued) (Unaudited)
Exchange
Commission on August 24, 2022 as an exhibit to Post-Effective Amendment No. 2 to the Fund’s Registration Statement on Form
N-2. Pursuant to Amendment No. 1:
| ● | the
vote necessary to elect one or more trustees is a majority of the shares outstanding and entitled to vote in a Contested Election
and a plurality of the shares present and entitled to vote in all other cases. The Fund’s By-Laws generally define a “Contested
Election” as any election of trustees in which the number of persons nominated for election as trustees by shares entitled
to vote for such trustees in accordance with the Fund’s By-Laws exceeds the number of trustees to be elected by shares entitled
to vote for such trustees. |
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives
The
Fund’s primary investment objective is to provide a high level of current income. The Fund’s secondary investment
objective is to seek capital appreciation consistent with the Fund’s strategy and its primary objective. Under normal market
conditions, the Fund will attempt to achieve its objectives by investing at least 80% of its assets in equity securities of companies
principally engaged in the gold industry and the natural resources industries. The Fund will invest at least 25% of its assets
in the equity securities of companies principally engaged in the gold industry, which includes companies principally engaged in
the exploration, mining, fabrication, processing, distribution or trading of gold or the financing, managing, controlling or operating
of companies engaged in “gold-related” activities. In addition, the Fund will invest at least 25% of its assets in
the equity securities of companies principally engaged in the group of industries that constitute the natural resources industries,
which include companies principally engaged in the exploration, production or distribution of natural resources, such as gas,
oil, paper, food and agriculture, forestry products, metals (other than gold) and minerals as well as related transportation companies
and equipment manufacturers. The Fund may invest in the securities of companies located anywhere in the world. Under normal market
conditions, the Fund will invest at least 40% of its assets in the securities of issuers located in at least three countries other
than the United States. For this purpose an issuer will be treated as located outside the United States if it is either organized
or headquartered outside the United States and has a substantial portion of its operations or sales outside the United States.
Equity securities may include common stocks, preferred stocks, convertible securities, warrants, depository receipts and equity
interests in trusts and other entities. Other Fund investments may include investment companies, securities of issuers subject
to reorganization or other risk arbitrage investments, certain derivative instruments, debt (including obligations of the United
States government) and money market instruments. The Fund may invest up to 10% of its total assets in securities rated below investment
grade by recognized statistical rating agencies or unrated securities of comparable quality, including securities of issuers in
default, which are likely to have the lowest rating. These securities, which may be preferred shares or debt, are predominantly
speculative and involve major risk exposure to adverse conditions. Securities that are rated lower than “BBB” by S&P,
or lower than “Baa” by Moody’s or unrated securities considered by the Investment Adviser to be of comparable
quality, are commonly referred to as “junk bonds” or “high yield” securities.
As
part of its investment strategy, the Fund intends to generate gains through an option strategy of writing (selling) covered call
options on equity securities in its portfolio. When the Fund sells a covered call option,
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it
generates gains in the form of the premium paid by the buyer of the call option, but the Fund forgoes the opportunity to participate
in any increase in the value of the underlying equity security above the exercise price of the option. There can be no assurance
that the Fund will achieve its investment objectives.
Investment
Methodology of the Fund
In
selecting securities for the Fund, the Investment Adviser normally considers the following factors, among others:
| ● | The
industry of the issuer of a security; |
| ● | the
potential of the Fund to earn gains from writing covered call options on such securities; |
| ● | the
interest or dividend income generated by the securities; |
| ● | the
potential for capital appreciation of the securities; |
| ● | the
prices of the securities relative to comparable securities; |
| ● | whether
the securities are entitled to the benefits of call protection or other protective covenants; |
| ● | the
existence of any anti-dilution protections or guarantees of the security; and |
| ● | the
number and size of investments of the portfolio as to issuers. |
The
Investment Adviser’s investment philosophy with respect to selecting investments in the gold industry and the natural resources
industries is to emphasize quality and value, as determined by such factors as asset quality, balance sheet leverage, management
ability, reserve life, cash flow, and commodity hedging exposure. In addition, in making stock selections, the Investment Adviser
looks for securities that it believes may have a superior yield as well as capital gains potential.
Current
Investment Practices
Gold
Industry Concentration. Under normal market conditions the Fund will invest at least 25% of its assets in the equity securities
of Gold Companies. “Gold Companies” are those Companies that are principally engaged in the gold industry, which includes
companies principally engaged in the exploration, mining, fabrication, processing, distribution or trading of gold, or the financing,
managing, controlling or operating of companies engaged in “gold-related” activities. The Fund’s investments
in Gold Companies will generally be in the common equity of Gold Companies, but the Fund may also invest in other securities of
Gold Companies, such as preferred stocks, securities convertible into common stocks, and securities such as rights and warrants
that have common stock characteristics.
In
selecting investments in Gold Companies for the Fund, the Investment Adviser will focus on stocks that are undervalued, but which
appear to have favorable prospects for growth. Factors considered in this determination will include capitalization per ounce
of gold production, capitalization per ounce of recoverable reserves, quality of management and ability to create shareholder
wealth. Because most of the world’s gold production is outside of the United States, the Fund may have a significant portion
of its investments in Gold Companies in securities of foreign issuers, including those located in developed as well as emerging
markets. The percentage of Fund assets invested in particular countries or regions will change from time to time based on the
Investment Adviser’s judgment. Among other things, the Investment Adviser will consider the economic stability and economic
outlook of these countries and regions. See “Risk Factors and Special Considerations—Industry Risks.”
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Natural
Resources Industries Concentration. Under normal market conditions, the Fund will invest at least 25% of its assets in equity
securities of Natural Resources Companies. “Natural Resources Companies” are those that are principally engaged in
the group of industries that constitute the natural resources industries, which include companies principally engaged in the exploration,
production or distribution of energy or natural resources, such as gas, oil, paper, food and agriculture, forestry products, metals
(other than gold) and minerals as well as related transportation companies and equipment manufacturers.”
Principally
engaged, as used in this Annual Report, means a company that derives at least 50% of its revenues or earnings or devotes at least
50% of its assets to gold or natural resources related activities, as the case may be.
Covered
Calls and Other Option Transactions. The Fund intends to generate gains through an option strategy which will normally consist
of writing (selling) call options on equity securities in its portfolio (“covered calls”), but may, in amounts up
to 15% of the Fund’s assets, consist of writing uncovered call options on additional amounts of such securities beyond the
amounts held in its portfolio, on other securities not held in its portfolio, on indices comprised of Gold Companies or Natural
Resources Companies or on exchange traded funds comprised of such issuers and also may consist of writing put options on securities
in its portfolio. Writing a covered call is the selling of an option contract entitling the buyer to purchase an underlying security
that the Fund owns, while writing an uncovered call is the selling of such a contract entitling the buyer to purchase a security
the Fund does not own or in an amount in excess of the amount the Fund owns. When the Fund sells a call option, it generates gains
in the form of the premium paid by the buyer of the call option, but the Fund forgoes the opportunity to participate in any increase
in the value of the underlying equity security above the exercise price of the option. The writer of the call option has the obligation,
upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price during the option
period.
A
put option is the reverse of a call option, giving the buyer the right, in return for a premium, to sell the underlying security
to the writer, at a specified price, and obligating the writer to purchase the underlying security from the holder at that price.
When the Fund sells a put option, it generates gains in the form of the premium paid by the buyer of the put option, but the Fund
will have the obligation to buy the underlying security at the exercise price if the price of the security decreases below the
exercise price of the option.
If
the Fund has written a call option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing a call option with the same terms as the option previously written. However, once the Fund has been assigned an
exercise notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an
option, it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option with
the same terms as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction
can be effected when the Fund so desires.
The
Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium it received from
writing the option or is more than the premium it paid to purchase the option; the Fund will realize a loss from a closing transaction
if the price of the transaction is more than the premium it received from writing the option or is less than the premium it paid
to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss
resulting from the repurchase of a call option may also
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be
wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the current market price and price volatility of the
underlying security and the time remaining until the expiration date of the option. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to predict correctly the effect of these factors. The use of options
cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow the
price movements of the portfolio securities subject to the hedge.
An
option position may be closed out only on an exchange that provides a secondary market for an option with the same terms or in
a private transaction. Although the Fund will generally purchase or write options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event,
it might not be possible to effect closing transactions in particular options, in which case the Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent
disposition of underlying securities for the exercise of put options.
Although
the Investment Adviser will attempt to take appropriate measures to minimize the risks relating to the Fund’s writing and
purchasing of put and call options, there can be no assurance that the Fund will succeed in any option-writing program it undertakes.
See “Risk Factors and Special Considerations—Risks Associated with Covered Calls and Other Options.”
Foreign
Securities. Because many of
the world’s Gold Companies and Natural Resources Companies are located outside of the United States, the Fund may have a
significant portion of its investments in securities of foreign issuers, which are generally denominated in foreign currencies.
See “Risk Factors and Special Considerations—Foreign Securities Risk.”
The
Fund may also purchase sponsored American Depository Receipts (“ADRs”) or U.S. dollar denominated securities of foreign
issuers. ADRs are receipts issued by U.S. banks or trust companies in respect of securities of foreign issuers held on deposit
for use in the U.S. securities markets.
Emerging
Markets. The Fund may invest
without limit in securities of emerging market issuers. These securities may be U.S. dollar denominated or non-U.S. dollar denominated,
including emerging market country currency denominated. An “emerging market” country is any country that is considered
to be an emerging or developing country by the International Bank for Reconstruction and Development (the “World Bank”).
Emerging
market countries generally include every nation in the world except the United States, Canada, Japan, Australia, New Zealand and
most countries located in Western Europe.
Registered
Investment Companies. The Fund may invest in registered investment companies in accordance with the 1940 Act, to the extent consistent
with the Fund’s investment objectives, including exchange traded funds that concentrate in investments in the gold or natural
resources industries. The 1940 Act generally prohibits the Fund from investing more than 5% of its assets in any one other investment
company or more than 10% of its assets in all other investment companies. However, many exchange-traded funds are exempt from
these limitations.
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Illiquid
Investments. The Fund may invest
up to 15% of its net assets in securities for which there is no readily available trading market or that are otherwise illiquid.
Illiquid securities include securities legally restricted as to resale, such as commercial paper issued pursuant to Section 4(a)(2)
of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”),
and securities eligible for resale pursuant to Rule 144A thereunder, written OTC options, repurchase agreements with maturities
in excess of seven days, certain loan participation interests, fixed time deposits which are not subject to prepayment or provide
for withdrawal penalties upon prepayment (other than overnight deposits), and other securities whose disposition is restricted
under the federal securities laws. Section 4(a)(2) and Rule 144A securities may, however, be treated as liquid by the Investment
Adviser pursuant to procedures adopted by the Board, which require consideration of factors such as trading activity, availability
of market quotations and number of dealers willing to purchase the security. If the Fund invests in Rule 144A securities, the
level of portfolio illiquidity may be increased to the extent that eligible buyers become uninterested in purchasing such securities.
It
may be difficult to sell such securities at a price representing the fair value until such time as such securities may be sold
publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time
when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time
of the decision to sell. The Fund may also acquire securities through private placements under which it may agree to contractual
restrictions on the resale of such securities. Such restrictions might prevent their sale at a time when such sale would otherwise
be desirable.
Income
Securities. The Fund may invest in other equity securities that are expected to periodically accrue or generate income for their
holders such as common and preferred stocks of issuers that have historically paid periodic dividends or otherwise made distributions
to stockholders. Unlike fixed income securities, dividend payments generally are not guaranteed and so may be discontinued by
the issuer at its discretion or because of the issuer’s inability to satisfy its liabilities. Further, an issuer’s
history of paying dividends does not guarantee that it will continue to pay dividends in the future. In addition to dividends,
under certain circumstances the holders of common stock may benefit from the capital appreciation of the issuer.
Common
stocks represent the residual ownership interest in the issuer and holders of common stock are entitled to the income and increase
in the value of the assets and business of the issuer after all of its debt obligations and obligations to preferred shareholders
are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
In
addition, the Fund also may invest in fixed income securities such as convertible securities, bonds, debentures, notes, preferred
stock, short-term discounted Treasury Bills or certain securities of the U.S. government sponsored instrumentalities, as well
as money market open-end funds that invest in those securities, which, in the absence of an applicable exemptive order, will not
be affiliated with the Investment Adviser. Fixed income securities obligate the issuer to pay to the holder of the security a
specified return, which may be either fixed or reset periodically in accordance with the terms of the security. Fixed income securities
generally are senior to an issuer’s common stock and their holders generally are entitled to receive amounts due before
any distributions are made to common shareholders. Common stocks, on the other hand, generally do not obligate an issuer to make
periodic distributions to holders.
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The
Fund may also invest in obligations of government sponsored instrumentalities. Unlike non-U.S. government securities, obligations
of certain agencies and instrumentalities of the U.S. government, such as the Government National Mortgage Association, are supported
by the “full faith and credit” of the U.S. government; others, such as those of the Export-Import Bank of the U.S.,
are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. government to purchase the agency’s obligations; and
still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. government would provide financial support to U.S. government sponsored instrumentalities
if it is not obligated to do so by law. Although the Fund may invest in all types of obligations of agencies and instrumentalities
of the United States government, the Fund currently intends to invest only in obligations of government sponsored instrumentalities
that are supported by the “full faith and credit” of the U.S. government.
When
Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale
of securities, including on a “when issued” or “delayed delivery” basis, in excess of customary settlement
periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent
event, such as approval and consummation of a merger, corporate reorganization or debt restructuring (i.e., a when, as and if
issued security). When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery
taking place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward
commitment with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if
it is deemed advisable.
Securities
purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior
to the settlement date.
Short
Sales. The Fund may make short
sales as a form of hedging to offset potential declines in long positions in the same or similar securities, including short sales
against the box. The short sale of a security is considered a speculative investment technique. At the time of the sale, the Fund
will own, or have the immediate and unconditional right to acquire at no additional cost, identical or similar securities or establish
a hedge against a security of the same issuer which may involve additional cost, such as an “in the money” warrant.
Short
sales “against the box” are subject to special tax rules, one of the effects of which may be to accelerate the recognition
of income by the Fund. Other than with respect to short sales against the box, the Fund will limit short sales of securities to
not more than 5% of the Fund’s assets. When the Fund makes a short sale, it must deliver the security to the broker-dealer
through which it made the short sale in order to satisfy its obligation to deliver the security upon conclusion of the sale.
Repurchase
Agreements. Repurchase agreements
may be seen as loans by the Fund collateralized by underlying securities. Under the terms of a typical repurchase agreement, the
Fund acquires an underlying security for a relatively short period (usually not more than one week) subject to an obligation of
the seller to repurchase, and the Fund to resell, the security at an agreed price and time. This arrangement results in a fixed
rate of return to the Fund that is not subject to market fluctuations during the holding period. The Fund bears a risk of loss
in the event that the other party to a repurchase agreement defaults on its obligations and the
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Fund
is delayed in or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which it seeks to assert these rights. The Investment Adviser,
acting under the supervision of the Board, reviews the creditworthiness of those banks and dealers with which the Fund enters
into repurchase agreements to evaluate these risks, and monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level. The Fund does not enter into repurchase agreements with
the Investment Adviser or any of its affiliates.
Convertible
Securities. A convertible
security is a bond, debenture, corporate note, preferred stock or other securities that may be exchanged or converted into a prescribed
amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified
price or formula. Before conversion, convertible securities have the same overall characteristics as non-convertible debt securities
insofar as they generally provide a stable stream of income with generally higher yields than those of equity securities of the
same or similar issuers. Convertible securities rank senior to common stock in an issuer’s capital structure. They are of
a higher credit quality and entail less risk than an issuer’s common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security.
The
Fund is also permitted to invest in certain other securities with innovative structures in the convertible securities market.
These include “mandatory conversion” securities, which consist of debt securities or preferred stocks that convert
automatically into equity securities of the same or a different issuer at a specified date and conversion ratio.
The
market value of a convertible security may be viewed as comprised of two components: its “investment value,” which
is its value based on its yield without regard to its conversion feature; and its “conversion value,” which is its
value attributable to the underlying common stock obtainable on conversion. The investment value of a convertible security is
influenced by changes in interest rates and the yield of similar non-convertible securities, with investment value declining as
interest rates increase and increasing as interest rates decrease. The conversion value of a convertible security is influenced
by changes in the market price of the underlying common stock. If, because of a low price of the underlying common stock, the
conversion value is low relative to the investment value, the price of the convertible security is governed principally by its
investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the
convertible security will be increasingly influenced by its conversion value, and the convertible security may sell at a premium
over its conversion value to the extent investors place value on the right to acquire the underlying common stock while holding
a fixed income security.
Accordingly,
convertible securities have unique investment characteristics because (i) they have relatively high yields as compared to common
stocks, (ii) they have defensive characteristics since they provide a fixed return even if the market price of the underlying
common stock declines, and (iii) they provide the potential for capital appreciation if the market price of the underlying common
stock increases.
A
convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision
or indenture pursuant to which the convertible security is issued. If a convertible security held by the Fund is called for redemption,
the Fund will be required to surrender the security for redemption,
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convert
it into the underlying common stock or sell it to a third party. Additionally, there may be additional types of convertible securities
with features not specifically referred to herein in which the Fund may invest consistent with its investment objectives and policies.
For a discussion of risk factors of convertible securities, see “Risk Factors and Special Considerations— Convertible
Securities Risk.”
Non-Investment
Grade Securities. The Fund
may invest up to 10% of its assets in securities rated below investment grade by recognized statistical rating agencies or unrated
securities of comparable quality, including securities of issuers in default, which are likely to have the lowest rating. The
prices of these lower grade securities are more sensitive to negative developments, such as a decline in the issuer’s revenues
or a general economic downturn, than are the prices of higher grade securities. Securities of below investment grade quality—those
securities rated below “Baa” by Moody’s or below “BBB” by S&P (or unrated securities of comparable
quality)—are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal
when due and therefore involve a greater risk of default. Securities rated below investment grade commonly are referred to as
“junk bonds” or “high yield” securities.
Generally,
such non-investment grade securities and unrated securities of comparable quality offer a higher current yield than is offered
by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. In addition, such non-investment grade securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly
greater because such non-investment grade securities and unrated securities of comparable quality generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness. In light of these risks, the Investment Adviser, in evaluating
the creditworthiness of an issue, whether rated or unrated, will take various factors into consideration, which may include, as
applicable, the issuer’s operating history, financial resources and its sensitivity to economic conditions and trends, the
market support for the facility financed by the issue, the perceived ability and integrity of the issuer’s management and
regulatory matters.
In
addition, the market value of non-investment grade securities is more volatile than that of higher quality securities, and the
markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities
are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict
the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell
securities at their fair value in order to respond to changes in the economy or the financial markets.
Non-investment
grade and unrated securities of comparable quality also present risks based on payment expectations. If an issuer calls the obligation
for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Also, as the principal value of bonds moves inversely with movements in interest
rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately more than
a portfolio
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consisting
of higher rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value
due to changes in interest rates than bonds that pay interest currently. Interest rates have risen in recent months, and the risk
that they may continue to do so is pronounced. Any interest rate increases in the future could cause the value of the Fund to
decrease. Recently, inflation levels have been at their highest point in nearly 40 years and the Federal Reserve has begun an
aggressive campaign to raise certain benchmark interest rates in an effort to combat inflation. As inflation increases, the real
value of the Fund’s common stock and distributions therefore may decline.
The
Fund may purchase securities of companies that are experiencing significant financial or business difficulties, including companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant
financial returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial
and legal, necessary for successful investments in issuers experiencing significant business and financial difficulties is unusually
high. There can be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments
or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to
a portfolio investment, the Fund may lose all or part of its investment or may be required to accept collateral with a value less
than the amount of the Fund’s initial investment.
As
part of its investments in non-investment grade securities, the Fund may invest without limit in securities of issuers in default.
The Fund will make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers
will honor their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing
in securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or
emerge from bankruptcy protection or that the value of the securities will not otherwise appreciate.
In
addition to using recognized rating agencies and other sources, the Investment Adviser also performs its own analysis of issuers
in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition of the
issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed
income securities, including non-investment grade securities and comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises
these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return for the Fund.
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The
market for non-investment grade and comparable unrated securities has experienced periods of significantly adverse price and liquidity
several times, particularly at or around times of economic recession. Past market recessions have adversely affected the value
of such securities and the ability of certain issuers of such securities to repay principal and pay interest thereon or to refinance
such securities. The market for those securities may react in a similar fashion in the future.
Other
Derivative Instruments. The
Fund may also utilize other types of derivative instruments, primarily for hedging or risk management purposes. These instruments
include futures, forward contracts, options on such contracts and interest rate, total return and other kinds of swaps. For a
further description of such derivative instruments, see below.
Leveraging.
As provided in the 1940 Act
and subject to certain exceptions, the Fund may issue senior securities (which may be stock, such as preferred shares, and/or
securities representing debt) so long as its total assets, less certain ordinary course liabilities, exceeds 300% of the amount
of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding. Any such preferred shares may
be convertible in accordance with the SEC staff guidelines, which may permit the Fund to obtain leverage at attractive rates.
The
use of leverage magnifies the impact of changes in net asset value, which means that, all else being equal, the use of leverage
results in outperformance on the upside and underperformance on the downside. In addition, if the cost of leverage exceeds the
return on the securities acquired with the proceeds of leverage, the use of leverage will diminish rather than enhance the return
to the Fund. The use of leverage generally increases the volatility of returns to the Fund. Such volatility may increase the likelihood
of the Fund having to sell investments in order to meet its obligations to make distributions on the preferred shares or principal
or interest payments on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so.
The Fund’s use of leverage may require it to sell portfolio investments at inopportune times in order to raise cash to redeem
preferred shares or otherwise de-leverage so as to maintain required asset coverage amounts or comply with any mandatory redemption
terms of any outstanding preferred shares. See “Risk Factors and Special Considerations—Special Risks to Holders of
Common Shares—Leverage Risk.”
In
the event the Fund had both outstanding preferred shares and senior securities representing debt at the same time, the Fund’s
obligations to pay dividends or distributions and, upon liquidation of the Fund, liquidation payments in respect of its preferred
shares would be subordinate to the Fund’s obligations to make any principal and/or interest payments due and owing with
respect to its outstanding senior debt securities. Accordingly, the Fund’s issuance of senior securities representing debt
would have the effect of creating special risks for the Fund’s preferred shareholders that would not be present in a capital
structure that did not include such securities. See “Risk Factors and Special Considerations—Special Risks Related
to Preferred Securities.”
Subject
to the requirements of Rule 18f-4 under the 1940 Act (“Rule 18f-4”), the Fund may enter into derivative transactions
including transactions that have economic leverage embedded in them. Rule 18f-4 defines “derivatives transactions”
as (1) any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar
instrument, under which a fund is or may be required to make any payment or delivery of cash or other assets during the life of
the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; and (2) any short sale
borrowing. Derivatives transactions entered into by the Fund in compliance with Rule 18f-4 will not be considered senior securities
for purposes
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Global Gold, Natural Resources & Income Trust
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of
computing the asset coverage requirements described above. Economic leverage exists when the Fund achieves the right to a return
on a capital base that exceeds the investment which the Fund has contributed to the instrument achieving a return. Derivative
transactions that the Fund may enter into and the risks associated with them are described elsewhere in this Annual Report. The
Fund cannot assure you that investments in derivative transactions that have economic leverage embedded in them will result in
a higher return on its common shares.
If
the Fund enters into any reverse repurchase agreement or similar financing transactions obligating the Fund to make future payments,
the Fund must either treat all such transactions as derivatives transactions for all purposes under Rule 18f-4 or otherwise comply
with the asset coverage requirements described above and combine the aggregate amount of indebtedness associated with all such
transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the Fund’s
asset coverage ratio limit requirements. The asset coverage requirements under section 18 of the 1940 Act and the limits and conditions
imposed by Rule 18f-4 may limit or restrict portfolio management.
Temporary
Defensive Investments. When
a temporary defensive posture is believed by the Investment Adviser to be warranted (“temporary defensive periods”),
the Fund may without limitation hold cash or invest all or a portion of its assets in money market instruments and repurchase
agreements in respect of those instruments. The money market instruments in which the Fund may invest are obligations of the U.S.
government, its agencies or instrumentalities; commercial paper rated “A-1” or higher by S&P or “Prime-1”
by Moody’s; and certificates of deposit and bankers’ acceptances issued by domestic branches of U.S. banks that are
members of the Federal Deposit Insurance Corporation. During temporary defensive periods, the Fund may also invest to the extent
permitted by applicable law in shares of money market mutual funds. Money market mutual funds are investment companies and the
investments in those companies by the Fund are in some cases subject to certain fundamental investment restrictions and applicable
law. As a shareholder in a mutual fund, the Fund will bear its ratable share of its expenses, including management fees, and will
remain subject to payment of the fees to the Investment Adviser, with respect to assets so invested. The Fund may find it more
difficult to achieve its investment objective during temporary defensive periods.
Portfolio
Turnover. The Fund will buy
and sell securities to accomplish its investment objectives. The investment policies of the Fund, including its strategy of writing
covered call options on securities in its portfolio, are expected to result in portfolio turnover that is higher than that of
many investment companies, and may be higher than 100%. For the years ending December 31, 2022, and December 31, 2021, the portfolio
turnover rates were 96% and 126%, respectively.
Portfolio
turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the
lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the
year (excluding securities whose maturities at acquisition were one year or less). Higher portfolio turnover may decrease the
after-tax return to individual investors in the Fund to the extent it results in a decrease of the long-term capital gains portion
of distributions to shareholders.
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Interest
Rate Transactions
The
Fund may enter into interest rate swap or cap transactions to manage its borrowing costs, as well as to increase income. The use
of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from
those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund would agree to pay to the other
party to the interest rate swap (which is known as the “counterparty”) periodically a fixed rate payment in exchange
for the counterparty agreeing to pay to the fund periodically a variable rate payment that is intended to approximate the Fund’s
variable rate payment obligation on its borrowings (or the Fund’s potential variable payment obligations on fixed rate preferred
shares that may have certain variable rate features). In an interest rate cap, the Fund would pay a premium to the counterparty
to the interest rate cap and, to the extent that a specified variable rate index exceeds a predetermined fixed rate, would receive
from the counterparty payments of the difference based on the notional amount of such cap. Interest rate swap and cap transactions
introduce additional risk because the Fund would remain obligated to pay interest or preferred shares dividends when due even
if the counterparty defaulted. Depending on the general state of short-term interest rates and the returns on the Fund’s
portfolio securities at that point in time, such a default could negatively affect the Fund’s ability to make interest payments
or dividend payments on the preferred shares. In addition, at the time an interest rate swap or cap transaction reaches its scheduled
termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the
replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the Fund’s
ability to make interest payments or dividend payments on the preferred shares. To the extent there is a decline in interest rates,
the value of the interest rate swap or cap could decline, resulting in a decline in the asset coverage for the borrowings or preferred
shares. A sudden and dramatic decline in interest rates may result in a significant decline in the asset coverage. If the Fund
fails to maintain the required asset coverage on any outstanding preferred shares or fails to comply with other covenants, the
Fund may be required to prepay some or all of such borrowings or redeem some or all of these shares. Any such prepayment or redemption
would likely result in the Fund seeking to terminate early all or a portion of any swap or cap transactions. Early termination
of a swap could result in a termination payment by the Fund to the counterparty, while early termination of a cap could result
in a termination payment to the Fund.
The
Fund may enter into equity contract for difference swap transactions, for the purpose of increasing the income of the Fund. In
an equity contract for difference swap, a set of future cash flows is exchanged between two counterparties. One of these cash
flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares
of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short-term
interest rates and the returns on the Fund’s portfolio securities at the time a swap transaction reaches its scheduled termination
date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement
will not be as favorable as on the expiring transaction.
The
Fund will usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement
on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The Fund will monitor any such swap with a view to ensuring that the Fund remains in compliance with
all applicable regulatory, investment policy and tax requirements.
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RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors
should consider the following risk factors and special considerations associated with investing in the Fund:
Market
Risk
The
market price of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in
value due to factors affecting securities markets generally or particular industries represented in the securities markets. The
value of a security may decline due to general market conditions which are not specifically related to a particular company, such
as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or
currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security may also decline
due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive
conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value
simultaneously. Equity securities generally have greater price volatility than fixed income securities. Credit ratings downgrades
may also negatively affect securities held by the Fund. Even when markets perform well, there is no assurance that the investments
held by the Fund will increase in value along with the broader market.
In
addition, market risk includes the risk that geopolitical and other events will disrupt the economy on a national or global level.
For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic
developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental
disasters can all negatively impact the securities markets, which could cause the Fund to lose value. These events could reduce
consumer demand or economic output, result in market closures, travel restrictions or quarantines, and significantly adversely
impact the economy. The current contentious domestic political environment, as well as political and diplomatic events within
the United States and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit
reduction plan, has in the past resulted, and may in the future result, in a government shutdown, which could have an adverse
impact on the Fund’s investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect
investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a
significant degree. Governmental and quasi-governmental authorities and regulators throughout the world have previously responded
to serious economic disruptions with a variety of significant fiscal and monetary policy changes, including, but not limited to,
direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or sudden
reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could
adversely affect the Fund’s investments. Any market disruptions could also prevent the Fund from executing advantageous
investment decisions in a timely manner. To the extent that the Fund focuses its investments in a region enduring geopolitical
market disruption, it will face higher risks of loss, although the increasing interconnectivity between global economies and financial
markets can lead to events or conditions in one country, region or financial market adversely impacting a different country, region
or financial market. Thus, investors should closely monitor current market conditions to determine whether the Fund meets their
individual financial needs and tolerance for risk.
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Global Gold, Natural Resources & Income Trust
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Current
market conditions may pose heightened risks with respect to the Fund’s investment in income producing securities. Recently,
central banks such as the Federal Reserve Bank have been raising interest rates to combat the rate of inflation. There is a risk
that additional increases in interest rates or a prolonged period of rising interest rates may cause the economy to enter a recession.
Additional interest rate increases in the future could cause the value of the Fund to decrease. Recently, inflation has reached
its highest levels in decades. As such, the markets for income producing securities may experience heightened levels of interest
rate, volatility and liquidity risk.
Exchanges
and securities markets may close early, close late or issue trading halts on specific securities or generally, which may result
in, among other things, the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time
or accurately price its portfolio investments.
Interest
Rate Risk Generally. The primary risk associated with dividend-and interest-paying securities is interest rate risk. A
decrease in interest rates will generally result in an increase in the investment value of such securities, while increases in
interest rates will generally result in a decline in the investment value of such securities. This effect is generally more pronounced
for fixed rate securities than for securities whose income rate is periodically reset.
General
interest rate fluctuations may have a substantial negative impact on the Fund’s investments, the value of the Fund and the
Fund’s rate of return. A reduction in the interest or dividend rates on new investments relative to interest or dividend
rates on current investments could also have an adverse impact on the Fund’s net investment income. An increase in interest
rates could decrease the value of any investments held by the Fund that earn fixed interest or dividend rates, including debt
securities, convertible securities, preferred stocks, loans and high-yield bonds, and also could increase interest or dividend
expenses, thereby decreasing net income. Interest rates have risen over the past year and the chance that they will continue to
rise is pronounced.
The
magnitude of these fluctuations in the market price of bonds and other income- or dividend-paying securities is generally greater
for those securities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect
interest income derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value.
The Fund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fund management.
To the extent the Fund invests in securities that may be prepaid at the option of the obligor, the sensitivity of such securities
to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on
certain floating rate securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden
and significant changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests
in floating rate securities. These basic principles of bond prices also apply to U.S. government securities. A security backed
by the “full faith and credit” of the U.S. government is guaranteed only as to its stated interest rate and face value
at maturity, not its current market price. Just like other income- or dividend-paying securities, government-guaranteed securities
will fluctuate in value when interest rates change.
The
Fund’s use of leverage will tend to increase the Fund’s interest rate risk. The Fund may invest in variable and floating
rate instruments, which generally are less sensitive to interest rate changes than longer duration fixed rate instruments but
may decline in value in response to rising interest rates if, for example, the rates at which they pay interest do not rise as
much, or as quickly, as market interest rates in general. Conversely,
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Global Gold, Natural Resources & Income Trust
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Fund Information (Continued) (Unaudited)
variable
and floating rate instruments generally will not increase in value if interest rates decline. The Fund also may invest in inverse
floating rate securities, which may decrease in value if interest rates increase, and which also may exhibit greater price volatility
than fixed rate obligations with similar credit quality. To the extent the Fund holds variable or floating rate instruments, a
decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the
income received from such securities, which may adversely affect the net asset value of the Fund’s common shares.
Recently,
central banks such as the Federal Reserve Bank have been increasing interest rates in an effort to slow the rate of inflation.
There is a risk that increased interest rates may cause the economy to enter a recession. Any such recession would negatively
impact the Fund and the investments held by the Fund. These impacts may include:
| ● | severe
declines in the Fund’s net asset values; |
| ● | inability
of the Fund to accurately or reliably value its portfolio; |
| ● | inability
of the Fund to pay any dividends or distributions; |
| ● | inability
of the Fund to maintain its status as a registered investment company (“RIC”) under the Internal Revenue Code of 1986,
as amended (the “Code”); |
| ● | declines
in the value of the Fund’s investments; |
| ● | increased
risk of default or bankruptcy by the companies in which the Fund invests; |
| ● | increased
risk of companies in which the Fund invests being unable to weather an extended cessation of normal economic activity and thereby
impairing their ability to continue functioning as a going concern; and |
| ● | limited
availability of new investment opportunities. |
Inflation
Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future
as inflation decreases the value of money. Recently, inflation has increased to its highest level in decades, and the Federal
Reserve has been raising the federal funds rate in response. Inflation rates may change frequently and significantly as a result
of various factors, including unexpected shifts in the domestic or global economy and changes in economic policies, and the Fund’s
investments may not keep pace with inflation, which may result in losses to Fund shareholders. As inflation increases, the real
value of the Fund’s shares and dividends may decline. In addition, during any periods of rising inflation, interest rates
of any debt securities held by the Fund would likely increase, which would tend to further reduce returns to shareholders. This
risk is greater for fixed-income instruments with longer maturities.
Total
Return Risk
The
Fund utilizes several investment management techniques in an effort to generate positive total return. The risks of these techniques,
such as option writing, leverage, concentration in certain industries, and investing in emerging markets, are described in the
following paragraphs. Taken together these and other techniques represent a risk that the Fund will experience a negative total
return even in market environments that are generally positive and that the Fund’s returns, both positive and negative,
may be more volatile than if the Fund did not utilize these investment techniques.
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Global Gold, Natural Resources & Income Trust
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Industry
Risks
Industry
Risks. The Fund’s investments will be concentrated in the gold and natural resources industries. Because the Fund is concentrated
in these industries, it may present more risks than if it were broadly diversified over numerous industries and sectors of the
economy. A downturn in the gold or natural resources industries would have a larger impact on the Fund than on an investment company
that does not concentrate in such industries.
The
Fund invests in equity securities of Gold Companies. Equity securities of Gold Companies may experience greater volatility
than companies not involved in the gold industry. Investments related to gold are considered speculative and are affected by a
variety of worldwide economic, financial and political factors. The price of gold, which has experienced substantial increases
in recent periods, may fluctuate sharply, including substantial decreases, over short periods of time due to changes in inflation
or expectations regarding inflation in various countries, the availability of supplies of gold, changes in industrial and commercial
demand, gold sales by governments, central banks or international agencies, investment speculation, monetary and other economic
policies of various governments and government restrictions on private ownership of gold. In times of significant inflation or
great economic uncertainty, Gold Companies have historically outperformed securities markets generally. However, in times of stable
economic growth, traditional equity and debt investments could offer greater appreciation potential and the value of gold and
the prices of equity securities of Gold Companies may be adversely affected, which could in turn affect the Fund’s returns.
Some Gold Companies hedge, to varying degrees, their exposure to declines in the price of gold. Such hedging limits a Gold Company’s
ability to benefit from future rises in the price of gold. The Investment Adviser’s judgments about trends in the prices
of securities of Gold Companies may prove to be incorrect. It is possible that the performance of securities of Gold Companies
may lag the performance of other industries or the broader market as a whole.
The
Fund invests in equity securities of Natural Resources Companies. A downturn in the indicated natural resources industries
would have a larger impact on the Fund than on an investment company that does not invest significantly in such industries. Such
industries can be significantly affected by the supply of and demand for the indicated commodities and related services, exploration
and production spending, government regulations, world events and economic conditions. The oil, gas, paper, food and agriculture,
forestry products, metals (other than gold) and minerals industries can be significantly affected by events relating to international
political developments, the success of exploration projects, commodity prices, tax and government regulations and by differing
approaches to energy policy in the United States, including increased incentives for the exploration and production of alternative
energy and climate-related programs, revocation of federal permits for, and public opposition to, natural gas pipelines, such
as the cross-border operation permit for the Keystone XL Pipeline and other policy decisions that favor alternative energy sources.
The extension of these policies, or the adoption of similar policies, could adversely affect the financial performance of gas
transmission and distribution companies. The stock prices of Natural Resources Companies may also experience greater price volatility
than other types of common stocks. Securities issued by Natural Resources Companies are sensitive to changes in the prices of,
and in supply and demand for, the indicated commodities. The value of securities issued by Natural Resources Companies may be
affected by changes in overall market movements, changes in interest rates, or factors affecting a particular industry or commodity,
such as weather, embargoes, tariffs, policies of commodity cartels and international economic, political and regulatory developments.
The Investment Adviser’s judgments about trends in the prices of these securities and commodities may prove to be incorrect.
It is possible that the
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Global Gold, Natural Resources & Income Trust
Additional
Fund Information (Continued) (Unaudited)
performance
of securities of Natural Resources Companies may lag the performance of other industries or the broader market as a whole.
Supply
and Demand Risk. A decrease
in the production of or exploitation of gold, gas, oil, paper, food and agriculture, forestry products, metals (other than gold)
or minerals or a decrease in the volume of such commodities available for transportation, mining, processing, storage or distribution
may adversely impact the financial performance of the Fund’s investments. Production declines and volume decreases could
be caused by various factors, including catastrophic events affecting production, depletion of resources, labor difficulties,
environmental proceedings, increased regulations, equipment failures and unexpected maintenance problems, import supply disruption,
increased competition from alternative energy sources or commodity prices.
Sustained
declines in demand for the indicated commodities could also adversely affect the financial performance of Gold Companies and Natural
Resources Companies over the long term. Factors which could lead to a decline in demand include economic recession or other adverse
economic conditions, higher fuel taxes or governmental regulations, increases in fuel economy, consumer shifts to the use of alternative
fuel sources, changes in commodity prices, or weather.
Depletion
and Exploration Risk. Many
Gold Companies and Natural Resources Companies are either engaged in the production or exploitation of the particular commodities
or are engaged in transporting, storing, distributing and processing such commodities. To maintain or increase their revenue level,
these companies or their customers need to maintain or expand their reserves through exploration of new sources of supply, through
the development of existing sources, acquisitions, or long-term contracts to acquire reserves. The financial performance of Gold
Companies and Natural Resources Companies may be adversely affected if they, or the companies to whom they provide products or
services, are unable to cost effectively acquire additional products or reserves sufficient to replace the natural decline.
Regulatory
Risk. Gold Companies and Natural
Resources Companies may be subject to extensive government regulation in virtually every aspect of their operations, including
how facilities are constructed, maintained and operated, environmental and safety controls, and in some cases the prices they
may charge for the products and services they provide. Various governmental authorities have the power to enforce compliance with
these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties,
including civil fines, injunctions or both. Stricter laws, regulations or enforcement policies could be enacted in the future,
which would likely increase compliance costs and may adversely affect the financial performance of Gold Companies and Natural
Resources Companies.
Commodity
Pricing Risk. The operations
and financial performance of Gold Companies and Natural Resources Companies may be directly affected by the prices of the indicated
commodities, especially those Gold Companies and Natural Resources Companies for whom the commodities they own are significant
assets. Commodity prices fluctuate for many reasons, including changes in market and economic conditions, levels of domestic production,
impact of governmental regulation and taxation, the availability of transportation systems and, in the case of oil and gas companies
in particular, conservation measures and the impact of weather.
Volatility
of commodity prices, which may lead to a reduction in production or supply, may also negatively affect the performance of Gold
Companies and Natural Resources Companies which are solely involved in the transportation, processing, storing, distribution or
marketing of commodities. Volatility of commodity prices may
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Global Gold, Natural Resources & Income Trust
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also
make it more difficult for Gold Companies and Natural Resources Companies to raise capital to the extent the market perceives
that their performance may be directly or indirectly tied to commodity prices.
Oil
and Natural Gas Price Volatility Risk. Worldwide
crude oil and natural gas prices and markets historically have been volatile and may continue to be volatile in the future. Prices
for crude oil and natural gas are subject to wide fluctuations in response to relatively minor changes in the supply of and demand
for crude oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors
include, but are not limited to, increases in supplies from United States shale production, international political conditions,
including uprisings and political unrest in the Middle East and Africa, the domestic and foreign supply of crude oil and natural
gas, actions by members of Organization of the Petroleum Exporting Countries (“OPEC”), other allied producing countries
(collectively with OPEC members, “OPEC+”) and other state-controlled oil companies to agree upon and maintain crude
oil price and production controls, the level of consumer demand that is impacted by economic growth rates, weather conditions,
domestic and foreign governmental regulations and taxes, the price and availability of alternative fuels, technological advances
affecting energy consumption, the health of international economic and credit markets, and changes in the level of demand resulting
from global or national health epidemics and concerns, such as the ongoing COVID-19 pandemic. In addition, various factors, including
the effect of federal, state and foreign regulation of production and transportation, general economic conditions, changes in
supply due to drilling by other producers and changes in demand may adversely affect our ability to market our crude oil and natural
gas production.
A
combination of factors, including a substantial decline in global demand for crude oil caused by the COVID-19 pandemic and subsequent
mitigation efforts, as well as market concerns about the ability of OPEC+ to agree on a perceived need to implement production
cuts in response to weaker worldwide demand, caused an unprecedented decline in crude oil and natural gas prices during the first
six months of 2020. These and other developments may adversely impact the Fund and its performance.
Cybersecurity
and Physical Security Risks. Natural Resources Companies have experienced sabotage to company infrastructure, property and equipment,
attempts to breach their operating systems and other similar incidents in the past, which have resulted in shutdowns and/or disruptions
in their operations. For example, in May 2021, a U.S. fuel pipeline operator was the target of a ransomware attack, which resulted in
the shutdown of a massive oil pipeline system that supplies the eastern United States. Recently, in September 2022, several subsea explosions
ruptured the Nord Stream I pipeline and one Nordstream II pipe, causing a substantial disruption in the delivery of natural gases under
the Baltic Sea. Several counties continue to investigate the incident, but several, including Sweden, have concluded the explosions were
caused by grievous sabotage.
Natural
Resources Companies may continue to be subject to attempts to gain unauthorized access to or through their operating systems.
Any system failure, cybersecurity breach, ransomware attack or other system disruption could interrupt or delay operations and
impact a Natural Resources Company’s ability to manage its operations and report financial performance, which could have
a materially adverse effect on existing and future business. These and other developments may adversely impact the value of the
Fund’s investments in Natural Resources Companies.
Climate
Change Risk. Climate change
and regulations intended to control its impact may affect the value of the Fund’s investments. The Fund’s current
evaluation is that the near term effects of climate change and climate
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change
regulation on the Fund’s investments are not material, but the Fund cannot predict the long-term impacts on the Fund or
its investments from climate change or related regulations. The ongoing political focus on climate change has resulted in various
treaties, laws and regulations which are intended to limit carbon emissions. The Fund believes these laws being enacted or proposed
may cause energy costs at properties owned by the real estate investment trusts (“REITs”) or other real estate companies
in which the Fund invests to increase. The Fund does not expect the direct impact of such increases to be material to the value
of its investments, because the increased costs either would be the responsibility of tenants or operators of properties owned
by the REITs or other real estate companies in which the Fund invests, or, in the longer term, passed through and paid by the
customers of such properties. There can be no assurance that climate change will not have a material adverse effect on the properties,
operations or business of the Fund’s investments in REITs and other real estate companies.
The
physical effects of climate change could have a material adverse effect on the properties, operations and business of the Fund’s
investments in REITs and other real estate companies in certain geographical locations. To the extent climate change causes changes
in weather patterns, properties in these markets could experience increases in storm intensity, flooding and rising sea levels.
Over time, these conditions could result in declining demand for the buildings owned by certain REITs and other real estate companies
in which the Fund invests, or the inability of such REITs or other real estate companies to operate such buildings at all.
Interest
Rate Risk for Natural Resources Companies and Gold Companies. The prices of the equity and debt securities of the Natural
Resources Companies and Gold Companies that the Fund holds in its portfolio are susceptible in the short term to decline when
interest rates rise. Rising interest rates could limit the capital appreciation of securities of certain investments because of
the increased availability of alternative investments with yields comparable to those investments. Rising interest rates could
adversely affect the financial performance of Natural Resources Companies and Gold Companies generally by increasing their cost
of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost-effective manner. Interest rates
have risen in recent months, and the risk that they may continue to do so is pronounced.
Risks
Associated with Covered Calls and Other Option Transactions
There
are several risks associated with transactions in options on securities. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation between these markets, causing a given covered
call option transaction not to achieve its objectives. A decision as to whether, when and how to use covered calls (or other options)
involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful because of market behavior
or unexpected events. The use of options may require the Fund to sell portfolio securities at inopportune times or for prices
other than current market values, may limit the amount of appreciation the Fund can realize on an investment, or may cause the
Fund to hold a security it might otherwise sell. As the writer of a covered call option, the Fund forgoes, during the option’s
life, the opportunity to profit from increases in the market value of the security covering the call option above the exercise
price of the call option, but has retained the risk of loss should the price of the underlying security decline. Although such
loss would be offset in part by the option premium received, in a situation in which the price of a particular stock on which
the Fund has written a covered call option declines rapidly and materially or in which prices in general on all or a substantial
portion of the stocks on which the Fund has written covered call options decline rapidly and materially, the Fund could sustain
material depreciation or
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Global Gold, Natural Resources & Income Trust
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loss
in its net assets to the extent it does not sell the underlying securities (which may require it to terminate, offset or otherwise
cover its option position as well). The writer of an option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
There
can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Reasons for the absence
of a liquid secondary market for exchange-traded options include the following: (i) there may be insufficient trading interest;
(ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the trading facilities of an exchange or the Options Clearing
Corporation (the “OCC”) may not be adequate to handle current trading volume; or (vi) the relevant exchange could,
for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular
class or series of options). If trading were discontinued, the secondary market on that exchange (or in that class or series of
options) would cease to exist. However, outstanding options on that exchange that had been issued by the OCC as a result of trades
on that exchange would continue to be exercisable in accordance with their terms. The Fund’s ability to terminate OTC options
may be more limited than with exchange-traded options and may involve the risk that counterparties participating in such transactions
will not fulfill their obligations. If the Fund were unable to close out a covered call option that it had written on a security,
it would not be able to sell the underlying security unless the option expired without exercise.
The
hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that
the options markets close before the markets for the underlying securities, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the options markets. Call options are marked to market daily and their value
will be affected by changes in the value of and dividend rates of the underlying common stocks, an increase in interest rates,
changes in the actual or perceived volatility of the stock market and the underlying common stocks and the remaining time to the
options’ expiration. Additionally, the exercise price of an option may be adjusted downward before the option’s expiration
as a result of the occurrence of certain corporate events affecting the underlying equity security, such as extraordinary dividends,
stock splits, merger or other extraordinary distributions or events. A reduction in the exercise price of an option would reduce
the Fund’s capital appreciation potential on the underlying security.
Limitation
on Covered Call Writing Risk. The number of covered call options the Fund can write is limited by the number of shares of
common stock the Fund holds. Furthermore, the Fund’s covered call options and other options transactions will be subject
to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded.
These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or
group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges,
boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. As
a result, the number of covered call options that the Fund may write or purchase may be affected by options written or purchased
by it and other investment advisory clients of the Investment Adviser. An exchange, board
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of
trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose
certain other sanctions.
Risks
Associated with Uncovered Calls
There
are special risks associated with uncovered option writing which expose the Fund to potentially significant loss. As the writer
of an uncovered call option, the Fund has no risk of loss should the price of the underlying security decline, but bears unlimited
risk of loss should the price of the underlying security increase above the exercise price until the Fund covers its exposure.
As with writing uncovered calls, the risk of writing uncovered put options is substantial. The writer of an uncovered put option
bears a risk of loss if the value of the underlying instrument declines below the exercise price. Such loss could be substantial
if there is a significant decline in the value of the underlying instrument.
For
combination writing, where the Fund writes both a put and a call on the same underlying instrument, the potential risk is unlimited.
If a secondary market in options were to become unavailable, the Fund could not engage in losing transactions and would remain
obligated until expiration or assignment.
Equity
Risk
Investing
in the Fund involves equity risk, which is the risk that the securities held by the Fund will fall in market value due to adverse
market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate
and the particular circumstances and performance of particular companies whose securities the Fund holds. An investment in the
Fund represents an indirect economic stake in the securities owned by the Fund, which are for the most part traded on securities
exchanges or in the OTC markets. The market value of these securities, like other market investments, may move up or down, sometimes
rapidly and unpredictably. The net asset value of the Fund may at any point in time be less than the net asset value of the Fund
at the time the shareholder invested in the Fund, even after taking into account any reinvestment of distributions.
Leverage
Risk
The
Fund currently uses financial leverage for investment purposes by issuing preferred shares and is also permitted to use other
types of financial leverage, such as through the issuance of debt securities or additional preferred shares and borrowing from
financial institutions. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue additional senior securities
(which may be stock, such as preferred shares, and/or securities representing debt) only if immediately after such issuance the
value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding
and exceeds 200% of the amount of preferred shares and debt outstanding. As of December 31, 2021, the amount of leverage represented
approximately 13% of the Fund’s net assets.
The
Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment
objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset
value of the Fund and the asset coverage for the preferred shares. Such volatility may increase the likelihood of the Fund having
to sell investments in order to meet its obligations to make distributions on the preferred shares or principal or interest payments
on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use
of leverage may require it to
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sell
portfolio investments at inopportune times in order to raise cash to redeem preferred shares or otherwise de-leverage so as to
maintain required asset coverage amounts or comply with the mandatory redemption terms of any outstanding preferred shares. The
use of leverage magnifies both the favorable and unfavorable effects of price movements in the investments made by the Fund. To
the extent that the Fund employs leverage in its investment operations, the Fund is subject to substantial risk of loss. The Fund
cannot assure you that borrowings or the issuance of preferred shares or notes will result in a higher yield or return to the
holders of the common shares. Also, since the Fund utilizes leverage, a decline in net asset value could affect the ability of
the Fund to make common share distributions and such a failure to make distributions could result in the Fund ceasing to qualify
as a RIC under the Code.
Any
decline in the net asset value of the Fund’s investments would be borne entirely by the holders of common shares. Therefore,
if the market value of the Fund’s portfolio declines, the leverage will result in a greater decrease in net asset value
to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause
a greater decline in the market price for the common shares. The Fund might be in danger of failing to maintain the required asset
coverage of its borrowings, notes or preferred shares or of losing its ratings on its notes or preferred shares or, in an extreme
case, the Fund’s current investment income might not be sufficient to meet the distribution or interest requirements on
its preferred shares, borrowings or notes. In order to counteract such an event, the Fund might need to liquidate investments
in order to fund a redemption or repayment of some or all of the preferred shares, borrowings or notes.
Preferred
Share and Note Risk. The issuance of preferred shares or notes causes the net asset value and market value of the common shares
to become more volatile. If the dividend rate on the preferred shares or the interest rate on the notes approaches the net rate
of return on the Fund’s investment portfolio, the benefit of leverage to the holders of the common shares would be reduced.
If the dividend rate on the preferred shares or the interest rate on the notes plus the management fee annual rate of 1.00% exceeds
the net rate of return on the Fund’s portfolio, the leverage will result in a lower rate of return to the holders of common
shares than if the Fund had not issued preferred shares or notes. If the Fund has insufficient investment income and gains, all
or a portion of the distributions to preferred shareholders or interest payments to note holders would come from the common shareholders’
capital. Such distributions and interest payments reduce the net assets attributable to common shareholders.
In
addition, the Fund would pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and
ongoing maintenance of the preferred shares or notes, including the advisory fees on the incremental assets attributable to the
preferred shares or notes.
Holders
of preferred shares and notes may have different interests than holders of common shares and may at times have disproportionate
influence over the Fund’s affairs. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior
securities (which may be stock, such as preferred shares, and/or securities representing debt, such as notes) only if immediately
after such issuance the value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the
amount of the debt outstanding (i.e., for every dollar of indebtedness outstanding, the Fund is required to have at least three
dollars of assets) and exceeds 200% of the amount of preferred shares and debt outstanding (i.e., for every dollar in liquidation
preference of preferred stock outstanding, the Fund is required to have two dollars of assets), which is referred to as the “asset
coverage” required by
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the
1940 Act. In the event the Fund fails to maintain an asset coverage of 100% for any notes outstanding for certain periods of time,
the 1940 Act requires that either an event of default be declared or that the holders of such notes have the right to elect a
majority of the Fund’s Trustees until asset coverage recovers to 110%. In addition, holders of preferred shares, voting
separately as a single class, have the right (subject to the rights of noteholders) to elect two members of the Board at all times
and in the event dividends become two full years in arrears would have the right to elect a majority of the Trustees until such
arrearage is completely eliminated. In addition, preferred shareholders have class voting rights on certain matters, including
changes in fundamental investment restrictions and conversion of the Fund to open-end status, and accordingly can veto any such
changes. Further, interest on notes would be payable when due and if the Fund does not pay interest when due, it will trigger
an event of default and the Fund expects to be restricted from declaring dividends and making other distributions with respect
to common shares and preferred shares. Upon the occurrence and continuance of an event of default, the holders of a majority in
principal amount of a series of outstanding notes or the trustee will be able to declare the principal amount of that series of
notes immediately due and payable upon written notice to the Fund. The 1940 Act also generally restricts the Fund from declaring
distributions on, or repurchasing, common or preferred shares unless notes have an asset coverage of 300% (200% in the case of
declaring distributions on preferred shares). The Fund’s common shares are structurally subordinated as to income and residual
value to any preferred shares or notes in the Fund’s capital structure, in terms of priority to income and payment in liquidation.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and
preferred shares, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to
maintain its qualification as a RIC for U.S. federal income tax purposes. While the Fund intends to redeem its preferred shares
or notes to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification as a RIC
under the Code, there can be no assurance that such actions can be effected in time to meet the Code requirements.
Portfolio
Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility. In order to obtain and maintain attractive credit
quality ratings for preferred shares or borrowings, the Fund must comply with investment quality, diversification and other guidelines
established by the relevant rating agencies. These guidelines could affect portfolio decisions and may be more stringent than
those imposed by the 1940 Act. In the event that a rating on the Fund’s preferred shares or notes is lowered or withdrawn
by the relevant rating agency, the Fund may also be required to redeem all or part of its outstanding preferred shares or notes,
and the common shares of the Fund will lose the potential benefits associated with a leveraged capital structure.
Impact
on Common Shares. Assuming that leverage will (1) be equal in amount to approximately 13% of the Fund’s total net assets
(the Fund’s outstanding financial leverage as of December 31, 2022), and (2) charge interest or involve dividend payments
at a projected blended annual average leverage dividend or interest rate of 5.00%, (the average dividend rate on the Fund’s
outstanding financial leverage as of December 31, 2022) then the total return generated by the Fund’s portfolio (net of
estimated expenses) must exceed approximately 0.63% of the Fund’s total net assets in order to cover such interest or dividend
payments and other expenses specifically related to leverage. Of course, these numbers are merely
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estimates,
used for illustration. Actual dividend rates, interest or payment rates may vary frequently and may be significantly higher or
lower than the rate estimated above. The following table is furnished in response to requirements of the SEC. It is designed to
illustrate the effect of leverage on common share total return, assuming investment portfolio total returns (comprised of net
investment income of the Fund, realized gains or losses of the Fund and changes in the value of the securities held in the Fund’s
portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. These assumed investment
portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced
or expected to be experienced by the Fund. The table further reflects leverage representing 13% of the Fund’s net assets
(the Fund’s amount of outstanding financial leverage as of December 31, 2022), the Fund’s current projected blended
annual average leverage dividend or interest rate of 5.00% (the average dividend rate on the Fund’s outstanding financial
leverage as of December 31, 2022), a base management fee at an annual rate of 1.00% of the liquidation preference of any outstanding
preferred shares and estimated annual incremental expenses attributable to any outstanding preferred shares of 0.01% of the Fund’s
net assets attributable to common shares.
| Assumed Return on Portfolio (Net of Expenses) | |
(10)% | |
(5)% | |
0% | |
5% | |
10% |
| Corresponding Return to Common Shareholder | |
(12.29)% | |
(6.57)% | |
(0.86)% | |
4.86% | |
10.57% |
Common
share total return is composed of two elements—the common share distributions paid by the Fund (the amount of which is largely
determined by the taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or dividends
on any preferred shares) and unrealized gains or losses on the value of the securities the Fund owns. As required by SEC rules,
the table assumes that the Fund is more likely to suffer capital losses than to enjoy total return. For example, to assume a total
return of 0% the Fund must assume that the income it receives on its investments is entirely offset by expenses and losses in
the value of those investments.
Market
Discount Risk. As described below in “Market Discount Risk,” common shares of closed-end funds often trade at
a discount to their net asset values and the Fund’s common shares may trade at such a discount. This risk may be greater
for investors expecting to sell their common shares of the Fund soon after completion of a public offering. The common shares
of the Fund are designed primarily for long-term investors and investors in the shares should not view the Fund as a vehicle for
trading purposes.
Foreign
Securities Risk
Because
many of the world’s Gold Companies and Natural Resources Companies are located outside of the United States, the Fund may
have a significant portion of its investments in securities that are traded in foreign markets and that are not subject to the
requirements of the U.S. securities laws, markets and accounting
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requirements.
Investments in the securities of foreign issuers involve certain considerations and risks not ordinarily associated with investments
in securities of domestic issuers and such securities may be more volatile than those of issuers located in the United States.
Foreign companies are not generally subject to uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. companies. The governments of certain countries may prohibit or impose substantial restrictions on
foreign investments in their capital markets or in certain industries, and there may be greater levels of price volatility in
foreign markets. Foreign securities exchanges, brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be subject to withholding and other foreign taxes,
which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing a court judgment
abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries. In addition, with respect
to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments
that could affect assets of the Fund held in foreign countries. Dividend income the Fund receives from foreign securities may
not be eligible for the special tax treatment applicable to qualified dividend income. Moreover, certain equity investments in
foreign issuers classified as passive foreign investment companies may be subject to additional taxation risk.
There
may be less publicly available information about a foreign company than a U.S. company. Foreign securities markets may have substantially
less volume than U.S. securities markets and some foreign company securities are less liquid than securities of otherwise comparable
U.S. companies. A portfolio of foreign securities may also be adversely affected by fluctuations in the rates of exchange between
the currencies of different nations and by exchange control regulations. Foreign markets also have different clearance and settlement
procedures that could cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result
in the Fund missing attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities
can expect to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased
costs of maintaining the custody of foreign securities.
Investments
in foreign securities will expose the Fund to the direct or indirect consequences of political, social or economic changes in
the countries that issue the securities or in which the issuers are located. Certain countries in which the Fund may invest have
historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations,
large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. Many of these
countries are also characterized by political uncertainty and instability. The cost of servicing external debt will generally
be adversely affected by rising international interest rates because many external debt obligations bear interest at rates which
are adjusted based upon international interest rates.
The
Fund also may purchase ADRs or U.S. dollar-denominated securities of foreign issuers. ADRs are receipts issued by U.S. banks or
trust companies in respect of securities of foreign issuers held on deposit for use in the U.S. securities markets. While ADRs
may not necessarily be denominated in the same currency as the securities into which they may be converted, many of the risks
associated with foreign securities may also apply to ADRs. In addition, the underlying issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications
to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.
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EMU
and Redenomination Risk
As
the European debt crisis progressed, the possibility of one or more Eurozone countries exiting the European Monetary Union (“EMU”),
or even the collapse of the Euro as a common currency, arose, creating significant volatility at times in currency and financial
markets generally. The effects of the collapse of the Euro, or of the exit of one or more countries from the EMU, on the U.S.
and global economies and securities markets are impossible to predict, and any such events could have a significant adverse impact
on the value and risk profile of the Fund’s portfolio. Any partial or complete dissolution of the EMU could have significant
adverse effects on currency and financial markets, and on the values of the Fund’s portfolio investments. If one or more
EMU countries were to stop using the Euro as its primary currency, the Fund’s investments in such countries may be redenominated
into a different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably.
In addition, securities or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and
valuation risk to a greater extent than similar investments currently denominated in Euros. To the extent a currency used for
redenomination purposes is not specified in respect of certain EMU-related investments, or should the Euro cease to be used entirely,
the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value
or dispose of. The Fund may incur additional expenses to the extent it is required to seek judicial or other clarification of
the denomination or value of such securities.
Emerging
Markets Risk
The
Fund may invest without limit in securities of issuers whose primary operations or principal trading market are located in an
“emerging market.” An “emerging market” country is any country that is considered to be an emerging or
developing country by the World Bank. The considerations noted above in “Foreign Securities Risk” are generally intensified
for investments in emerging market countries. Emerging market countries typically have economic and political systems that are
less fully developed, and can be expected to be less stable than those of more developed countries. Investing in securities of
companies in emerging markets may entail special risks relating to potential political and economic instability and the risks
of expropriation, nationalization, confiscation or the imposition of restrictions on foreign investment, the lack of hedging instruments
and restrictions on repatriation of capital invested. Economies of such countries can be subject to rapid and unpredictable rates
of inflation or deflation. Emerging securities markets are substantially smaller, less developed, less liquid and more volatile
than the major securities markets. The limited size of emerging securities markets and limited trading volume compared to the
volume of trading in U.S. securities could cause prices to be erratic for reasons apart from factors that affect the quality of
the securities. For example, limited market size may cause prices to be unduly influenced by traders who control large positions.
Adverse publicity and investors’ perceptions, whether or not based on fundamental analysis, may decrease the value and liquidity
of portfolio securities, especially in these markets. Other risks include high concentration of market capitalization and trading
volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors
and financial intermediaries; overdependence on exports, including gold and natural resources exports, making these economies
vulnerable to changes in commodity prices; overburdened infrastructure and obsolete or unseasoned financial systems; environmental
problems; less developed legal systems; and less reliable securities custodial services and settlement practices. Certain emerging
markets may also face
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other
significant internal or external risks, including the risk of war and civil unrest. For all of these reasons, investments in emerging
markets may be considered speculative.
Frontier
Markets Risk
Frontier
countries generally have smaller economies or less developed capital markets than traditional emerging markets, and, as a result,
the risks of investing in emerging market countries are magnified in frontier countries. The economies of frontier countries are
less correlated to global economic cycles than those of their more developed counterparts and their markets have low trading volumes
and the potential for extreme price volatility and illiquidity. This volatility may be further heightened by the actions of a
few major investors. For example, a substantial increase or decrease in cash flows of mutual funds investing in these markets
could significantly affect local stock prices and, therefore, the NAV of Fund’s common shares. These factors make investing
in frontier countries significantly riskier than in other countries and any one of them could cause the NAV of a fund’s
shares to decline.
Governments
of many frontier countries in which the Fund may invest may exercise substantial influence over many aspects of the private sector.
In some cases, the governments of such frontier countries may own or control certain companies. Accordingly, government actions
could have a significant effect on economic conditions in a frontier country and on market conditions, prices and yields of securities
in the Fund’s portfolio. Moreover, the economies of frontier countries may be heavily dependent upon international trade
and, accordingly, have been and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments
in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade.
Foreign
Currency Risk
The
Fund expects to invest in companies whose securities are denominated or quoted in currencies other than U.S. dollars or have significant
operations or markets outside of the United States. In such instances, the Fund will be exposed to currency risk, including the
risk of fluctuations in the exchange rate between U.S. dollars (in which the Fund’s shares are denominated) and such foreign
currencies, the risk of currency devaluations and the risks of non-exchangeability and blockage. As non-U.S. securities may be
purchased with and payable in currencies of countries other than the U.S. dollar, the value of these assets measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. Fluctuations in currency
rates may adversely affect the ability of the Investment Adviser to acquire such securities at advantageous prices and may also
adversely affect the performance of such assets.
Certain
non-U.S. currencies, primarily in developing countries, have been devalued in the past and might face devaluation in the future.
Currency devaluations generally have a significant and adverse impact on the devaluing country’s economy in the short and
intermediate term and on the financial condition and results of companies’ operations in that country. Currency devaluations
may also be accompanied by significant declines in the values and liquidity of equity and debt securities of affected governmental
and private sector entities generally. To the extent that affected companies have obligations denominated in currencies other
than the devalued currency, those companies may also have difficulty in meeting those obligations under such circumstances, which
in turn could have an adverse effect upon the value of the Fund’s investments in such companies. There can be no
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assurance
that current or future developments with respect to foreign currency devaluations will not impair the Fund’s investment
flexibility, its ability to achieve its investment objectives or the value of certain of its foreign currency denominated investments.
Tax
Consequences of Foreign Investing
The
Fund’s transactions in foreign currencies, foreign currency-denominated debt obligations and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign currency concerned. This treatment could increase or decrease
the Fund’s ordinary income distributions to you, and may cause some or all of the Fund’s previously distributed income
to be classified as a return of capital. In certain cases, the Fund may make an election to treat gain or loss attributable to
certain investments as capital gain or loss.
Market
Discount Risk
The
Fund is a non-diversified, closed-end management investment company. Whether investors will realize gains or losses upon the sale
of securities of the Fund will depend upon the market price of the securities at the time of sale, which may be less or more than
the Fund’s net asset value per share or the liquidation value of any Fund preferred shares issued. Since the market price
of any additional securities the Fund may issue will be affected by such factors as the Fund’s dividend and distribution
levels (which are in turn affected by expenses), dividend and distribution stability, net asset value, market liquidity, the relative
demand for and supply of such securities in the market, general market and economic conditions and other factors beyond the control
of the Fund, we cannot predict whether any such securities will trade at, below or above net asset value or at, below or above
their public offering price or at, below or above their liquidation value, as applicable. For example, common shares of closed-end
funds often trade at a discount to their net asset values and the Fund’s common shares may trade at such a discount. This
risk may be greater for investors expecting to sell their securities of the Fund soon after the completion of a public offering
for such securities. The risk of a market price discount from net asset value is separate and in addition to the risk that net
asset value itself may decline. The Fund’s securities are designed primarily for long-term investors, and investors in the
shares should not view the Fund as a vehicle for trading purposes.
Common
Stock Risk
Common
stock of an issuer in the Fund’s portfolio may decline in price for a variety of reasons, including if the issuer fails
to make anticipated dividend payments because the issuer of the security experiences a decline in its financial condition. Common
stock in which the Fund invests is structurally subordinated as to income and residual value to preferred stock, bonds and other
debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject
to greater dividend risk than preferred stock or debt instruments of such issuers. In addition, while common stock has historically
generated higher average returns than fixed income securities, common stock has also experienced significantly more volatility
in generating those returns.
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Convertible
Securities Risk
Convertible
securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values
of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. In
the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of the Fund’s holding
may occur in the event the underlying stock is subdivided, additional equity securities are issued for below market value, a stock
dividend is declared or the issuer enters into another type of corporate transaction that has a similar effect.
The
value of a convertible security is influenced by the value of the underlying equity security. Convertible debt securities and
preferred stocks may depreciate in value if the market value of the underlying equity security declines or if rates of interest
increase. In addition, although debt securities are liabilities of a corporation which the corporation is generally obligated
to repay at a specified time, debt securities, particularly convertible debt securities, are often subordinated to the claims
of some or all of the other creditors of the corporation.
Mandatory
conversion securities (securities that automatically convert into equity securities at a future date) may limit the potential
for capital appreciation and, in some instances, are subject to complete loss of invested capital. Other innovative convertibles
include “equity-linked” securities, which are securities or derivatives that may have fixed, variable, or no interest
payments prior to maturity, may convert (at the option of the holder or on a mandatory basis) into cash or a combination of cash
and equity securities, and may be structured to limit the potential for capital appreciation. Equity-linked securities may be
illiquid and difficult to value and may be subject to greater credit risk than that of other convertibles. Moreover, mandatory
conversion securities and equity-linked securities have increased the sensitivity of the convertible securities market to the
volatility of the equity markets and to the special risks of those innovations, which may include risks different from, and possibly
greater than, those associated with traditional convertible securities.
Preferred
stocks are equity securities in the sense that they do not represent a liability of the corporation. In the event of liquidation
of the corporation, and after its creditors have been paid or provided for, holders of preferred stock are generally entitled
to a preference as to the assets of the corporation before any distribution may be made to the holders of common stock. Debt securities
normally do not have voting rights. Preferred stocks may have no voting rights or may have voting rights only under certain circumstances.
| ● | Credit
Risk. Credit risk is the risk that an issuer will fail to pay interest or dividends and principal in a timely manner. Companies
that issue convertible securities may be small to medium-size, and they often have low credit ratings. In addition, the credit
rating of a company’s convertible securities is generally lower than that of its conventional debt securities. Convertible
securities are normally considered “junior” securities—that is, the company usually must pay interest on its
conventional debt before it can make payments on its convertible securities. Credit risk could be high for the Fund, because it
could invest in securities with low credit quality. The lower a debt security is rated, the greater its default risk. As a result,
the Fund may incur cost and delays in enforcing its rights against the issuer. |
| ● | Market
Risk. Although convertible securities do derive part of their value from that of the securities into which they are convertible,
they are not considered derivative financial instruments. However, mandatory convertible securities include features which render
them more sensitive to price changes of their |
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underlying
securities. Thus they expose the Fund to greater downside risk than traditional convertible securities, but generally less than
that of the underlying common stock.
| ● | Interest
Rate Risk for Convertible Securities. The Fund may be subject to a greater risk of rising interest rates due to the current
period of rising interest rates and high inflation. The Federal Reserve has aggressively begun to raise interest rates which
is likely to drive down the prices of convertible securities held by the Fund. Convertible securities are particularly sensitive
to interest rate changes when their predetermined conversion price is much higher than the issuing company’s common stock.
See “—Fixed Income Securities Risks—Duration and Maturity Risk” and “— General Risks—Interest
Rate Risks Generally.” |
| ● | Sector
Risk. Sector risk is the risk that returns from the economic sectors in which convertible securities are concentrated will
trail returns from other economic sectors. As a group, sectors tend to go through cycles of doing better-or-worse-than the convertible
securities market in general. These periods have, in the past, lasted for as long as several years. Moreover, the sectors that
dominate this market change over time. |
| ● | Dilution
Risk. In the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of the Fund’s
holding may occur in the event the underlying stock is subdivided, additional equity securities are issued for below market value,
a stock dividend is declared, or the issuer enters into another type of corporate transaction that has a similar effect. |
Income
Risk
The
income shareholders receive from the Fund is expected to be based primarily on income the Fund earns from its investment strategy
of writing covered calls and dividends and other distributions received from its investments. If the Fund’s covered call
strategy fails to generate sufficient income or the distribution rates or yields of the Fund’s holdings decrease, shareholders’
income from the Fund could decline.
Distribution
Risk for Equity Income Portfolio Securities
In
selecting equity income securities in which the Fund will invest, the Investment Adviser will consider the issuer’s history
of making regular periodic distributions (i.e., dividends) to its equity holders. An issuer’s history of paying dividends
or other distributions, however, does not guarantee that the issuer will continue to pay dividends or other distributions in the
future. The dividend income stream associated with equity income securities generally is not guaranteed and will be subordinate
to payment obligations of the issuer on its debt and other liabilities. Accordingly, an issuer may forgo paying dividends on its
equity securities. In addition, because in most instances issuers are not obligated to make periodic distributions to the holders
of their equity securities, such distributions or dividends generally may be discontinued at the issuer’s discretion.
Special
Risks Related to Preferred Securities
There
are special risks associated with the Fund’s investing in preferred securities, including:
Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion, to defer dividends or distributions for
a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its dividends
or distributions, the Fund may be required to report income for tax purposes although it has not yet received such income.
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Non-Cumulative
Dividends. Some preferred securities are non-cumulative, meaning that the dividends do not accumulate and need not ever be
paid. A portion of the portfolio may include investments in non-cumulative preferred securities, whereby the issuer does not have
an obligation to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred security held by the
Fund determine not to pay dividends or distributions on such security, the Fund’s return from that security may be adversely
affected. There is no assurance that dividends or distributions on non-cumulative preferred securities in which the Fund invests
will be declared or otherwise made payable.
Subordination.
Preferred securities are subordinated to bonds and other debt instruments in an issuer’s capital structure in terms of priority
to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt security
instruments.
Liquidity.
Preferred securities may be substantially less liquid than many other securities, such as common stocks or U.S. Government securities.
Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have no voting rights with respect to the issuing
company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security
holders may be entitled to elect a number of Trustees to the issuer’s board. Generally, once all the arrearages have been
paid, the preferred security holders no longer have voting rights.
Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to
a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal
income tax or securities laws. As with call provisions, a redemption by the issuer may negatively impact the return of the security
held by the Fund.
Deflation
Risk
Deflation
risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Illiquid
Investments Risk
Although
the Fund expects that its portfolio will primarily be comprised of liquid securities, the Fund may invest up to 15% of its assets
in unregistered securities and otherwise illiquid investments. Unregistered securities are securities that cannot be sold publicly
in the United States without registration under the Securities Act. An illiquid investment is a security or other investment that
cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued
the investment. Unregistered securities often can be resold only in privately negotiated transactions with a limited number of
purchasers or in a public offering registered under the Securities Act. Considerable delay could be encountered in either event
and, unless otherwise contractually provided for, the Fund’s proceeds upon sale may be reduced by the costs of registration
or underwriting discounts. The difficulties and delays associated with such transactions could result in the Fund’s inability
to realize a favorable price upon disposition of unregistered securities, and at times might make disposition of such securities
impossible. In addition, the Fund may be unable to sell other illiquid
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investments
when it desires to do so, resulting in the Fund obtaining a lower price or being required to retain the investment. Illiquid investments
generally must be valued at fair value, which is inherently less precise than utilizing market values for it desires to do so,
resulting in the Fund obtaining a lower price or being required to retain the investment. liquid investments, and may lead to
differences between the price at which a security is valued for determining the Fund’s net asset value and the price the
Fund actually receives upon sale.
Investment
Companies
The
Fund may invest in the securities of other investment companies, including exchange traded funds, to the extent permitted by law.
To the extent the Fund invests in the common equity of investment companies, the Fund will bear its ratable share of any such
investment company’s expenses, including management fees. The Fund will also remain obligated to pay management fees to
the Investment Adviser with respect to the assets invested in the securities of other investment companies. In these circumstances
holders of the Fund’s common shares will be in effect subject to duplicative investment expenses.
Special
Risks of Derivative Transactions
The
Fund may participate in derivative transactions. Such transactions entail certain execution, market, liquidity, hedging and tax
risks. Participation in the options or futures markets, in currency exchange transactions and in other derivatives transactions
involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If
the Investment Adviser’s prediction of movements in the direction of the securities, foreign currency, interest rate or
other referenced instruments or markets is inaccurate, the consequences to the Fund may leave the Fund in a worse position than
if it had not used such strategies. Risks inherent in the use of options, foreign currency, futures contracts and options on futures
contracts, securities indices and foreign currencies include:
dependence
on the Investment Adviser’s ability to predict correctly movements in the direction of the relevant measure;
imperfect
correlation between the price of the derivative instrument and movements in the prices of the referenced assets;
the
fact that skills needed to use these strategies are different from those needed to select portfolio securities;
the
possible absence of a liquid secondary market for any particular instrument at any time;
the
possible need to defer closing out certain hedged positions to avoid adverse tax consequences;
the
possible inability of the Fund to purchase or sell a security or instrument at a time that otherwise would be favorable for it
to do so, or the possible need for the Fund to sell a security or instrument at a disadvantageous time due to a need for the Fund
comply with Rule 18f-4; and
the
creditworthiness of counterparties.
Options,
futures contracts, swaps contracts, and options thereon and forward contracts on securities and currencies may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States, may not involve
a clearing mechanism and related guarantees, and
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are
subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such positions
also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability
than in the United States of data on which to make trading decisions, (iii) delays in the ability of the Fund to act upon economic
events occurring in the foreign markets during non-business hours in the United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United States, and (v) less trading volume. Exchanges
on which options, futures, swaps and options on futures or swaps are traded may impose limits on the positions that the Fund may
take in certain circumstances.
Many
OTC derivatives are valued on the basis of dealers’ pricing of these instruments. However, the price at which dealers value
a particular derivative and the price which the same dealers would actually be willing to pay for such derivative should the Fund
wish or be forced to sell such position may be materially different. Such differences can result in an overstatement of the Fund’s
net asset value and may materially adversely affect the Fund in situations in which the Fund is required to sell derivative instruments.
Exchange-traded derivatives and OTC derivative transactions submitted for clearing through a central counterparty have become
subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as possible margin requirements
mandated by the SEC or the Commodity Futures Trading Commission (the “CFTC”). These regulators also have broad discretion
to impose margin requirements on non-cleared OTC derivatives. These margin requirements will increase the overall costs for the
Fund.
While
hedging transactions can reduce or eliminate losses, they can also reduce or eliminate gains. Hedges are sometimes subject to
imperfect matching between the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging
transactions will be effective. Derivatives may also give rise to a form of leverage and may expose the Fund to greater risk and
increase its costs. Future CFTC or SEC rulemakings could potentially further limit or completely restrict the Fund’s ability
to use these instruments as a part of the Fund’s investment strategy, increase the costs of using these instruments or make
them less effective. Limits or restrictions applicable to the counterparties with which the Fund engages in derivative transactions
could also prevent the Fund from using these instruments or affect the pricing or other factors relating to these instruments
or may change the availability of certain investments. New regulation may make derivatives more costly, may limit the availability
of derivatives, or may otherwise adversely affect the value or performance of derivatives.
Forward
Foreign Currency Exchange Contracts.
There is no independent limit on the Fund’s ability to invest in foreign currency exchange contracts. The use of forward
currency contracts may involve certain risks, including the failure of the counterparty to perform its obligations under the contract
and that the use of forward contracts may not serve as a complete hedge because of an imperfect correlation between movements
in the prices of the contracts and the prices of the currencies hedged or used for cover.
Counterparty
Risk. The Fund will be subject
to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding.
The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
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The
counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivative transactions since generally a
clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the
parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance
of financial obligations under the derivative contract. However, there can be no assurance that a clearing organization, or its
members, will satisfy its obligations to the Fund, or that the Fund would be able to recover the full amount of assets deposited
on its behalf with the clearing organization in the event of the default by the clearing organization or the Fund’s clearing
broker. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and
minimum capital requirements applicable to intermediaries. Uncleared OTC derivative transactions generally do not benefit from
such protections. This exposes the Fund to the risk that a counterparty will not settle a transaction in accordance with its terms
and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity
problem, thus causing the Fund to suffer a loss. Such “counterparty risk” is accentuated for contracts with longer
maturities where events may intervene to prevent settlement, or where the Fund has concentrated its transactions with a single
or small group of counterparties.
Non-Investment
Grade Securities
The
Fund may invest in securities rated below investment grade by recognized statistical rating agencies or unrated securities of
comparable quality. The prices of these lower grade securities are more sensitive to negative developments, such as a decline
in the issuer’s revenues or a general economic downturn, than are the prices of higher grade securities. Securities of below
investment grade quality—those securities rated below “Baa” by Moody’s or below “BBB” by S&P
(or unrated securities of comparable quality)—are predominantly speculative with respect to the issuer’s capacity
to pay interest and repay principal when due and therefore involve a greater risk of default. Securities rated below investment
grade commonly are referred to as “junk bonds” or “high yield” securities and generally pay a premium
above the yields of U.S. government securities or securities of investment grade issuers because they are subject to greater risks
than these securities. These risks, which reflect their speculative character, include the following:
greater
volatility;
greater
credit risk and risk of default;
potentially
greater sensitivity to general economic or industry conditions;
potential lack of attractive resale opportunities (illiquidity);
and
additional expenses to seek recovery from issuers who default.
In
addition, the prices of these lower grade securities are more sensitive to negative developments, such as a decline in the issuer’s
revenues or a general economic downturn, than are the prices of higher grade securities. Lower grade securities tend to be less
liquid than investment grade securities. The market value of lower grade securities may be more volatile than the market value
of investment grade securities and generally tends to reflect the market’s perception of the creditworthiness of the issuer
and short-term market developments to a greater extent than investment grade securities, which primarily reflect fluctuations
in general levels of interest rates.
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Ratings
are relative, subjective, and not absolute standards of quality. Securities ratings are based largely on the issuer’s historical
financial condition and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer’s current financial condition.
The
Fund may purchase securities of companies that are experiencing significant financial or business difficulties, including companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant
financial returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial
and legal, necessary for successful investments in issuers experiencing significant business and financial difficulties is unusually
high. There can be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments
or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to
a portfolio investment, the Fund may lose all or part of its investment or may be required to accept collateral with a value less
than the amount of the Fund’s initial investment.
As
a part of its investments in lower grade securities, the Fund may invest in securities of issuers in default. The Fund will invest
in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations,
emerge from bankruptcy protection and the value of these securities will appreciate. By investing in the securities of issuers
in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy
protection or that the value of these securities will not otherwise appreciate.
In
addition to using statistical rating agencies and other sources, the Investment Adviser will also perform its own analysis of
issuers in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition
of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed
income securities, including non-investment grade securities and comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises
these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return for the Fund.
The
market for non-investment grade and comparable unrated securities has experienced periods of significantly adverse price and liquidity
several times, particularly at or around times of economic recession. Past market recessions have adversely affected the value
of such securities and the ability of certain issuers of such securities to repay principal and pay interest thereon or to refinance
such securities. The market for those securities may react in a similar fashion in the future.
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Decision-Making
Authority Risk. Investors have no authority to make decisions or to exercise business discretion on behalf of the Fund,
except as set forth in the Fund’s governing documents. The authority for all such decisions is generally delegated to the
Board, who in turn, has delegated the day-to-day management of the Fund’s investment activities to the Investment Adviser,
subject to oversight by the Board.
Dependence
on Key Personnel
The
Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli. If the Investment Adviser were to lose the services
of Mr. Gabelli, it could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli
in the event of his death, resignation, retirement or inability to act on behalf of the Investment Adviser.
The
Fund is dependent upon the expertise of Vincent Hugonnard-Roche as the sole option strategist on the Fund’s portfolio management
team. If the Fund were to lose the services of Mr. Roche, it could be temporarily adversely affected until a suitable replacement
could be found.
Long
Term Objective; Not a Complete Investment Program
The
Fund is intended for investors seeking a high level of current income. The Fund is not meant to provide a vehicle for those who
wish to exploit short-term swings in the stock market. An investment in shares of the Fund should not be considered a complete
investment program. Each shareholder should take into account the Fund’s investment objectives as well as the shareholder’s
other investments when considering an investment in the Fund.
Management
Risk
The
Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser will apply investment techniques
and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired
results.
Non-Diversified
Status
The
Fund is classified as a “non-diversified” investment company under the 1940 Act, which means the Fund is not limited
by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. As a non-diversified
investment company, the Fund may invest in the securities of individual issuers to a greater degree than a diversified investment
company. As a result, the Fund may be more vulnerable to events affecting a single issuer and therefore, subject to greater volatility
than a fund that is more broadly diversified. Accordingly, an investment in the Fund may present greater risk to an investor than
an investment in a diversified company.
Market
Disruption and Geopolitical Risk
General
economic and market conditions, such as interest rates, availability of credit, inflation rates, economic uncertainty, supply
chain disruptions, labor shortages, energy and other resource shortages, changes in laws, trade barriers, currency exchange controls
and national and international political circumstances (including governmental responses to public health crises or the spread
of infectious diseases), may have long-term negative effects on the U.S. and worldwide financial markets and economy. These conditions
have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening credit spreads and
a lack
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of
price transparency, with many securities remaining illiquid and of uncertain value. Such market conditions may adversely affect
the Company, including by making valuation of some of the Fund’s securities uncertain and/or result in sudden and significant
valuation increases or declines in the Fund’s holdings.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economy, the financial
condition of financial institutions and the Fund’s business, financial condition and results of operation. Market and economic
disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels
of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S.
or global economy negatively impacts consumer confidence and consumer credit factors, the Fund could be significantly and adversely
affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs for such banks and negatively
affect the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely
affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates
and/or a return to unfavorable economic conditions could impair the Fund’s ability to achieve its investment objectives.
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as
COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, and catastrophic events such as fires,
floods, earthquakes, tornadoes, hurricanes and global health epidemics, terrorist attacks in the U.S. and around the world, social
and political discord, debt crises sovereign debt downgrades, increasingly strained relations between the U.S. and a number of
foreign countries, new and continued political unrest in various countries, the exit or potential exit of one or more countries
from the EU or the EMU, continued changes in the balance of political power among and within the branches of the U.S. government,
government shutdowns, among others, may result in market volatility, may have long-term effects on the U.S. and worldwide financial
markets, and may cause further economic uncertainties in the U.S. and worldwide.
In
particular, the consequences of the Russian military invasion of Ukraine, the impact on inflation and increased disruption to
supply chains and energy resources may impact the Fund’s portfolio companies, result in an economic downturn or recession
either globally or locally in the U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the
form of traditional military action, reignited “cold” wars or in the form of virtual warfare such as cyberattacks)
with similar and perhaps wider ranging impacts and consequences and have an adverse impact on the Fund’s returns and net
asset values. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other
restrictive actions against Russia, Russian-backed separatist regions in Ukraine, and certain banks, companies, government officials
and other individuals in Russia and Belarus. Any of the above factors, including sanctions, export controls, tariffs, trade wars
and other governmental actions, could have a material adverse effect on the Fund. The Fund has no way to predict the duration
or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond the Fund’s control.
Prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on companies in which the
Fund invests. Such consequences also may increase such companies’ funding costs or limit their access to the capital markets.
The
current political climate has intensified concerns about a potential trade war between China and the U.S., as each country has
imposed tariffs on the other country’s products. These actions may trigger a significant
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reduction
in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure
of individual companies and/or large segments of China’s export industry, which could have a negative impact on the Fund’s
performance. U.S. companies that source material and goods from China and those that make large amounts of sales in China would
be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and the
potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and the
euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be imposed
or other escalating actions may be taken in the future. Any of these effects could have a material adverse effect on the Fund.
Economic
Events and Market Risk. Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events
both within and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater
price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid
and of uncertain value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s
securities uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If
there is a significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s
outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and our business, financial condition and results of operation. Market and economic
disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels
of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S.
or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results
of operations could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased
borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect
to certain interest rates, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities.
Market volatility, rising interest rates and/or a return to unfavorable economic conditions could impair the Fund’s ability
to achieve its investment objectives.
Regulation
and Government Intervention Risk
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the U.S.
Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and infrastructure
policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare and the oversight
of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and have, been effectuated
through executive order. For example, the current administration has taken steps to rejoin the Paris climate accord of 2015 and
incentivize certain clean energy technologies, cancel the Keystone XL pipeline, provide military support to Ukraine and change
immigration enforcement priorities. Other potential changes that could be pursued by the current presidential administration could
include an increase in the corporate income tax rate; changes to regulatory enforcement priorities; and spending on clean energy
and infrastructure. It is not possible to predict which, if
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any,
of these actions will be taken or, if taken, their effect on the economy, securities markets or the financial stability of the
U.S. The Fund may be affected by governmental action in ways that are not foreseeable, and there is a possibility that such actions
could have a significant adverse effect on the Fund and the Fund’s ability to achieve its investment objectives.
Additional
risks arising from the differences in expressed policy preferences among the various constituencies in the branches of the U.S.
government has led in the past, and may lead in the future, to short-term or prolonged policy impasses, which could, and has,
resulted in shutdowns of the U.S. federal government. U.S. federal government shutdowns, especially prolonged shutdowns, could
have a significant adverse impact on the economy in general and could impair the ability of issuers to raise capital in the securities
markets. Any of these effects could have a material adverse effect on the Fund’s net asset value.
In
addition, the rules dealing with the U.S. federal income taxation are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Treasury Department. The Tax Cuts and Jobs Act made substantial changes to the Code. Among
those changes were a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of
individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject
to “sunset” provisions, the elimination or modification of various previously allowed deductions (including substantial
limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes),
certain additional limitations on the deduction of net operating losses, certain preferential rates of taxation on certain dividends
and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers,
and significant changes to the international tax rules. In addition, on August 16, 2022, the Biden administration signed into
law the Inflation Reduction Act, which modifies key aspects of the Code, including by creating an alternative minimum tax on certain
corporations and an excise tax on stock repurchases by certain corporations. The effect of these and other changes is uncertain,
both in terms of the direct effect on the taxation of an investment in the Fund’s shares and their indirect effect on the
value of the Fund’s assets, Fund shares or market conditions generally.
In
addition, the U.S. government has proposed and adopted multiple regulations that could have a long-lasting impact on the Fund
and on the closed-end fund industry in general. The SEC’s final rules and amendments that modernize reporting and disclosure,
along with other potential upcoming regulations, including in respect of investment company names and other matters, could, among
other things, restrict the Fund’s ability to engage in transactions, and/or increase overall expenses of the Fund.
The
Fund may be affected by governmental action in ways that are not foreseeable, and there is a possibility that such actions could
have a significant adverse effect on the Fund and its ability to achieve its investment objective(s).
LIBOR
Risk
The
Fund may be exposed to financial instruments that are tied to the London Interbank Offered Rate (“LIBOR”) to determine
payment obligations, financing terms, hedging strategies or investment value. The Fund’s investments may pay interest at
floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Fund may also obtain financing
at floating rates based on LIBOR. Derivative instruments utilized by the Fund may also reference LIBOR.
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In
July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the
end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the one-week and two-month U.S. dollar LIBOR settings have ceased to be
published or are no longer representative, and after June 30, 2023, the overnight, one-month, three-month, six-month and 12-month
U.S. dollar LIBOR settings will cease to be published or will no longer be representative. Various financial industry groups have
begun planning for the transition away from LIBOR, but there are challenges to converting certain securities and transactions
to a new reference rate. Neither the effect of the LIBOR transition process nor its ultimate success can yet be known.
As
an alternative to LIBOR, the Financial Reporting Council, in conjunction with the Alternative Reference Rates Committee, a steering
committee comprised of large U.S. financial institutions recommended replacing U.S. dollar LIBOR with the Secured Overnight Financing
Rate (“SOFR”), a new index calculated by reference to short-term repurchase agreements, backed by Treasury securities.
Abandonment of, or modifications to, LIBOR could have adverse impacts on newly issued financial instruments and any of our existing
financial instruments which reference LIBOR. Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark
rate that may be established, there are many uncertainties regarding a transition from LIBOR, including, but not limited to, the
need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain
derivative financial instruments. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure
of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for
securities linked to such rates.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of, new hedges placed against, instruments whose terms
currently include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of
any such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting
provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions
in certain existing instruments. Moreover, these alternative rate-setting provisions may not be designed for regular use in an
environment where LIBOR ceases to be published, and may be an ineffective fallback following the discontinuation of LIBOR.
On
March 15, 2022, President Biden signed into law the Consolidated Appropriations Act of 2022, which among other things, provides
for the use of interest rates based on SOFR in certain contracts currently based on LIBOR and a safe harbor from liability for
utilizing SOFR-based interest rates as a replacement for LIBOR. The elimination of LIBOR could have an adverse impact on the market
value of and/or transferability of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit
held by or due to us or on our overall financial condition or results of operations.
Legislation
Risk
At
any time after the date of this Annual Report, legislation may be enacted that could negatively affect the assets of the Fund.
Legislation or regulation may change the way in which the Fund itself is regulated. The
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Investment
Adviser cannot predict the effects of any new governmental regulation that may be implemented and there can be no assurance that
any new governmental regulation will not adversely affect the Fund’s ability to achieve its investment objective.
Reliance
on Service Providers Risk
The
Fund must rely upon the performance of service providers to perform certain functions, which may include functions that are integral
to the Fund’s operations and financial performance. Failure by any service provider to carry out its obligations to the
Fund in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Fund
at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance
and returns to shareholders. The termination of the Fund’s relationship with any service provider, or any delay in appointing
a replacement for such service provider, could materially disrupt the business of the Fund and could have a material adverse effect
on the Fund’s performance and returns to shareholders.
Cyber
Security Risk
The
Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorized monitoring,
release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized
access to relevant systems, compromises to networks or devices that the Fund and its service providers use to service the Fund’s
operations; or operational disruption or failures in the physical infrastructure or operating systems that support the Fund and
its service providers. Cyber attacks are becoming increasingly common and more sophisticated, and may be perpetrated by computer
hackers, cyber-terrorists or others engaged in corporate espionage. Cyber attacks against or security breakdowns of the Fund or
its service providers may adversely impact the Fund and its stockholders, potentially resulting in, among other things, financial
losses; the inability of Fund stockholders to transact business and the Fund to process transactions; inability to calculate the
Fund’s NAV; violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement
or other compensation costs; and/or additional compliance costs. The Fund may incur additional costs for cyber security risk management
and remediation purposes. In addition, cyber security risks may also impact issuers of securities in which the Fund invests, which
may cause the Fund’s investment in such issuers to lose value. There have been a number of recent highly publicized cases
of companies reporting the unauthorized disclosure of client or customer information, as well as cyberattacks involving the dissemination,
theft and destruction of corporate information or other assets, as a result of failure to follow procedures by employees or contractors
or as a result of actions by third parties, including actions by terrorist organizations and hostile foreign governments. Although
service providers typically have policies and procedures, business continuity plans and/or risk management systems intended to
identify and mitigate cyber incidents, there are inherent limitations in such plans and systems including the possibility that
certain risks have not been identified. Furthermore, the Fund cannot control the cyber security policies, plans and systems put
in place by its service providers or any other third parties whose operations may affect the Fund or its shareholders. There can
be no assurance that the Fund or its service providers will not suffer losses relating to cyber attacks or other information security
breaches in the future.
Because
technology is consistently changing, new ways to carry out cyber attacks are always developing. Therefore, there is a chance that
some risks have not been identified or prepared for, or that an attack may not
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be
detected, which puts limitations on the Fund’s ability to plan for or respond to a cyber attack. In addition to deliberate
cyber attacks, unintentional cyber incidents can occur, such as the inadvertent release of confidential information by the Fund
or its service providers. Like other funds and business enterprises, the Fund and its service providers are subject to the risk
of cyber incidents occurring from time to time.
Misconduct
of Employees and of Service Providers Risk
Misconduct
or misrepresentations by employees of the Investment Adviser or the Fund’s service providers could cause significant losses
to the Fund. Employee misconduct may include binding the Fund to transactions that exceed authorized limits or present unacceptable
risks and unauthorized trading activities, concealing unsuccessful trading activities (which, in any case, may result in unknown
and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions
by the Fund’s service providers, including, without limitation, failing to recognize trades and misappropriating assets.
In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation
or serious financial harm, including limiting the Fund’s business prospects or future marketing activities. Despite the
Investment Adviser’s due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully
comprehended, thereby potentially undermining the Investment Adviser’s due diligence efforts. As a result, no assurances
can be given that the due diligence performed by the Investment Adviser will identify or prevent any such misconduct.
Portfolio
Turnover Risk
The
Fund’s annual portfolio turnover rate may vary greatly from year to year, as well as within a given year. Portfolio turnover
rate is not considered a limiting factor in the execution of investment decisions for the Fund. A higher portfolio turnover rate
results in correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. High portfolio
turnover may result in an increased realization of net short-term capital gains by the Fund which, when distributed to common
shareholders, will be taxable as ordinary income. Additionally, in a declining market, portfolio turnover may create realized
capital losses.
Legal,
Tax and Regulatory Risk
Legal,
tax and regulatory changes could occur that may have material adverse effects on the Fund or its shareholders. For example, the
regulatory and tax environment for derivative instruments in which the Fund may participate is evolving, and such changes in the
regulation or taxation of derivative instruments may have material adverse effects on the value of derivative instruments held
by the Fund and the ability of the Fund to pursue its investment strategies. Similarly, on August 16, 2022, the Biden administration
signed into law the Inflation Reduction Act, which modifies key aspects of the Code, including by creating an alternative minimum
tax on certain corporations and an excise tax on stock repurchases by certain corporations. Changes to the U.S. federal tax laws
and interpretations thereof could adversely affect an investment in the Fund.
We
cannot assure you what percentage of the distributions paid on the Fund’s shares, if any, will consist of tax-advantaged
qualified dividend income or long-term capital gains or what the tax rates on various types of income will be in future years.
To
qualify for the favorable U.S. federal income tax treatment generally accorded to RICs under the Code, the Fund must, among other
things, meet certain asset diversification tests, derive in each taxable year at least
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90%
of its gross income from certain prescribed sources and distribute for each taxable year at least 90% of its “investment
company taxable income.” Statutory limitations on distributions on the common shares if the Fund fails to satisfy the 1940
Act’s asset coverage requirements could jeopardize the Fund’s ability to meet such distribution requirements. While
the Fund presently intends to purchase or redeem notes or preferred shares, if any, to the extent necessary in order to maintain
compliance with such asset coverage requirements, there can be no assurance that such actions can be effected in time to meet
the Code requirements. If for any taxable year the Fund does not qualify as a RIC, all of its taxable income for that year (including
its net capital gain) would be subject to tax at regular corporate rates without any deduction for distributions to shareholders,
and such distributions would be taxable as ordinary dividends to the extent of the Fund’s current and accumulated earnings
and profits. The resulting corporate taxes would materially reduce the Fund’s net assets and the amount of cash available
for distribution to shareholders. For a more complete discussion of these and other U.S. federal income tax considerations.
Investment
Dilution Risk
The
Fund’s investors do not have preemptive rights to any shares the Fund may issue in the future. The Fund’s Agreement
and Declaration of Trust authorizes it to issue an unlimited number of shares. The Board may make certain amendments to the Agreement
and Declaration of Trust. After an investor purchases shares, the Fund may sell additional shares or other classes of shares in
the future or issue equity interests in private offerings. To the extent the Fund issues additional equity interests after an
investor purchases its shares, such investor’s percentage ownership interest in the Fund will be diluted.
Anti-Takeover
Provisions
The
Fund’s Governing Documents include provisions that could limit the ability of other entities or persons to acquire
control of the Fund or convert the Fund to an open-end fund. See also – “Delaware Statutory Trust Act –
Control Share Acquisitions.”
Investment
Restrictions
The
Fund has adopted certain fundamental investment policies designed to limit investment risk and maintain portfolio diversification.
Under the 1940 Act, a fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act, of the
outstanding voting securities of the Fund (voting together as a single class subject to class approval rights of any preferred
shares). Should the Fund decide to issue additional series of preferred shares in the future, it may become subject to rating
agency guidelines that are more limiting than its fundamental investment policies in order to obtain and maintain a desired rating
on its preferred shares.
Special
Risks to Holders of Preferred Shares
Illiquidity
Prior to Exchange Listing.
Prior to an offering, there will be no public market for any series of fixed rate preferred shares. In the event any series of
fixed rate preferred shares are issued, we expect to apply to list such shares on a national securities exchange, which will likely
be the NYSE or the NYSE American. However, during an initial period, which is not expected to exceed 30 days after the date of
its initial issuance, such shares may not be listed on any securities exchange. During such period, the underwriters may make
a market in such shares, though they will have no obligation to do so. Consequently, an investment in such shares may be illiquid
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during
such period. Preferred shares not intended to be listed on an exchange may be illiquid as long as they are outstanding.
Market
Price Fluctuation. Fixed rate
preferred shares may trade at a premium to or discount from liquidation value for various reasons, including changes in interest
rates, perceived credit quality and other factors.
Special
Risks to Holders of Notes
An
investment in our notes is subject to special risks. Our notes are not likely to be listed on an exchange or automated quotation
system. We cannot assure you that any market will exist for our notes or if a market does exist, whether it will provide holders
with liquidity. Broker-dealers that maintain a secondary trading market for the notes are not required to maintain this market,
and the Fund is not required to redeem notes if an attempted secondary market sale fails because of a lack of buyers. To the extent
that our notes trade, they may trade at a price either higher or lower than their principal amount depending on interest rates,
the rating (if any) on such notes and other factors.
Special
Risks of Notes to Holders of Preferred Shares
As
provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue notes. In
the event the Fund were to issue such securities, the Fund’s obligations to pay dividends or make distributions and, upon
liquidation of the Fund, liquidation payments in respect of its preferred shares would be subordinate to the Fund’s obligations
to make any principal and interest payments due and owing with respect to its outstanding notes. Accordingly, the Fund’s
issuance of notes would have the effect of creating special risks for the Fund’s preferred shareholders that would not be
present in a capital structure that did not include such securities.
Special
Risks to Holders of Notes and Preferred Shares
Common
Share Repurchases. Repurchases
of common shares by the Fund may reduce the asset coverage of the notes and preferred shares, which could adversely affect their
liquidity or market prices.
Common
Share Distribution Policy.
In the event the Fund does not generate a total return from dividends and interest received and net realized capital gains in
an amount at least equal to its distributions for a given year, the Fund may return capital as part of its distribution. This
would decrease the asset coverage per share with respect to the Fund’s notes or preferred shares, which could adversely
affect their liquidity or market prices.
For
the fiscal year ended December 31, 2022, the Fund made distributions of $0.36 per common share, $0.0744 per common share of which
constituted a return of capital. The composition of each distribution is estimated based on earnings as of the record date for
the distribution. The actual composition of each distribution may change based on the Fund’s investment activity through
the end of the calendar year.
Credit
Quality Ratings. The Fund
may obtain credit quality ratings for its preferred shares or notes; however, it is not required to do so and may issue preferred
shares or notes without any rating. If rated, the Fund does not impose any minimum rating necessary to issue such preferred shares
or notes. In order to obtain and maintain attractive credit quality ratings for preferred shares or notes, if desired, the Fund’s
portfolio must satisfy over-collateralization tests established by the relevant rating agencies. These tests are more difficult
to satisfy to the
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extent
the Fund’s portfolio securities are of lower credit quality, longer maturity or not diversified by issuer and industry.
These
guidelines could affect portfolio decisions and may be more stringent than those imposed by the 1940 Act. A rating (if any) by
a rating agency does not eliminate or necessarily mitigate the risks of investing in our preferred shares or notes, and a rating
may not fully or accurately reflect all of the securities’ credit risks. A rating (if any) does not address liquidity or
any other market risks of the securities being rated. A rating agency could downgrade the rating of our notes or preferred shares,
which may make such securities less liquid in the secondary market. If a rating agency downgrades the rating assigned to notes
or preferred shares, we may alter our portfolio or redeem the preferred securities or notes under certain circumstances.
Special
Risk to Holders of Subscription Rights
There
is a risk that changes in market conditions may result in the underlying common or preferred shares purchasable upon exercise
of the subscription rights being less attractive to investors at the conclusion of the subscription period. This may reduce or
eliminate the value of the subscription rights. Investors who receive subscription rights may find that there is no market to
sell rights they do not wish to exercise. If investors exercise only a portion of the rights, the number of common or preferred
shares issued may be reduced, and the common or preferred shares may trade at less favorable prices than larger offerings for
similar securities.
Regulated
Investment Company Status Risk
Securities
issued by certain issuers in which the Fund invests which are or become pass-through entities (such as Canadian Royalty Trusts,
which may be grantor trusts for U.S. federal income tax purposes) may not produce “qualified” income for purposes
of determining the Fund’s compliance with the tax rules applicable to regulated investment companies. To the extent that
the Fund holds such securities indirectly through investments in a taxable subsidiary formed by the Fund, those securities may
produce “qualified” income. However, the net return to the Fund on such investments would be reduced to the extent
that the subsidiary is subject to corporate income taxes. The Fund intends to monitor its investments with the objective of maintaining
its continued qualification as a RIC. If for any taxable year the Fund does not qualify as a RIC, all of its taxable income will
be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will
be taxable to the shareholders as ordinary dividends to the extent of the Fund’s current or accumulated earnings and profits.
Additional
Investment Policies
Canadian
Royalty Trusts. The Fund may
invest in equity interests in Canadian Royalty Trusts. A Canadian Royalty Trust is a royalty trust whose securities are generally
listed on a Canadian securities exchange and which controls an underlying company whose business is the acquisition, exploitation,
production and sale of oil and natural gas. These trusts generally pay out to unitholders the majority of the cash flow that they
receive from the production and sale of underlying oil and natural gas reserves. The amount of distributions paid on a Canadian
Royalty Trust’s units will vary from time to time based on production levels, commodity prices, royalty rates and certain
expenses, deductions and costs, as well as on the distribution payout ratio policy adopted. As a result of distributing the bulk
of its cash flow to unitholders, the ability of a Canadian Royalty Trust to finance internal growth through exploration is limited.
Therefore, Canadian Royalty Trusts typically grow through
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acquisition
of additional oil and gas properties or producing companies with proven reserves of oil and gas, funded through the issuance of
additional equity or, where the trust is able, additional debt.
Canadian
Royalty Trusts, like other types of Natural Resources Companies, are exposed to pricing risk, supply and demand risk and depletion
and exploration risk with respect to their underlying commodities, among other risks. An investment in units of Canadian Royalty
Trusts involves some risks which differ from an investment in common stock of a corporation, including increased liability for
the obligations of the trust. There are certain regulatory and tax risks associated with an investment in Canadian Royalty Trusts
resulting from reliance on beneficial Canadian incentive programs and tax laws that may be changed in the future. In addition,
securities of certain Canadian Royalty Trusts may not be qualifying assets for the Fund’s asset diversification requirements.
Master
Limited Partnerships (“MLPs”).
MLPs in which the Fund intends to invest will be limited partnerships (or limited liability companies treated as partnerships
for federal income tax purposes), the units of which will generally be listed and traded on a U.S. securities exchange. MLPs normally
derive income and gains from the exploration, development, mining or production, processing, refining, transportation (including
pipeline transporting gas, oil, or products thereof), or the marketing of mineral or natural resources. MLPs generally have two
classes of owners, the general partner and limited partners. When investing in an MLP, the Fund intends to purchase publicly traded
common units issued to limited partners of the MLP. The general partner typically controls the operations and management of the
MLP. MLPs are typically structured such that common units and general partner interests have first priority to receive quarterly
cash distributions up to an established minimum amount (“minimum quarterly distributions” or “MQD”). Common
and general partner interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common and general
partner interests have been paid, subordinated units receive distributions of up to the MQD; however, subordinated units do not
accrue arrearages. Distributable cash in excess of the MQD paid to both common and subordinated units is distributed to both common
and subordinated units generally on a pro rata basis. The general partner is also eligible to receive incentive distributions
if the general partner operates the business in a manner that results in distributions paid per common unit surpassing specified
target levels.
MLPs,
like other types of Natural Resources Companies, are exposed to pricing risk, supply and demand risk and depletion and exploration
risk with respect to their underlying commodities, among other risks. An investment in MLP units involves some risks which differ
from an investment in the common stock of a corporation. Holders of MLP units have limited control and voting rights on matters
affecting the partnership. In addition, there are certain tax risks associated with an investment in MLP units and conflicts of
interest may exist between common unit holders and the general partner, including those arising from incentive distribution payments.
Risk
Arbitrage. The Fund may invest
up to 10% of its assets at the time of investment in securities pursuant to “risk arbitrage” strategies or in other
investment funds managed pursuant to such strategies. Risk arbitrage investments are made in securities of companies for which
a tender or exchange offer has been made or announced and in securities of companies for which a merger, consolidation, liquidation
or reorganization proposal has been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of
total return significantly greater than the brokerage and other transaction expenses involved. Risk arbitrage strategies attempt
to exploit merger activity to capture the spread between current market values of securities and their values after successful
completion of a merger, restructuring or similar corporate transaction. Transactions associated with risk arbitrage strategies
typically involve the purchases or sales of securities in connection with
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announced
corporate actions which may include, but are not limited to, mergers, consolidations, acquisitions, transfers of assets, tender
offers, exchange offers, re-capitalizations, liquidations, divestitures, spin-offs and similar transactions. However, a merger
or other restructuring or tender or exchange offer anticipated by the Fund and in which it holds an arbitrage position may not
be completed on the terms contemplated or within the time frame anticipated, resulting in losses to the Fund.
In
general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately
prior to the announcement of the offer but may trade at a discount or premium to what the stated or appraised value of the security
would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly undervalues the securities, assets or cash to be
received by shareholders as a result of the contemplated transaction; or fails adequately to recognize the possibility that the
offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies
requires unusually broad knowledge and experience on the part of the Investment Adviser which must appraise not only the value
of the issuer and its component businesses as well as the assets or securities to be received as a result of the contemplated
transaction but also the financial resources and business motivation behind the offer and/or the dynamics and business climate
when the offer or proposal is in process. Since such investments are ordinarily short term in nature, they will tend to increase
the turnover ratio of the Fund, thereby increasing its brokerage and other transaction expenses. Risk arbitrage strategies may
also involve short selling, options hedging and other arbitrage techniques to capture price differentials.
Derivative
Instruments
Options.
The Fund may, from time to time, subject to guidelines of the Board of Trustees and the limitations set forth in the prospectus,
purchase or sell (i.e., write) options on securities, securities indices and foreign currencies which are listed on a national
securities exchange or in the over-the-counter (“OTC”) market, as a means of achieving additional return or of hedging
the value of the Fund’s portfolio.
A
call option is a contract that gives the holder of the option the right to buy from the writer of the call option, in return for
a premium, the security or currency underlying the option at a specified exercise price at any time during the term of the option.
The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency
upon payment of the exercise price during the option period.
A
put option is a contract that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying
security at a specified price. The seller of the put option has the obligation to buy the underlying security upon exercise at
the exercise price.
A
call option is “covered” if the Fund owns the underlying instrument covered by the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other instruments held in its portfolio. A call option is also covered
if the Fund holds a call option on the same instrument as the call option written where the exercise price of the call option
held is (i) equal to or less than the exercise price of the call option written or (ii) greater than the exercise price of the
call option written if the difference is maintained by the Fund in cash, U.S. government securities or other high-grade short-term
obligations in a segregated account with its custodian. A put option is “covered” if the Fund maintains cash or other
high-grade short-term
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obligations
with a value equal to the exercise price in a segregated account with its custodian, or else holds a put option on the same instrument
as the put option written where the exercise price of the put option held is equal to or greater than the exercise price of the
put option written.
If
the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise
notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it
may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series
as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected
when the Fund so desires.
The
Fund realizes a profit from a closing transaction if the price of the transaction is less than the premium received from writing
the option or is more than the premium paid to purchase the option; the Fund realizes a loss from a closing transaction if the
price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase
the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from
the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security,
and any gain resulting from the repurchase of a call option may also be wholly or partially offset by unrealized depreciation
of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration
date. Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to correctly predict
the effect of these factors. The use of options cannot serve as a complete hedge since the price movement of securities underlying
the options will not necessarily follow the price movements of the portfolio securities subject to the hedge.
An
option position may be closed out only on an exchange that provides a secondary market for an option of the same series or in
a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option.
In such event it might not be possible to effect closing transactions in particular options, in which case the Fund would have
to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options
and upon the subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option
writer, is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise, or otherwise covers the position.
Options
on Securities Indices. The
Fund may purchase and sell securities index options. One effect of such transactions may be to hedge all or part of the Fund’s
securities holdings against a general decline in the securities market or a segment of the securities market. Options on securities
indices are similar to options on stocks except that, rather than the right to take or make delivery of stock at a specified price,
an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing
level of the securities index upon which the option is based is greater than, in the case of a call option, or less than, in the
case of a put option, the exercise price of the option.
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The
Fund’s successful use of options on indices depends upon its ability to predict the direction of the market and is subject
to various additional risks. The correlation between movements in the index and the price of the securities being hedged against
is imperfect and the risk from imperfect correlation increases as the composition of the Fund diverges from the composition of
the relevant index. Accordingly, a decrease in the value of the securities being hedged against may not be wholly offset by a
gain on the exercise or sale of a securities index put option held by the Fund.
Options
on Foreign Currencies. Instead
of purchasing or selling currency futures (as described below), the Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies or by writing put options or call options on currencies either on exchanges or in OTC markets.
A put option gives the Fund the right to sell a currency at the exercise price until the option expires. A call option gives the
Fund the right to purchase a currency at the exercise price until the option expires. Both types of options serve to insure against
adverse currency price movements in the underlying portfolio assets designated in a given currency. The Fund’s use of options
on currencies will be subject to the same limitations as its use of options on securities, described above and in the prospectus.
Currency options may be subject to position limits that may limit the ability of the Fund to fully hedge its positions by purchasing
the options.
As
in the case of interest rate futures contracts and options thereon, described below, the Fund may hedge against the risk of a
decrease or increase in the U.S. dollar value of a foreign currency denominated debt security that the Fund owns or intends to
acquire by purchasing or selling options contracts, futures contracts or options thereon with respect to a foreign currency other
than the foreign currency in which such debt security is denominated, where the values of such different currencies (vis-à-vis
the U.S. dollar) historically have a high degree of positive correlation.
Futures
Contracts and Options on Futures.
The Fund may purchase and sell financial futures contracts and options thereon which are traded on a commodities exchange or board
of trade for certain hedging, yield enhancement and risk management purposes. A financial futures contract is an agreement to
purchase or sell an agreed amount of securities or currencies at a set price for delivery in the future. These futures contracts
and related options may be on debt securities, financial indices, securities indices, U.S. government securities and foreign currencies.
It
is anticipated that these investments, if any, will be made by the Fund primarily for the purpose of hedging against changes in
the value of its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made
if they are economically appropriate to the reduction of risks involved in the management of the Fund. In this regard, the Fund
may enter into futures contracts or options on futures for the purchase or sale of securities indices or other financial instruments
including, but not limited to, U.S. government securities.
A
“sale” of a futures contract (or a “short” futures position) means the assumption of a contractual obligation
to deliver the securities underlying the contract at a specified price at a specified future time. A “purchase” of
a futures contract (or a “long” futures position) means the assumption of a contractual obligation to acquire the
securities underlying the contract at a specified price at a specified future time. Certain futures contracts, including stock
and bond index futures, are settled on a net cash payment basis rather than by the sale and delivery of the securities underlying
the futures contracts.
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No
consideration will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange or board of trade on which the contract is traded and brokers or members of
such board of trade may charge a higher amount). This amount is known as the “initial margin” and is in the nature
of a performance bond or good faith deposit on the contract. Subsequent payments, known as “variation margin,” to
and from the broker will be made daily as the price of the index or security underlying the futures contract fluctuates. At any
time prior to the expiration of the futures contract, the Fund may elect to close the position by taking an opposite position,
which will operate to terminate its existing position in the contract.
An
option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration of the option.
Upon
exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied
by delivery of the accumulated balance in the writer’s futures margin account attributable to that contract, which represents
the amount by which the market price of the futures contract exceeds, in the case of a call option, or is less than, in the case
of a put option, the exercise price of the option on the futures contract. The potential loss related to the purchase of an option
on a futures contract is limited to the premium paid for the option (plus transaction costs). Because the value of the option
purchased is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of
the underlying contract; however, the value of the option does change daily and that change would be reflected in the net assets
of the Fund.
Futures
and options on futures entail certain risks, including, but not limited to, the following: no assurance that futures contracts
or options on futures can be offset at favorable prices, possible reduction of the yield of the Fund due to the use of hedging,
possible reduction in value of both the securities hedged and the hedging instrument, possible lack of liquidity due to daily
limits on price fluctuations, imperfect correlation between the contracts and the securities being hedged and losses from investing
in futures transactions that are potentially unlimited.
Interest
Rate Futures Contracts and Options Thereon.
The Fund may purchase or sell interest rate futures contracts to take advantage of or to protect the Fund against fluctuations
in interest rates affecting the value of debt securities which the Fund holds or intends to acquire. For example, if interest
rates are expected to increase, the Fund might sell futures contracts on debt securities, the values of which historically have
a high degree of positive correlation to the values of the Fund’s portfolio securities. Such a sale would have an effect
similar to selling an equivalent value of the Fund’s portfolio securities. If interest rates increase, the value of the
Fund’s portfolio securities will decline, but the value of the futures contracts to the Fund will increase at approximately
an equivalent rate thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. The Fund
could accomplish similar results by selling debt securities with longer maturities and investing in debt securities with shorter
maturities when interest rates are expected to increase. However, since the futures market may be more liquid than the cash market,
the use of futures contracts as a risk management technique allows the Fund to maintain a defensive position without having to
sell its portfolio securities.
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Similarly,
the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest
rates), which the Fund intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should
approximate that of the debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost
of the debt securities without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities
in the cash market and liquidate its futures position.
The
purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying
debt securities. As with the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option
on a futures contract to hedge against a market advance due to declining interest rates.
The
purchase of a put option on a futures contract is similar to the purchase of protective put options on portfolio securities. The
Fund will purchase a put option on a futures contract to hedge the Fund’s portfolio against the risk of rising interest
rates and consequent reduction in the value of portfolio securities.
The
writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities that are
deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price,
the Fund will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred
in the Fund’s portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities that are deliverable upon exercise of the futures contract. If the futures price at expiration
of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of debt securities that the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its
futures positions, the Fund’s losses from options on futures it has written may to some extent be reduced or increased by
changes in the value of its portfolio securities.
Currency
Futures and Options Thereon.
Generally, foreign currency futures contracts and options thereon are similar to the interest rate futures contracts and options
thereon discussed previously. By entering into currency futures and options thereon, the Fund will seek to establish the rate
at which it will be entitled to exchange U.S. dollars for another currency at a future time. By selling currency futures, the
Fund will seek to establish the number of dollars it will receive at delivery for a certain amount of a foreign currency. In this
way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can attempt
to “lock in” the U.S. dollar value of some or all of the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be required to pay for a specified
amount of a foreign currency in a future month. Thus, if the Fund intends to buy securities in the future and expects the U.S.
dollar to decline against the relevant foreign currency during the period before the purchase is effected, the Fund can attempt
to “lock in” the price in U.S. dollars of the securities it intends to acquire.
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The
purchase of options on currency futures will allow the Fund, for the price of the premium and related transaction costs it must
pay for the option, to decide whether or not to buy (in the case of a call option) or to sell (in the case of a put option) a
futures contract at a specified price at any time during the period before the option expires. If the Investment Adviser, in purchasing
an option, has been correct in its judgment concerning the direction in which the price of a foreign currency would move against
the U.S. dollar, the Fund may exercise the option and thereby take a futures position to hedge against the risk it had correctly
anticipated or close out the option position at a gain that will offset, to some extent, currency exchange losses otherwise suffered
by the Fund. If exchange rates move in a way the Fund did not anticipate, however, the Fund will have incurred the expense of
the option without obtaining the expected benefit; any such movement in exchange rates may also thereby reduce rather than enhance
the Fund’s profits on its underlying securities transactions.
Securities
Index Futures Contracts and Options Thereon.
Purchases or sales of securities index futures contracts are used for hedging purposes to attempt to protect the Fund’s
current or intended investments from broad fluctuations in stock or bond prices. For example, the Fund may sell securities index
futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund’s
securities portfolio that might otherwise result. If such decline occurs, the loss in value of portfolio securities may be offset,
in whole or part, by gains on the futures position. When the Fund is not fully invested in the securities market and anticipates
a significant market advance, it may purchase securities index futures contracts in order to gain rapid market exposure that may,
in part or entirely, offset increases in the cost of securities that the Fund intends to purchase. As such purchases are made,
the corresponding positions in securities index futures contracts will be closed out. The Fund may write put and call options
on securities index futures contracts for hedging purposes.
Forward
Foreign Currency Exchange Contracts. Subject
to guidelines of the Board of Trustees, the Fund may enter into forward foreign currency exchange contracts to protect the value
of its portfolio against uncertainty in the level of future currency exchange rates between a particular foreign currency and
the U.S. dollar or between foreign currencies in which its securities are or may be denominated. The Fund may enter into such
contracts on a spot (i.e., cash) basis at the rate then prevailing in the currency exchange market or on a forward basis by entering
into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract
at a price set on the date of the contract. Forward currency contracts (i) are traded in a market conducted directly between currency
traders (typically, commercial banks or other financial institutions) and their customers, (ii) generally have no deposit requirements
and (iii) are typically consummated without payment of any commissions. The Fund, however, may enter into forward currency contracts
requiring deposits or involving the payment of commissions.
The
dealings of the Fund in forward foreign exchange are limited to hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of one forward foreign currency for another currency with respect to specific receivables
or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities or its payment of distributions.
Position hedging is the purchase or sale of one forward foreign currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to offset the effect of an anticipated substantial appreciation or depreciation,
respectively, in the value of the currency relative to the U.S. dollar. In this situation, the Fund also may, for example, enter
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into
a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount when it is believed that the
U.S. dollar value of the currency to be sold or bought pursuant to the forward contract will fall or rise, as the case may be,
whenever there is a decline or increase, respectively, in the U.S. dollar value of the currency in which its portfolio securities
are denominated (this practice being referred to as a “cross-hedge”).
In
hedging a specific transaction, the Fund may enter into a forward contract with respect to either the currency in which the transaction
is denominated or another currency deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency
contracts is limited to the amount of its aggregate investments in foreign currencies.
The
use of forward currency contracts may involve certain risks, including the failure of the counterparty to perform its obligations
under the contract, and such use may not serve as a complete hedge because of an imperfect correlation between movements in the
prices of the contracts and the prices of the currencies hedged or used for cover. The Fund will only enter into forward currency
contracts with parties that the Investment Adviser believes to be creditworthy institutions.
Additional
Risks Relating to Derivative Investments
Counterparty
Risk. The Fund will be subject
to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a counterparty becomes
bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding.
The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
The
counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivative transactions since generally a
clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the
parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance
of financial obligations under the derivative contract. However, there can be no assurance that a clearing organization, or its
members, will satisfy its obligations to the Fund, or that the Fund would be able to recover the full amount of assets deposited
on its behalf with the clearing organization in the event of the default by the clearing organization or the Fund’s clearing
broker. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and
minimum capital requirements applicable to intermediaries. Uncleared OTC derivative transactions generally do not benefit from
such protections. This exposes the Fund to the risk that a counterparty will not settle a transaction in accordance with its terms
and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity
problem, thus causing the Fund to suffer a loss. Such “counterparty risk” is accentuated for contracts with longer
maturities where events may intervene to prevent settlement, or where the Fund has concentrated its transactions with a single
or small group of counterparties.
Failure
of Futures Commission Merchants and Clearing Organizations Risk.
The Fund may deposit funds required to margin open positions in the derivative instruments subject to the Commodity Exchange Act
with a clearing broker registered as a “futures commission merchant” (“FCM”). The Commodity Exchange Act
requires an FCM to segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic
futures contracts and cleared swaps from the FCM’s proprietary assets. Similarly, the Commodity Exchange Act requires each
FCM to hold in a separate secure account all funds received from customers with
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respect
to any orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with
respect to domestic futures contracts. However, all funds and other property received by a clearing broker from its customers
are held by the clearing broker on a commingled basis in an omnibus account and may be invested by the clearing broker in certain
instruments permitted under the applicable regulation. There is a risk that assets deposited by the Fund with any swaps or futures
clearing broker as margin for futures contracts may, in certain circumstances, be used to satisfy losses of other clients of the
Fund’s clearing broker. In addition, the assets of the Fund may not be fully protected in the event of the clearing broker’s
bankruptcy, as the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the
clearing broker’s combined domestic customer accounts.
Similarly,
the Commodity Exchange Act requires a clearing organization approved by the CFTC as a derivatives clearing organization to segregate
all funds and other property received from a clearing member’s clients in connection with domestic futures, swaps and options
contracts from any funds held at the clearing organization to support the clearing member’s proprietary trading. Nevertheless,
with respect to futures contracts and options on futures, a clearing organization may use assets of a non-defaulting customer
held in an omnibus account at the clearing organization to satisfy losses in that account resulting from the default by another
customer on its payment obligations that leads to the clearing member’s default to the clearing organization. As a result,
in the situation of a double default by a customer of the Fund’s clearing member and the clearing member itself with respect
to payment obligations on the customer’s futures or options on futures, there is a risk that the Fund’s assets in
an omnibus account with the clearing organization may be used to satisfy losses from the double default and that the Fund may
not recover the full amount of any such assets.
Derivatives
Regulation Risk. The Dodd-Frank Act has made broad changes to the derivatives market, granted significant new authority to
the CFTC and the SEC to regulate derivatives (swaps and security-based swaps) and participants in these markets. The Dodd-Frank
Act is intended to regulate the derivatives market by requiring many derivative transactions to be cleared and traded on an exchange,
expanding entity registration requirements, imposing business conduct requirements on dealers and requiring banks to move some
derivatives trading units to a non-guaranteed affiliate separate from the deposit-taking bank or divest them altogether. The CFTC
has implemented mandatory clearing and exchange-trading of certain derivatives contracts including many standardized interest
rate swaps and credit default index swaps. The CFTC continues to approve contracts for central clearing. Exchange-trading and
central clearing are expected to reduce counterparty credit risk by substituting the clearinghouse as the counterparty to a swap
and increase liquidity, but exchange-trading and central clearing do not make swap transactions risk-free. Uncleared swaps, such
as non-deliverable foreign currency forwards, are subject to certain margin requirements that mandate the posting and collection
of minimum margin amounts. This requirement may result in the Fund and its counterparties posting higher margin amounts for uncleared
swaps than would otherwise be the case. Certain rules require centralized reporting of detailed information about many types of
cleared and uncleared swaps. Reporting of swap data may result in greater market transparency, but may subject the Fund to additional
administrative burdens, and the safeguards established to protect trader anonymity may not function as expected.
In
addition, on October 28, 2020, the SEC adopted new regulations governing the use of derivatives by closed-end funds, which the
Fund was required to comply with as of August 19, 2022. As a result, the Fund is required to implement and comply with the Rule
18f-4 limits described previously under “Special Risks Related to
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Investment
in Derivatives” on the amount of derivatives the Fund can enter into, eliminate the asset segregation framework previously
used to comply with Section 18 of the 1940 Act, treat derivatives as senior securities so that a failure to comply with the limits
would result in a statutory violation and require the Fund, if the Fund’s use of derivatives is more than a limited specified
exposure amount (10% of net assets), to establish and maintain a comprehensive derivatives risk management program and appoint
a derivatives risk manager. These requirements may limit the ability of the Fund to invest in derivatives, engage in securities
lending activities, short sales, reverse repurchase agreements and similar financing transactions. Additionally, Rule 18f-4 and
the SEC’s corresponding recission and withdrawal of prior guidance and relief related to asset segregation and asset coverage
requirements under section 18 of the 1940 Act may affect the Fund’s ability to implement its investment strategy, pursue
its investment objectives and may increase the cost of the Fund’s investments. Legal and Regulatory Risk. At any time after
the date hereof, legislation or additional regulations may be enacted that could negatively affect the assets of the Fund. Changing
approaches to regulation may have a negative impact on the securities in which the Fund invests. Legislation or regulation may
also change the way in which the Fund itself is regulated. There can be no assurances that future legislation, regulation or deregulation
will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objectives.
In addition, as new rules and regulations resulting from the passage of the Dodd-Frank Act are implemented and new international
capital and liquidity requirements are introduced under the Basel III Accords, the market may not react the way the Investment
Adviser expects. Whether the Fund achieves its investment objectives may depend on, among other things, whether the Investment
Adviser correctly forecasts market reactions to this and other legislation. In the event the Investment Adviser incorrectly forecasts
market reaction, the Fund may not achieve its investment objectives.
Special
Risk Considerations Relating to Futures and Options Thereon.
The Fund’s ability to establish and close out positions in futures contracts and options thereon will be subject to the
development and maintenance of liquid markets. Although the Fund generally will purchase or sell only those futures contracts
and options thereon for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will
exist for any particular futures contract or option thereon at any particular time. In the event no liquid market exists for a
particular futures contract or option thereon in which the Fund maintains a position, it will not be possible to effect a closing
transaction in that contract or to do so at a satisfactory price and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait to sell the underlying securities until the option expires or is
exercised or, in the case of a purchased option, exercise the option. In the case of a futures contract or an option thereon which
the Fund has written and which the Fund is unable to close, the Fund would be required to maintain margin deposits on the futures
contract or option thereon and to make variation margin payments until the contract is closed.
Successful
use of futures contracts and options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser
to predict correctly movements in the direction of interest and foreign currency rates. If the Investment Adviser’s expectations
are not met, the Fund will be in a worse position than if a hedging strategy had not been pursued. For example, if the Fund has
hedged against the possibility of an increase in interest rates that would adversely affect the price of securities in its portfolio
and the price of such securities increases instead, the Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities to meet the requirements. These sales
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may
be, but will not necessarily be, at increased prices that reflect the rising market. The Fund may have to sell securities at a
time when it is disadvantageous to do so.
Additional
Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and Forward Contracts. Options,
futures contracts and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions also could be adversely affected by: (i) other complex foreign political, legal and economic factors;
(ii) lesser availability than in the U.S. of data on which to make trading decisions; (iii) delays in the Fund’s ability
to act upon economic events occurring in the foreign markets during non-business hours in the U.S.; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the U.S.; and (v) lesser trading volume.
Exchanges
on which options, options on futures and forward contracts are traded may impose limits on the positions that the Fund may take
in certain circumstances.
Swaps.
The Fund may enter into total
rate of return, credit default or other types of swaps and related derivatives for the purpose of hedging and risk management.
These transactions generally provide for the transfer from one counterparty to another of certain risks inherent in the ownership
of a financial asset such as a common stock or debt instrument. Such risks include, among other things, the risk of default and
insolvency of the obligor of such asset, the risk that the credit of the obligor or the underlying collateral will decline or
the risk that the common stock of the underlying issuer will decline in value. The transfer of risk pursuant to a derivative of
this type may be complete or partial, and may be for the life of the related asset or for a shorter period. These derivatives
may be used as a risk management tool for a pool of financial assets, providing the Fund with the opportunity to gain or reduce
exposure to one or more reference securities or other financial assets (each, a “Reference Asset”) without actually
owning or selling such assets in order, for example, to increase or reduce a concentration risk or to diversify a portfolio. Conversely,
these derivatives may be used by the Fund to reduce exposure to an owned asset without selling it.
Because
the Fund would not own the Reference Assets, the Fund may not have any voting rights with respect to the Reference Assets, and
in such cases all decisions related to the obligors or issuers of the Reference Assets, including whether to exercise certain
remedies, will be controlled by the swap counterparties.
Total
rate of return swaps and similar derivatives are subject to many risks, including the possibility that the market will move in
a manner or direction that would have resulted in gain for the Fund had the swap or other derivative not been utilized (in which
case it would have been better had the Fund not engaged in the interest rate hedging transactions), the risk of imperfect correlation
between the risk sought to be hedged and the derivative transactions utilized, the possible inability of the counterparty to fulfill
its obligations under the swap and potential illiquidity of the hedging instrument utilized, which may make it difficult for the
Fund to close out or unwind one or more hedging transactions.
Total
rate of return swaps and related derivatives present certain legal, tax and market uncertainties that present risks in entering
into such arrangements. There is currently little or no case law or litigation characterizing total rate of return swaps or related
derivatives, interpreting their provisions, or characterizing their tax treatment.
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Limitations
on the Purchase and Sale of Futures Contracts and Options on Futures Contracts.
Subject to the guidelines of the Board, the Fund may engage in “commodity interest” transactions (generally,
transactions in futures, certain options, certain currency transactions and certain types of swaps) only for bona fide
hedging, yield enhancement and risk management purposes, in each case in accordance with the rules and regulations of the
CFTC. CFTC Rule 4.5, upon which the Fund relies to avoid having its adviser register with the CFTC as a “commodity pool
operator,” imposes certain commodity interest trading restrictions on the Fund. These trading restrictions permit the
Fund to engage in commodity interest transactions that include (i) “bona fide hedging” transactions, as that term
is defined and interpreted by the CFTC and its staff, without regard to the percentage of the Fund’s assets committed
to margin and option premiums and (ii) non-bona fide hedging transactions, provided that the Fund not enter into such
non-bona fide hedging transactions if, immediately thereafter, either (a) the sum of the amount of initial margin deposits on
the Fund’s existing futures or swaps positions and option or swaption premiums would exceed 5% of the market value of
the Fund’s liquidating value, after taking into account unrealized profits and unrealized losses on any such
transactions, or (b) the aggregate net notional value of the Fund’s commodity interest transactions would not exceed
100% of the market value of the Fund’s liquidating value, after taking into account unrealized profits and unrealized
losses on any such transactions. In addition to meeting one of the foregoing trading limitations, the Fund may not market
itself as a commodity pool or otherwise as a vehicle for trading in the futures, options or swaps markets. If the Investment
Adviser were required to register as a commodity pool operator with respect to the Fund, compliance with
additional registration and regulatory requirements would increase Fund expenses. Other potentially adverse regulatory
initiatives could also develop.
Commodities-Linked
Equity Derivative Instrument Risk.
The Fund may invest in structured notes that are linked to one or more underlying commodities. Such structured notes provide exposure
to the investment returns of physical commodities without actually investing directly in physical commodities. Such structured
notes in which the Fund expects to invest are hybrid instruments that have substantial risks, including risk of loss of all or
a significant portion of their principal value. Because the payouts on these notes are linked to the price change of the underlying
commodities, these investments are subject to market risks that relate to the movement of prices in the commodities markets. They
may also be subject to additional special risks that do not affect traditional equity and debt securities that may be greater
than or in addition to the risks of derivatives in general, including risk of loss of interest, risk of loss of principal, lack
of liquidity and risk of greater volatility.
Risk
of Loss of Interest. If payment
of interest on a structured note or other hybrid instrument is linked to the value of a particular commodity, futures contract,
index or other economic variable, the Fund might not receive all (or a portion) of the interest due on its investment if there
is a loss in value of the underlying instrument.
Risk
of Loss of Principal. To the
extent that the amount of the principal to be repaid upon maturity is linked to the value of a particular commodity, futures contract,
index or other economic variable, the Fund might not receive all or a portion of the principal at maturity of the investment.
At any time, the risk of loss associated with a particular instrument in the Fund’s portfolio may be significantly higher
than 50% of the value of the investment.
Lack
of Secondary Market. A liquid
secondary market may not exist for the specially created hybrid instruments the Fund buys, which may make it difficult for the
Fund to sell them at an acceptable price or accurately value them.
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Risk
of Greater Volatility. The
value of the commodities-linked equity derivative investments the Fund buys may fluctuate significantly because the values of
the underlying investments to which they are linked are themselves extremely volatile. Additionally, economic leverage will increase
the volatility of these hybrid instruments, as they may increase or decrease in value more quickly than the underlying commodity
index, futures contract or other economic variable.
The
Investment Adviser is Not Registered as a Commodity Pool Operator. The Investment Adviser has claimed an exclusion from the definition
of the term “commodity pool operator” under the Commodity Exchange Act.
Risks
of Currency Transactions.
Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency
and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation
of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action can result
in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and could also cause
hedges it has entered into to be rendered useless, resulting in full currency exposure and incurring transaction costs.
Repurchase
Agreements. The Fund may enter
into repurchase agreements. A repurchase agreement is an instrument under which the purchaser (i.e., the Fund) acquires a debt
security and the seller agrees, at the time of the sale, to repurchase the obligation at a mutually agreed-upon time and price,
thereby determining the yield during the purchaser’s holding period. This results in a fixed rate of return insulated from
market fluctuations during such period. The underlying securities are ordinarily U.S. Treasury or other government obligations
or high quality money market instruments. The Fund will require that the value of such underlying securities, together with any
other collateral held by the Fund, always equals or exceeds the amount of the repurchase obligations of the counter party. The
Fund’s risk is primarily that, if the seller defaults, the proceeds from the disposition of the underlying securities and
other collateral for the seller’s obligation are less than the repurchase price. If the seller becomes insolvent, the Fund
might be delayed in or prevented from selling the collateral. In the event of a default or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds from any sale of such collateral upon a default in
the obligation to repurchase are less than the repurchase price, the Fund will experience a loss.
The
Investment Adviser, acting under the supervision of the Board of Trustees of the Fund, reviews the creditworthiness of those banks
and dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing basis the
value of the securities subject to repurchase agreements to ensure that the value is maintained at the required level. The Fund
will not enter into repurchase agreements with the Investment Adviser or any of its affiliates.
If
the financial institution which is a party to the repurchase agreement petitions for bankruptcy or becomes subject to the United
States Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there
may be a restriction on the Fund’s ability to sell the collateral and the Fund would suffer a loss.
Loans
of Portfolio Securities. Consistent
with applicable regulatory requirements and the Fund’s investment restrictions, the Fund may lend its portfolio securities
to securities broker-dealers or financial institutions,
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provided
that such loans are callable at any time by the Fund (subject to notice provisions described below), and are at all times collateralized
by cash or cash equivalents which are maintained at all times in an amount equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as collateral, which will be invested in short-term highly
liquid obligations. The Fund will not lend its portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale. The Fund’s loans of portfolio securities will be collateralized
in accordance with applicable regulatory requirements, which means that “cash equivalents” accepted as collateral
will be limited to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities or irrevocable
letters of credit issued by a bank (other than the Fund’s bank lending agent, if any, or a borrower of the Fund’s
portfolio securities or any affiliate of such bank or borrower) which qualifies as a custodian bank for an investment company
under the 1940 Act, and no loan will cause the value of all loaned securities to exceed 20% of the value of the Fund’s total
assets. The Fund’s ability to lend portfolio securities may be limited by rating agency guidelines (if any).
A
loan may generally be terminated by the borrower on one business days’ notice, or by the Fund at any time thereby requiring
the borrower to redeliver the borrowed securities within the normal and customary settlement time for securities transactions.
If the borrower fails to deliver the loaned securities within the normal and customary settlement time for securities transactions,
the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost
over the value of the collateral pledged by the borrower. As with any extensions of credit, there are risks of delay in recovery
and in some cases even loss of rights in the collateral should the borrower of the securities violate the terms of the loan or
fail financially. However, these loans of portfolio securities will only be made to firms deemed by the Investment Adviser to
be creditworthy and when the income which can be earned from such loans justifies the attendant risks. The Board will oversee
the creditworthiness of the contracting parties on an ongoing basis. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during the loan period would inure to the Fund.
The
risks associated with loans of portfolio securities are substantially similar to those associated with repurchase agreements.
Thus, if the counterparty to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund’s
ability to sell the collateral and the Fund would suffer a loss. Moreover, because the Fund will reinvest any cash collateral
it receives, as described above, the Fund is subject to the risk that the value of the investments it makes will decline and result
in losses to the Fund.
These
losses, in extreme circumstances such as the 2007-2009 financial crisis, could be substantial and have a significant adverse impact
on the Fund and its shareholders.
When
voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the
loaned securities, to be delivered within one day after notice, to permit the exercise of such rights if the matters involved
would have a material effect on the Fund’s investment in such loaned securities. The Fund will pay reasonable finder’s,
administrative and custodial fees in connection with a loan of its securities, and may also pay fees to one or more securities
lending agents and/or pay other fees or rebates to borrowers.
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When
Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale
of securities, including on a “when issued” or “delayed delivery” basis, in excess of customary settlement
periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent
event, such as approval and consummation of a merger, corporate reorganization or debt restructuring (i.e., a when, as and if
issued security). When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery
taking place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward
commitment with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if
it is deemed advisable by the Investment Adviser.
Securities
purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior
to the settlement date.
INVESTMENT
RESTRICTIONS
The
Fund operates under the following restrictions that constitute fundamental policies under the 1940 Act and that, except as otherwise
noted, cannot be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the
Fund voting together as a single class (which for this purpose and under the 1940 Act means the lesser of (i) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding
shares). In addition, pursuant to the Statements of Preferences, the affirmative vote of the holders of a majority of the outstanding
preferred shares of the Fund voting as a separate class (which for this purpose and under the 1940 Act means the lesser of (i)
67% of the preferred shares, as a single class, represented at a meeting at which more than 50% of the Fund’s outstanding
preferred shares are represented or (ii) more than 50% of the outstanding preferred shares), is also required to change a fundamental
policy. Except as otherwise noted, all percentage limitations set forth below apply immediately after a purchase or initial investment
and any subsequent change in any applicable percentage resulting from market fluctuations does not require any action.
| ● | other
than with respect to its concentrations in Gold Companies and Natural Resources Companies, invest more than 25% of its total assets,
taken at market value at the time of each investment, in the securities of issuers in any particular industry. This restriction
does not apply to investments in U.S. government securities and investments in the gold industry and the natural resources industries; |
| ● | purchase
commodities or commodity contracts if such purchase would result in regulation of the Fund as a commodity pool operator; |
| ● | purchase
or sell real estate, provided the Fund may invest in securities and other instruments secured by real estate or interests therein
or issued by companies that invest in real estate or interests therein; |
| ● | make
loans of money or other property, except that (i) the Fund may acquire debt obligations of any type (including through extensions
of credit), enter into repurchase agreements and lend portfolio assets and (ii) the Fund may, up to 20% of the Fund’s total
assets, lend money or other property to other investment |
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companies
advised by the Investment Adviser pursuant to a common lending program to the extent permitted by applicable law;
| ● | borrow
money, except to the extent permitted by applicable law; |
| ● | issue
senior securities, except to the extent permitted by applicable law; or |
| ● | underwrite
securities of other issuers, except insofar as the Fund may be deemed an underwriter under applicable law in selling portfolio
securities; provided, however, this restriction shall not apply to securities of any investment company organized by the Fund
that are to be distributed pro rata as a dividend to its shareholders. |
In
addition, the Fund’s investment objectives and its policies of investing at least 25% of its assets in normal circumstances
in Gold Companies and in Natural Resource Companies are fundamental policies. Unless specifically stated as such, no policy of
the Fund is fundamental and each policy may be changed by the Board of Trustees without shareholder approval. The percentage and
ratings limitations stated herein and in the Prospectus apply only at the time of investment and are not considered violated as
a result of subsequent changes to the value, or downgrades to the ratings, of the Fund’s portfolio investments.
The
Fund interprets investment restriction (1), above, to mean that the Fund will not concentrate its investments in a particular
industry, as that term is used in the 1940 Act, except that the Fund will concentrate its investments in (a) companies principally
engaged in the natural resources industries (defined in the Prospectus as “Natural Resources Companies”) and (b) companies
principally engaged in the gold industry (defined in the Prospectus as “Gold Companies”). The SEC staff currently
takes the position that investment of 25% or more of a fund’s total assets in one or more issuers conducting their principal
activities in the same industry or group of industries constitutes concentration; this position forms the basis for the Fund’s
fundamental policies of investment of at least 25% of its assets in normal circumstances in Natural Resources Companies and in
Gold Companies. The Fund also interprets investment restriction (1) to permit investment without limit in the following: securities
of the U.S. government and its agencies or instrumentalities; tax-exempt securities of state, territory, possession or municipal
governments and their authorities, agencies, instrumentalities or political subdivisions; and repurchase agreements collateralized
by any such obligations.
With
respect to investment restriction (5), the 1940 Act permits the Fund to borrow money in amounts of up to one-third of the Fund’s
total assets from banks for any purpose, and to borrow up to 5% of the Fund’s total assets from banks or other lenders for
temporary purposes. The Fund’s total assets include the amounts being borrowed. To limit the risks attendant to borrowing,
the 1940 Act requires the Fund to maintain at all times an “asset coverage” of at least 300% of the amount of its
borrowings. Asset coverage means the ratio that the value of the Fund’s total assets (including amounts borrowed), minus
liabilities other than borrowings, bears to the aggregate amount of all borrowings. Borrowing money to increase portfolio holdings
is known as “leveraging.”
The
investment restriction in (5) above will be interpreted to permit the Fund to (a) engage in securities lending in accordance with
SEC staff guidance and interpretations and (b) settle securities transactions within the ordinary settlement cycle for such transactions.
With
respect to investment restriction (6), under the 1940 Act, the Fund may issue senior securities (which may be stock, such as preferred
shares, and/or securities representing debt, such as notes) only if immediately after such issuance the value of the Fund’s
total assets, less certain ordinary course liabilities, exceeds 300% of the
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amount
of the debt outstanding and exceeds 200% of the amount of preferred shares (measured by liquidation value) and debt outstanding,
which is referred to as the “asset coverage” required by the 1940 Act. Thse 1940 Act also generally restricts the
Fund from declaring cash distributions on, or repurchasing, common or preferred shares unless outstanding debt securities have
an asset coverage of 300% (200% in the case of declaring distributions on preferred shares), or from declaring cash distributions
on, or repurchasing, common shares unless preferred shares have an asset coverage of 200% (in each case, after giving effect to
such distribution or repurchase).
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MANAGEMENT
OF THE FUND