The Fund held no level 3 investments at December
31, 2021 or December 31, 2020.
The Adviser reports quarterly
to the Board the results of the application of fair valuation policies and procedures. These may include backtesting the prices
realized in subsequent trades of these fair valued securities to fair values
previously recognized.
Acquired Funds in addition
to the Fund’s expenses. For the year ended December 31, 2021, the Fund’s pro rata portion of the periodic expenses
charged by the Acquired Funds was less than one basis point.
Under the Fund’s
current common share distribution policy, the Fund declares and pays quarterly distributions from net investment income, capital
gains, and paid-in capital. The actual source of the distribution is determined after the end of the year. Pursuant to this policy,
distributions during the year may be made in excess of required distributions. To the extent such distributions are made from current
earnings and profits, they are considered ordinary income or long term capital gains. Distributions sourced from paid-in capital
should not be considered as dividend yield or the total return from an
investment in the Fund. The Board will continue to monitor the Fund’s distribution level, taking into consideration
the Fund’s NAV and the financial market environment. The Fund’s distribution policy is subject to modification by the
Board at any time.
Distributions to shareholders
of the Fund’s Series B Auction Market Preferred Shares, Series C Auction Market Preferred
Shares, Series E Auction Rate Preferred Shares, 5.250% Series G Preferred Shares, 5.375% Series H Preferred Shares, 1.700%
Series J Preferred Shares, and 4.250% Series K Preferred Shares (Preferred Shares)
are recorded on a daily basis and are determined as described in Note 5.
The tax character of distributions
paid during the years ended December 31, 2021 and 2020 was as follows:
At December 31, 2021, the
components of accumulated earnings/losses on a tax basis were as follows:
At December 31, 2021, the
temporary differences between book basis and tax basis net unrealized appreciation were primarily due to tax basis adjustments
due to corporate actions and the deferral of losses from wash sales for tax purposes.
The Fund is required to
evaluate tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether
the tax positions are “more-likely-than-not” of being sustained by the applicable
tax authority. Income tax and related interest and penalties would be recognized by the Fund as tax expense in the Statement
of Operations if the tax positions were deemed not to meet the more-likely-than-not threshold.
For the year ended December 31, 2021, the Fund did not incur any income tax, interest, or penalties. As of December 31, 2021, the
Adviser has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations.
The Fund’s federal and state tax returns for the prior three fiscal years remain open, subject to examination. On
an ongoing basis, the Adviser will monitor the Fund’s tax positions
to determine if adjustments to this conclusion are necessary.
The Adviser has agreed
to reduce the management fee on the incremental assets attributable to the Series B, Series C, and Series E Preferred Shares if
the total return of the NAV of the common shares of the Fund, including distributions and advisory fee subject to reduction, does
not exceed the stated dividend rate of each particular series of the Preferred Shares for the year. The Fund’s total return
on the NAV of the common shares is monitored on a monthly basis to assess whether the total return on the NAV of the common shares
exceeds the stated dividend rate or corresponding swap rate of each particular series of Preferred Shares for the period. During
the year ended December 31, 2021, the Fund’s total return on the NAV of the common shares exceeded
As per the approval of
the Board, the Fund compensates officers of the Fund, who are employed by the Fund and are not employed by the Adviser (although
the officers may receive incentive based variable compensation from affiliates of the Adviser). During the year ended December
31, 2021, the Fund accrued $196,291 in payroll expenses in the Statement of Operations.
The Fund pays retainer
and per meeting fees to Trustees not affiliated with the Adviser, plus specified amounts to
the Lead Trustee and Audit Committee Chairman. Trustees are also reimbursed for out of pocket expenses incurred in attending
meetings. Trustees who are directors or employees of the Adviser or an affiliated company receive
no compensation or expense reimbursement from the Fund.
The Fund has an effective
shelf registration initially authorizing the offering of additional common or preferred shares or notes.
The Fund’s Declaration
of Trust, as amended, authorizes the issuance of an unlimited number of shares of $0.001
par value Preferred Shares. The Preferred Shares are senior to the common shares and result in the financial leveraging
of the common shares. Such leveraging tends to magnify both the risks and opportunities to common shareholders. Dividends on the
Preferred Shares are cumulative. The Fund is required by the 1940 Act and
by the Statements of Preferences to meet certain asset coverage tests with respect to the Preferred Shares. If the Fund
fails to meet these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the
Series B, Series C, Series E, Series G, Series H, Series J, and Series K Preferred Shares
at redemption prices of $25,000, $25,000, $25,000, $25, $25, $25,000 and $25, respectively, per share plus an amount equal
to the accumulated and unpaid dividends whether or not declared on such shares in order to meet these requirements. Additionally,
failure to meet the foregoing asset coverage requirements could restrict
the Fund’s ability to pay dividends to common shareholders and could lead to sales of portfolio securities at inopportune
times. The income received on the Fund’s assets may vary in a manner unrelated to the fixed and variable rates, which could
have either a beneficial or detrimental impact on net investment income and gains available
to common shareholders.
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. Since
December 31, 2021, all sterling, euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR
settings have ceased to be published or are no longer representative. As a result, since December 31, 2021, the seven day ICE LIBOR
rate has ceased to be published and is no longer representative. Because
the Series B, Series C, and Series E Preferred Shares have no other effective alternative rate setting provision, a last-resort
fallback of fixing this LIBOR-based reference rate at its last published rate applies. The last published seven day ICE LIBOR rate
was 0.076%, which results
in a fixed maximum rate
for Series B, Series C, and Series E Preferred Shares of 2.076%, 2.076% and 3.576%, respectively,
for all failed auctions after December 31, 2021. In the absence of successful future auctions that establish dividend rates based
on prevailing short term interest rates, this result could lead to divergent and unexpected economic results for the Fund and holders
of the Series B, Series C and Series E Preferred Shares since the rates payable on the Series B, Series C and Series E Preferred
Shares are no longer likely to be representative of prevailing market rates.
Commencing July 1, 2021
and June 10, 2024 and at any time thereafter, the Fund, at its option, may redeem the
5.250% Series G Cumulative Preferred Shares and the 5.375% Series H Cumulative Preferred Shares, respectively, in whole or in part
at the redemption price. The Board has authorized the repurchase of Series G and Series H Preferred Shares in the open market
at prices less than the $25 liquidation value per share. On May 6, 2020, the Fund redeemed and retired 1,524,010 shares of the
Series A Preferred at the liquidation value of $25 per share plus accrued and unpaid dividends. On September 25, 2020, the Fund
redeemed and retired all remaining outstanding shares of Series A Preferred at the liquidation value of $25 per share plus accrued
and unpaid dividends. During the year ended December 31, 2021 and year
ended December 31, 2020, the Fund did not repurchase any Series G or Series H Preferred Shares.
The Fund has the authority
to purchase its auction rate and auction market preferred shares through negotiated private transactions. The Fund is not obligated
to purchase any dollar amount or number of auction rate or auction market preferred shares, and the timing and amount of any auction
rate or auction market preferred shares purchased will depend on market conditions, share price, capital availability, and other
factors. The Fund is not soliciting holders to sell these shares nor recommending that holders offer them to the Fund. Any offers
can be accepted or rejected in the Fund’s discretion.
On October 4, 2021, the
Fund issued 6,000,000 shares of 4.25% Series K Cumulative Preferred Shares receiving
$144,875,000 after the deduction of estimated offering expenses of $400,000 and underwriting fees of $4,725,000. The Series
K Preferred has a liquidation value of $25 per share and an annual dividend rate of 4.25%. The Series K Preferred Shares are callable
at the Fund’s option at any time after October 4, 2026.
On April 14, 2021 the Fund
completed a tender offer (the Offer) under which holders of the Series B Auction Market Preferred Shares, Series C Auction Rate
Preferred Shares, and Series E Auction Rate Preferred Shares (the Auction Rate Preferred Shares) could exchange each Auction Rate
Preferred Share for 0.96 of each newly issued Series J Preferred Share. Shareholders tendered 2,565 Series B Auction Market Preferred
Shares, 3,190 Series C Auction Market Preferred Shares, and 356 Series E Auction Rate Preferred Shares, in exchange for 5,804 Series
J Preferred and cash in lieu of fractional shares.
Holders of Series J Preferred
Shares will be entitled to receive, when, as and if declared by, or under authority granted
by, the Board, out of funds legally available therefor, cumulative cash dividends and distributions, calculated separately for
each dividend period, (i) at an annualized dividend rate of 1.70% of the $25,000 per share liquidation preference on the
Series J Preferred Shares for the quarterly dividend periods ending on or prior to March 26, 2024 and (ii) at an annualized dividend
rate of 4.50% of the $25,000 per share liquidation
preference on the Series
J Preferred Shares for all remaining quarterly dividend periods until the Series J Preferred Shares’ mandatory redemption
date of March 26, 2028. Dividends and distributions on Series J Preferred Shares will be payable quarterly on March 26, June 26,
September 26 and December 26 in each year commencing on June 26, 2021. The Series J Preferred Shares may be redeemed by the Fund,
subject to certain restrictions, on March 26, 2024 and are subject to mandatory redemption by the Fund on March 26, 2028 and in
certain other circumstances.
To the Board of Trustees and Shareholders of
The Gabelli Dividend & Income Trust:
Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Dividend
& Income Trust (the “Fund”) as of December 31, 2021, the related statements of operations and cash flows for the
year ended December 31, 2021, the statement of changes in net assets attributable to common shareholders for each of the
two years in the period ended December 31, 2021, including the related notes, and the financial highlights for each of the five
years in the period ended December 31, 2021 (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, 2021,
the results of its operations and its cash flows 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, 2021 and the financial highlights for each of the five
years in the period ended December 31, 2021 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, 2021 by correspondence with the custodian and brokers; when replies were not received from
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
February 28, 2022
We
have served as the auditor of one or more investment companies in the Gabelli/GAMCO Fund Complex since 1986.
The Gabelli
Dividend & Income Trust
Additional Fund Information (Unaudited)
The
following includes information that is incorporated by reference in the Fund’s Registration Statement and is also
a summary of certain changes during the most recent fiscal year ended December 31, 2021. 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 objectives or
policies that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
SUMMARY OF FUND EXPENSES
The following table shows
the Fund’s 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 |
|
| (as
a percentage of offering price) |
-% (a) |
| Dividend Reinvestment and Voluntary
Cash Purchase Plan |
|
| Fees |
|
| Purchase
Transactions |
$0.75
(b) |
| One-time
Fee for Deposit of Share Certificates |
$2.50
(b) |
| |
|
Percentages
of Net Assets |
| Annual
Expenses |
|
Attributable
to Common Shares |
| Management Fees |
|
1.13% (c) |
| Interest Expense |
|
0.09% (d) |
| Other Expenses |
|
0.08%
(e) |
| Total Annual Expenses |
|
1.30% |
| Dividends on Preferred Shares |
|
0.35%
(e) |
| Total Annual Expenses and Dividends on Preferred |
|
1.65%
(c) |
| (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 $0.75 plus their pro rata share of brokerage commissions per transaction to purchase shares and $2.50 plus
their pro rata share of brokerage commissions per transaction to sell shares. |
| (c) | The investment Adviser’s fee is 1.00% annually of the Fund’s average weekly net assets
including proceeds attributable to any outstanding preferred shares, other than assets attributable to the certain of the Fund’s
existing preferred shares when such shares are subject to the fee reduction
described in the section |
The Gabelli
Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
entitled “Management
of the Fund—Investment Advisory and Administrative Arrangements” in the Base Prospectus,
and the outstanding principal amount of any debt securities the proceeds of which were used for investment purposes. Consequently,
since the Fund has preferred shares outstanding, the investment management
fees and other expenses as a percentage of net assets attributable to common shares may be higher than if the Fund does not utilize
a leveraged capital structure.
| (d) | The Series J Preferred Shares have a mandatory redemption date of March 26, 2028. Therefore, for
financial reporting purposes only, the dividends paid on the Series J Preferred Shares are included as a component
of “Interest Expense.” |
| (e) | “Other Expenses” are based on estimated amounts for the current year. |
Example
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 |
|
$17 |
|
$52 |
|
$90 |
|
$196 |
|
| * | 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): $12, $38, $66,
and $146.
The Fund’s common
shares are listed on the NYSE under the symbol “GDV” and our Series H Preferred Shares
and Series K Preferred Shares are listed on the NYSE under the symbol “GDV
Pr H” and “GDV
Pr K,” respectively. 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 discount to net asset value as high as (2.47)%
and as low as (31.71)%. 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.
The Gabelli
Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
The following table sets
forth for the quarters indicated, the high and low sale prices on the NYSE 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.
| |
|
Common Share
Market Price |
|
Corresponding
Net Asset
Value
(“NAV”) Per
Share |
|
Corresponding
Premium or
Discount as a %
of NAV |
| Quarter Ended |
|
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
| March 31, 2020 |
|
$22.44 |
|
$10.40 |
|
$24.51 |
|
$15.23 |
|
(8.44)% |
|
(31.71)% |
| June 30, 2020 |
|
$19.58 |
|
$13.80 |
|
$22.14 |
|
$16.00 |
|
(11.56% |
|
(13.75)% |
| September 30, 2020 |
|
$19.71 |
|
$17.51 |
|
$22.97 |
|
$20.16 |
|
(14.19)% |
|
(13.14)% |
| December 31, 2020 |
|
$21.67 |
|
$17.61 |
|
$24.56 |
|
$20.96 |
|
(11.76)% |
|
(15.98)% |
| March 31, 2021 |
|
$24.21 |
|
$21.08 |
|
$27.47 |
|
$24.72 |
|
(11.86)% |
|
(14.72)% |
| June 30, 2021 |
|
$26.75 |
|
$24.04 |
|
$29.08 |
|
$27.21 |
|
(8.01)% |
|
(11.65)% |
| September 30, 2021 |
|
$27.15 |
|
$25.49 |
|
$29.77 |
|
$28.00 |
|
(8.80)% |
|
(8.96)% |
| December 31, 2021 |
|
$27.57 |
|
$25.50 |
|
$30.37 |
|
$28.03 |
|
(9.22)% |
|
(9.02)% |
The last reported price
for our common shares on December 31, 2021 was $27.00 per share. As of December 31, 2021, the net asset value per share of the
Fund’s common shares was $29.73. Accordingly, the Fund’s common shares traded at a discount to net asset value of (9.18)%
on December 31, 2021.
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, 2021 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.
CHANGES OCCURRING DURING
THE PRIOR FISCAL PERIOD
The following information
is a summary of certain changes during the most recent fiscal year ended September 30, 2021. This information may not reflect all
of the changes that have occurred since you purchased shares of the Fund.
The Gabelli
Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
The Gabelli
Dividend & Income Trust
Financial Highlights
Selected data
fora common share of beneficial interest outstanding throughout each year:
| | |
Year
Ended December 31, | |
| | |
2016 | | |
2015 | | |
2014 | | |
2013 | | |
2012 | |
| Operating Performance: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
asset value, beginning of year | |
$ | 21.07 | | |
$ | 23.57 | | |
$ | 24.18 | | |
$ | 18.58 | | |
$ | 17.24 | |
| Net investment income | |
| 0.36 | | |
| 0.30 | | |
| 0.41 | | |
| 0.36 | | |
| 0.47 | |
| Net realized and unrealized
gain on investments, securities sold short, | |
| | | |
| | | |
| | | |
| | | |
| | |
| swap contracts,
and foreign currency transactions | |
| 2.45 | | |
| (1.39 | ) | |
| 1.54 | | |
| 6.45 | | |
| 2.00 | |
| Total
from investment operations | |
| 2.81 | | |
| (1.09 | ) | |
| 1.95 | | |
| 6.81 | | |
| 2.47 | |
| Distributions to Preferred Shareholders:
(a) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net investment income | |
| (0.05 | ) | |
| (0.06 | ) | |
| (0.03 | ) | |
| (0.05 | ) | |
| (0.09 | ) |
| Net realized
gain | |
| (0.17 | ) | |
| (0.12 | ) | |
| (0.15 | ) | |
| (0.13 | ) | |
| (0.08 | ) |
| Total
distributions to preferred shareholders | |
| (0.22 | ) | |
| (0.18 | ) | |
| (0.18 | ) | |
| (0.18 | ) | |
| (0.17 | ) |
| Net Increase
in Net Assets Attributable to Common Shareholders | |
| | | |
| | | |
| | | |
| | | |
| | |
| Resulting
from Operations | |
| 2.59 | | |
| (1.27 | ) | |
| 1.77 | | |
| 6.63 | | |
| 2.30 | |
| Distributions to Common Shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net investment income | |
| (0.31 | ) | |
| (0.31 | ) | |
| (0.39 | ) | |
| (0.31 | ) | |
| (0.37 | ) |
| Net realized gain | |
| (1.01 | ) | |
| (0.65 | ) | |
| (1.97 | ) | |
| (0.72 | ) | |
| (0.31 | ) |
| Return of capital | |
| — | | |
| (0.28 | ) | |
| (0.02 | ) | |
| — | | |
| (0.28 | ) |
| Total
distributions to common shareholders | |
| (1.32 | ) | |
| (1.24 | ) | |
| (2.38 | ) | |
| (1.03 | ) | |
| (0.96 | ) |
| Fund Share Transactions: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Increase
in net asset value from repurchase of common shares | |
| 0.00 | (b) | |
| 0.01 | | |
| — | | |
| 0.00 | (b) | |
| 0.00 | (b) |
| Decrease in net asset value
from offering costs for preferred shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| charged
to paid-in capital | |
| (0.04 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Total from Fund share transactions | |
| (0.04 | ) | |
| 0.01 | | |
| — | | |
| 0.00 | (b) | |
| 0.00 | (b) |
| Net
Asset Value Attributable to Common Shareholders, End of Year | |
$ | 22.30 | | |
$ | 21.07 | | |
$ | 23.57 | | |
$ | 24.18 | | |
$ | 18.58 | |
| NAV
total return † | |
| 12.70 | % | |
| (5.59 | )% | |
| 7.48 | % | |
| 36.47 | % | |
| 14.40 | % |
| Market value, end of year | |
$ | 20.04 | | |
$ | 18.46 | | |
$ | 21.66 | | |
$ | 22.17 | | |
$ | 16.18 | |
| Investment
total return †† | |
| 16.47 | % | |
| (9.32 | )% | |
| 8.82 | % | |
| 44.38 | % | |
| 11.38 | % |
| Ratios to Average Net Assets and
Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net assets including liquidation
value of preferred shares, end of year (in | |
| | | |
| | | |
| | | |
| | | |
| | |
| 000’s) | |
$ | 2,397,663 | | |
$ | 2,198,198 | | |
$ | 2,410,290 | | |
$ | 2,460,474 | | |
$ | 1,998,057 | |
| Net assets attributable to
common shares, end of year (in 000’s) | |
$ | 1,838,405 | | |
$ | 1,738,940 | | |
$ | 1,951,032 | | |
$ | 2,001,217 | | |
$ | 1,538,799 | |
| Ratio of net investment income
to average net assets attributable to | |
| | | |
| | | |
| | | |
| | | |
| | |
| common shares before preferred
share distributions | |
| 1.69 | % | |
| 1.60 | % | |
| 1.71 | % | |
| 1.65 | % | |
| 2.62 | % |
| Ratio of operating expenses
to average net assets attributable to common | |
| | | |
| | | |
| | | |
| | | |
| | |
| shares before fees waived | |
| 1.39 | %(c) |
| 1.33 | %(c) |
| 1.36 | % | |
| 1.34 | % | |
| 1.41 | % |
| Ratio of operating expenses
to average net assets attributable to common | |
| | | |
| | | |
| | | |
| | | |
| | |
| shares net of advisory fee reduction,
if any | |
| 1.39 | %(c) |
| 1.09 | %(c) |
| 1.36 | % | |
| 1.34 | % | |
| 1.41 | % |
| Ratio of operating expenses
to average net assets including liquidation | |
| | | |
| | | |
| | | |
| | | |
| | |
| value of preferred shares before fees waived | |
| 1.07 | %(c) |
| 1.07 | %(c) |
| 1.10 | % | |
| 1.07 | % | |
| 1.08 | % |
| Ratio of operating expenses
to average net assets including liquidation | |
| | | |
| | | |
| | | |
| | | |
| | |
| value of preferred shares net
of advisory fee reduction, if any | |
| 1.07 | %(c) |
| 0.88 | %(c) |
| 1.10 | % | |
| 1.07 | % | |
| 1.08 | % |
| Portfolio turnover rate | |
| 15.6 | % | |
| 8.1 | % | |
| 18.4 | % | |
| 15.8 | % | |
| 14.5 | % |
The Gabelli
Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
The Gabelli
Dividend & Income Trust
Financial Highlights (Continued)
Selected
data fora common share of beneficial interest outstanding throughout each year:
| | |
Year
Ended December 31, | |
| | |
2016 | | |
2015 | | |
2014 | | |
2013 | | |
2012 | |
| Preferred Stock: | |
| | | |
| | | |
| | | |
| | | |
| | |
| 5.875% Series A Cumulative Preferred
Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value,
end of year (in 000’s) | |
$ | 76,201 | | |
$ | 76,201 | | |
$ | 76,201 | | |
$ | 76,200 | | |
$ | 76,200 | |
| Total shares outstanding (in
000’s) | |
| 3,048 | | |
| 3,048 | | |
| 3,048 | | |
| 3,048 | | |
| 3,048 | |
| Liquidation preference per share | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | |
| Average market value (d) | |
$ | 26.32 | | |
$ | 25.63 | | |
$ | 25.26 | | |
$ | 25.31 | | |
$ | 25.72 | |
| Asset coverage per share(e) | |
$ | 107.18 | | |
$ | 119.66 | | |
$ | 131.21 | | |
$ | 133.94 | | |
$ | 108.77 | |
| Series B Auction Market Cumulative
Preferred Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year
(in 000’s) | |
$ | 90,000 | | |
$ | 90,000 | | |
$ | 90,000 | | |
$ | 90,000 | | |
$ | 90,000 | |
| Total shares outstanding (in
000’s) | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | |
| Liquidation preference per share | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Liquidation value (f) | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Asset coverage per share(e) | |
$ | 107,181 | | |
$ | 119,660 | | |
$ | 131,206 | | |
$ | 133,938 | | |
$ | 108,766 | |
| Series C Auction Market Cumulative
Preferred Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year
(in 000’s) | |
$ | 108,000 | | |
$ | 108,000 | | |
$ | 108,000 | | |
$ | 108,000 | | |
$ | 108,000 | |
| Total shares outstanding (in
000’s) | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | |
| Liquidation preference per share | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Liquidation value (f) | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Asset coverage per share(e) | |
$ | 107,181 | | |
$ | 119,660 | | |
$ | 131,206 | | |
$ | 133,938 | | |
$ | 108,766 | |
| 6.000% Series D Cumulative Preferred
Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year
(in 000’s) | |
$ | 63,557 | | |
$ | 63,557 | | |
$ | 63,557 | | |
$ | 63,557 | | |
$ | 63,557 | |
| Total shares outstanding (in
000’s) | |
| 2,542 | | |
| 2,542 | | |
| 2,542 | | |
| 2,542 | | |
| 2,542 | |
| Liquidation preference per share | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | |
| Average market value (d) | |
$ | 26.58 | | |
$ | 25.70 | | |
$ | 25.53 | | |
$ | 26.25 | | |
$ | 26.79 | |
| Asset coverage per share(e) | |
$ | 107.18 | | |
$ | 119.66 | | |
$ | 131.21 | | |
$ | 133.94 | | |
$ | 108.77 | |
| Series E Auction Rate Cumulative
Preferred Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year
(in 000’s) | |
$ | 121,500 | | |
$ | 121,500 | | |
$ | 121,500 | | |
$ | 121,500 | | |
$ | 121,500 | |
| Total shares outstanding (in
000’s) | |
| 5 | | |
| 5 | | |
| 5 | | |
| 5 | | |
| 5 | |
| Liquidation preference per share | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Liquidation value (f) | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | | |
$ | 25,000 | |
| Asset coverage per share(e) | |
$ | 107,181 | | |
$ | 119,660 | | |
$ | 131,206 | | |
$ | 133,938 | | |
$ | 108,766 | |
| 5.250% Series G Cumulative Preferred
Shares | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year
(in 000’s) | |
$ | 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Total shares outstanding (in
000’s) | |
| 4,000 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Liquidation preference per share | |
$ | 25.00 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Average market value (d) | |
$ | 25.20 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Asset coverage per share(e) | |
$ | 107.18 | | |
| | | |
| | | |
| | | |
| | |
| Asset Coverage (g) | |
| 429 | % | |
| 479 | % | |
| 525 | % | |
| 536 | % | |
| 435 | % |
| † | For
the years ended December 31, 2016, 2015, 2014, and 2013, based on net asset value per
share and reinvestment of distributions at net asset value on the ex-dividend date. The
year ended 2012 was based on net asset value per share, adjusted for reinvestment of
distributions at prices obtained under the Fund’s dividend reinvestment plan. |
| †† | Based
on market value per share, adjusted for reinvestment of distributions at prices obtained
under the Fund’s dividend reinvestment plan. |
| (a) | Calculated
based upon average common shares outstanding on the record dates throughout the year. |
| (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,
2016 and 2015, there was no impact on the expense ratios. |
| (d) | Based on weekly prices. |
| (e) | Asset coverage per share is calculated
by combining all series of preferred shares. |
| (f) | Since February 2008, the weekly
auctions have failed. Holders that have submitted orders have not been able to sell any
or all of their shares in the auction. |
| (g) | Asset coverage is calculated by
combining all series of preferred shares. |
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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, 2021. 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 objectives or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives and Policies
The
Fund’s investment objective is to seek a high level of total return with an emphasis on dividends and income. The Fund attempts
to achieve its objective by investing, under normal market conditions, at least 80% of its net assets in dividend paying securities
(such as common and preferred stock) or other income producing securities (such as fixed-income securities and securities that
are convertible into common stock). In addition, under normal market conditions, at least 50% of the Fund’s total assets
will consist of dividend paying equity securities. In making equity selections, Gabelli Funds, LLC, which serves as Investment
Adviser to the Fund, looks for securities that have a superior yield and capital gains potential.
The
Fund may invest in the securities of companies of any market capitalization. The Fund may invest up to 25% of its total assets
in securities of issuers in a single industry and may invest up to 35% of its total assets in securities of non-U.S. issuers (including
securities of companies in emerging markets), which are generally denominated in foreign currencies. The Fund may also invest
up to 10% of its total assets in below investment-grade securities, also known as high-yield securities. These securities, which
may be preferred stock 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 debt securities
of comparable quality) are referred to in the financial press as “junk bonds” or “high-yield” securities.
The average duration of the Fund’s investments in debt securities is expected to vary and the Fund does not target any particular
average duration.
The
Fund’s policy to invest at least 80% of its net assets in dividend paying securities or other income producing securities
may be changed by the Board; however, if this policy changes, the Fund will provide shareholders at least 60 days’ written
notice before implementation of the change in compliance with SEC rules.
No
assurances can be given that the Fund’s objective will be achieved. Neither the Fund’s investment objective nor, except
as expressly stated herein, any of its policies are fundamental, and each may be modified by the Board without shareholder approval.
The percentage and ratings limitations stated herein 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.
Gabelli
Funds, LLC, a New York limited liability company, with offices at One Corporate Center, Rye, New York 10580-1422, serves as investment
adviser to the Fund.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Investment
Methodology of the Fund
In
selecting securities for the Fund, the Investment Adviser normally considers the following factors, among others:
the
Investment Adviser’s own evaluations of the private market value (as defined below), cash flow, earnings per share and other
fundamental aspects of the underlying assets and business of the company;
the
interest or dividend income generated by the securities;
the potential for capital appreciation of the securities;
the
prices of the securities relative to other comparable securities;
whether
the securities are entitled to the benefits of call protection or other protective covenants; and
the existence of any anti-dilution
protections or guarantees of the security; and
the
diversification of the portfolio of the Fund as to issuers.
The
Investment Adviser’s investment philosophy with respect to equity and debt securities is to identify assets that are selling
in the public market at a discount to their private market value. The Investment Adviser defines private market value as the value
informed purchasers are willing to pay to acquire assets with similar characteristics. In making equity selections, the Investment
Adviser looks for securities that have a superior yield and capital gains potential. The Investment Adviser also normally evaluates
an issuer’s free cash flow and long term earnings trends. Finally, the Investment Adviser looks for a catalyst, something
indigenous to the company, its industry or country, that will surface additional value.
Certain
Investment Practices
Equity
Securities. The Fund invests
in equity securities (such as common stock and preferred stock).
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.
Equity
securities also include preferred stock (whether or not convertible into common stock) and debt securities convertible into or
exchangeable for common or preferred stock. Preferred stock has a preference over common stock in liquidation (and generally dividends
as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule the market value of preferred
stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while
the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock
is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause
greater changes in the value of a preferred stock than in a more senior debt security with similarly stated yield characteristics.
The market value of preferred stock will also generally reflect whether (and if so when) the issuer may force holders to sell
their preferred stock back to the issuer and whether (and if so when) the holders may
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
force
the issuer to buy back their preferred stock. Generally speaking, the right of the issuer to repurchase the preferred stock tends
to reduce any premium at which the preferred stock might otherwise trade due to interest rate or credit factors, while the right
of the holders to require the issuer to repurchase the preferred stock tends to reduce any discount at which the preferred stock
might otherwise trade due to interest rate or credit factors. In addition, some preferred stocks 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 stocks, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. There is no assurance
that dividends or distributions on non-cumulative preferred stocks in which the Fund invests will be declared or otherwise made
payable.
Securities
that are convertible into or exchangeable for preferred or common stock are liabilities of the issuer but are generally subordinated
to more senior elements of the issuer’s balance sheet. Although such securities also generally reflect an element of conversion
value, their market value also varies with interest rates and perceived credit risk. Many convertible securities are not investment
grade, that is, not rated “BBB” or better by S&P or “Baa” or better by Moody’s or considered
by the Investment Adviser to be of similar quality.
Preferred
stocks and convertible securities may have many of the same characteristics and risks as nonconvertible debt securities. See “Risk
Factors and Special Considerations—General Risks—Non-Investment Grade Securities.”
The
Investment Adviser believes that preferred stock and convertible securities of certain companies offer the opportunity for capital
appreciation and periodic income. This is particularly true in the case of companies that have performed below expectations. If
a company’s performance has been poor enough, its preferred stock and convertible securities may trade more like common
stock than like fixed-income securities, which may result in above average appreciation if the company’s performance improves.
Even if the credit quality of such a company is not in question, the market price of its convertible securities may reflect little
or no element of conversion value if the price of its common stock has fallen substantially below the conversion price. This can
result in capital appreciation if the price of the company’s common stock recovers.
Income
Securities. Income securities
include (i) fixed income securities such as 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, and (ii)
common stocks of issuers that have historically paid periodic dividends. 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.
The
market value of fixed income securities, especially those that provide a fixed rate of return, may be expected to rise and fall
inversely with interest rates and in general is affected by the credit rating of the issuer, the issuer’s performance and
perceptions of the issuer in the market place. The market value of callable or redeemable fixed income securities may also be
affected by the issuer’s call and redemption rights. In addition, it is possible that the issuer of fixed income securities
may not be able to meet its interest or principal obligations to holders.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Further,
holders of non-convertible fixed income securities do not participate in any capital appreciation of the issuer.
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.
The
Fund also may invest in common stock of issuers that have historically paid periodic dividends or otherwise made distributions
to common shareholders. 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.
Non-Investment
Grade Securities. The Fund
may invest in below investment-grade securities, also known as high-yield securities. These securities, which may be preferred
stock 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 debt securities of comparable
quality) are referred to in the financial press 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 bonds. In addition, such 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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 securities 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 nonconvertible bonds and preferred
stocks 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 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 are at historical lows and there have been recent inflationary price movements; therefore,
it is likely that interest rates will rise in the future.
As
part of its investments in non-investment grade securities, the Fund may invest 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 issues
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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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.
Securities
Subject to Reorganization. The
Fund may invest without limit 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 high total return significantly greater than the brokerage
and other transaction expenses involved.
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 or may also trade at a discount 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 of the prospective portfolio company 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 and the assets or securities to be received as a result of the contemplated
transaction but also the financial resources and business motivation of the offeror and 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. The Investment Adviser intends to
select investments of this type which, in its view, have a reasonable prospect of capital appreciation which is significant in
relation to both risk involved and the potential of available alternative investments.
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.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Options.
The Fund may 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 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, in return for a premium, gives the holder of the option the right to buy from the
writer of the call option 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 the reverse of a call option, giving
the holder 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. The Fund may purchase call or put options as long
as the aggregate initial margins and premiums, measured at the time of such investment, do not exceed 10% of the fair market value
of the Fund’s total assets. There is no limit on the amount of options the Fund may write (sell).
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 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 which provides a secondary market for an option of the same series or in
a private transaction. Although the Fund generally purchases or writes 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, so that 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.
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Although
the Investment Adviser will attempt to take appropriate measures to minimize the risks relating to the Fund’s writing of
put and call options, there can be no assurance that the Fund will succeed in any option-writing program it undertakes.
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. The Investment Adviser has
claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act and
therefore is not subject to registration under the Commodity Exchange Act.
Forward
Foreign Currency Exchange Contracts. Subject
to guidelines of the Board, 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. 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. The Fund invests in forward currency contracts for hedging or currency risk management purposes and
not in order to speculate on currency exchange rate movements. The Fund only enters into forward currency contracts with parties
which it believes to be creditworthy.
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 of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that
the market price of that security will decline. The market value of the securities sold short of any one issuer will not exceed
either 10% of the Fund’s total assets or 5% of such issuer’s voting securities. The Fund also will not make a short
sale, if, after giving effect to such sale, the market value of all securities sold short exceeds 25% of the value of its assets.
The Fund may also make short sales “against the box” without respect to such limitations. In this type of short sale,
at the time of the sale, the Fund owns, or has the immediate and unconditional right to acquire at no additional cost, the identical
security.
The
Fund makes short sales both to obtain capital gain from anticipated declines in securities and as a form of hedging to offset
potential declines in long positions in the same or similar securities. The short sale of a security
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is
considered a speculative investment technique. Short sales “against the box” may be subject to special tax rules,
one of the effects of which may be to accelerate income to the Fund.
When
the Fund makes a short sale, it must borrow the security sold short and deliver it 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. The Fund may have to pay
a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
If
the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be
decreased, and any loss will be increased, by the transaction costs incurred by the Fund, including the costs associated with
providing collateral to the broker-dealer (usually cash, U.S. government securities or other highly liquid debt securities) and
the maintenance of collateral with its Custodian. Although the Fund’s gain is limited to the price at which it sold the
security short, its potential loss is theoretically unlimited.
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 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.
Restricted
and Illiquid Securities. The
Fund may invest in securities for which there is no readily available trading market or 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 (“Securities Act”) and securities eligible for resale pursuant to Rule 144A thereunder. 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
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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.
Foreign
Securities. The Fund invests in the equity securities of companies located outside the United States.
The
Investment Adviser believes that investing in foreign securities offers both enhanced investment opportunities and additional
risks beyond those present in U.S. securities. Investing in foreign securities may provide increased diversification by adding
securities from various foreign countries (i) that offer different investment opportunities, (ii) that generally are affected
by different economic trends and (iii) whose stock markets may not be correlated with U.S. markets. At the same time, these opportunities
and trends involve risks that may not be encountered in U.S. investments.
The
following considerations comprise both risks and opportunities not typically associated with investing in U.S. securities: fluctuations
in exchange rates of foreign currencies; possible imposition of exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less
government supervision of stock exchanges, securities brokers and issuers of securities; lack of uniform accounting, auditing
and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible imposition of foreign taxes; the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets; the adoption of foreign government
restrictions and other adverse political, social or diplomatic developments that could affect investment; sometimes less advantageous
legal, operational and financial protections applicable to foreign sub-custodial arrangements; and the historically lower level
of responsiveness of foreign management to shareholder concerns (such as dividends and return on investment).
The
Fund may purchase sponsored American Depository Receipts (“ADRs”) or U.S. dollar-denominated securities of foreign
issuers, which will be considered foreign securities for purposes of the Fund’s investment policies. 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.
See “Risk Factors and Special Considerations—General Risks—Foreign Securities.”
Emerging
Market Countries. The risks
described above for foreign securities, including the risks of nationalization and expropriation of assets, are typically increased
to the extent that the Fund invests in companies headquartered in developing, or emerging market, countries. Investments in securities
of companies headquartered in such countries may be considered speculative and subject to certain special risks. The political
and economic structures in many of these countries may be in their infancy and developing rapidly, and such countries may lack
the social, political and economic characteristics of more developed countries. Certain of these countries have in the past failed
to recognize private property rights and have at times nationalized and expropriated the assets of private companies. Some countries
have inhibited the conversion of their currency to another. The currencies of certain emerging market countries have experienced
devaluation relative to the U.S. dollar, and future devaluations may adversely affect the value of the Fund’s assets denominated
in such currencies. Some emerging market countries have experienced substantial rates of inflation for many years. Continued inflation
may adversely affect the economies and securities markets of such countries. In addition, unanticipated political or social developments
may affect the value of the Fund’s investments in these countries
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and
the availability of the Fund of additional investments in these countries. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may make the Fund’s investments in such countries illiquid and
more volatile than investments in more developed countries, and the Fund may be required to establish special custodial or other
arrangements before making investments in these countries. There may be little financial or accounting information available with
respect to companies located in these countries, and it may be difficult as a result to assess the value or prospects of an investment
in such companies.
Value
Investing. The
Fund’s portfolio managers will use various value methods in managing its assets. In selecting securities for the Fund, they
evaluate the quality of a company’s balance sheet, the level of its cash flows and other measures of a company’s financial
condition and profitability. The portfolio managers may also consider other factors, such as a company’s unrecognized asset
values, its future growth prospects or its turnaround potential following an earnings disappointment or other business difficulties.
The portfolio managers then use these factors to assess the company’s current worth, basing this assessment on either what
they believe a knowledgeable buyer might pay to acquire the entire company or what they think the value of the company should
be in the stock market.
The
Fund’s portfolio managers generally invest in securities of companies that are trading significantly below their estimate
of the company’s current worth in an attempt to reduce the risk of overpaying for such companies. Seeking long term growth
of capital, they also evaluate the prospects for the market price of the company’s securities to increase over a two-to
five-year period toward this estimate.
The
Investment Adviser’s value approach strives to reduce some of the other risks of investing in the securities of smaller
companies (for the Fund’s portfolio taken as a whole) by evaluating other risk factors. For example, its portfolio managers
generally attempt to lessen financial risk by buying companies with strong balance sheets and low leverage.
While
there can be no assurance that this risk-averse value approach will be successful, the Investment Adviser believes that it can
reduce some of the risks of investing.
Although
the Investment Adviser’s approach to security selection seeks to reduce downside risk to the Fund’s portfolio, especially
during periods of broad stock market declines, it may also potentially have the effect of limiting gains in strong up markets.
Industry
Concentration. The Fund
may invest up to 25% of its total assets in securities of issuers in a single industry. See “Risk Factors and Special Considerations—General
Risks—Industry Risk.”
Leverage.
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) 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. 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. 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
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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.
Additionally,
the Fund may enter into derivative transactions that have economic leverage embedded in them. 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.
To
the extent the terms of such transactions obligate the Fund to make payments, the Fund may earmark or segregate cash or liquid
assets in an amount at least equal to the current value of the amount then payable by the Fund under the terms of such transactions
or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. If the current value
of the amount then payable by the Fund under the terms of such transactions is represented by the notional amounts of such investments,
the Fund would segregate or earmark cash or liquid assets having a market value at least equal to such notional amounts, and if
the current value of the amount then payable by the Fund under the terms of such transactions is represented by the market value
of the Fund’s current obligations, the Fund would segregate or earmark cash or liquid assets having a market value at least
equal to such current obligations. To the extent the terms of such transactions obligate the Fund to deliver particular securities
to extinguish the Fund’s obligations under such transactions the Fund may “cover” its obligations under such
transactions by either (i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate
right to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is
required, having earmarked or segregated an appropriate amount of cash or liquid assets). Such earmarking, segregation or cover
is intended to provide the Fund with available assets to satisfy its obligations under such transactions. As a result of such
earmarking, segregation or cover, the Fund’s obligations under such transactions will not be considered senior securities
representing indebtedness for purposes of the 1940 Act, or considered borrowings subject to the Fund’s limitations on borrowings
discussed above, but may create leverage for the Fund. To the extent that the Fund’s obligations under such transactions
are not so earmarked, segregated or covered, such obligations may be considered “senior securities representing indebtedness”
under the 1940 Act and therefore subject to the 300% asset coverage requirement.
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Additional Fund Information (Continued) (Unaudited)
These
earmarking, segregation or cover requirements can result in the Fund maintaining securities positions it would otherwise liquidate,
segregating or earmarking assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management.
On
October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule
18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4
will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used
by funds 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 funds whose use of derivatives is more than a limited specified exposure
amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
Investment
Restrictions. The Fund
has adopted certain fundamental investments policies designed to limit investment risk and maintain portfolio diversification.
See “Investment Restrictions” below for a complete list of the fundamental policies of the Fund. Fundamental policies
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). The Fund may become subject to rating
agency guidelines that are more limiting than its current investment restrictions in order to obtain and maintain a desired rating
on its preferred shares, if any.
Neither
the Fund’s investment objective nor, except as expressly listed under “Investment Restrictions” below, any of
its policies (including with respect to the interest rate transactions described under the heading “How the Fund Manages
Risk—Interest Rate Transactions”) is fundamental, and each may be modified by the Board without shareholder approval.
In
addition, pursuant to the respective Statement of Preferences of the Fund’s Series B Preferred Shares, Series C Preferred
Shares, Series E Preferred Shares, Series H Preferred Shares, Series J Preferred Shares and Series K Preferred Shares, a majority,
as defined in the 1940 Act, of the outstanding preferred shares of the Fund (voting separately as a single class) is also required
to change a fundamental policy. See “Investment Restrictions” below.
Loans
of Portfolio Securities.
To increase income, the Fund may lend its
portfolio securities to securities broker-dealers or financial institutions if the loan is collateralized in accordance with applicable
regulatory requirements.
If
the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates and 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. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in collateral
should the borrower of the securities violate the terms of the loan or fail financially. There can be no assurance that borrowers
will not fail financially. On termination of the loan, the borrower is required to return the securities to the Fund, and any
gain or loss in the market price during the loan would inure to the Fund. If the other party 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. See “Risk Factors and Special Considerations—General Risks—Loans of Portfolio Securities.”
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Portfolio
Turnover. The Fund will
buy and sell securities to accomplish its investment objective. The investment policies of the Fund may lead to frequent changes
in investments, particularly in periods of rapidly fluctuating interest or currency exchange rates.
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.
For
the fiscal years ended December 31, 2019, 2020 and 2021, the portfolio turnover rate of the Fund was 16%, 16% and 12%, respectively.
The Fund anticipates that its portfolio turnover rate will generally not exceed 100%.
Further
information on the investment objective and policies of the Fund is set forth below.
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors
should consider the following risk factors and special considerations associated with investing in the Fund, each of which is
noted as either a “principal” risk or a “non-principal” risk:
General
Risks
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
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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.
Current
market conditions may pose heightened risks with respect to the Fund’s investment in fixed income securities. Interest rates
in the U.S. are at or near historically low levels. Any interest rate increases in the future could cause the value of the Fund
to decrease. Recently, there have been signs of inflationary price movements. As such, fixed income securities markets 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.
Coronavirus
(“COVID-19”) and Global Health Event Risk. As of the filing date of this Annual Report, there is an outbreak
of a highly contagious form of a novel coronavirus known as “COVID-19.” COVID-19 has been declared a pandemic by the
World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health
emergency in the United States. COVID-19 had a devastating impact on the global economy, including the U.S. economy, and resulted
in a global economic recession. Many states issued orders requiring the closure of non-essential businesses and/or requiring residents
to stay at home. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have caused, and are
continuing to cause, business shutdowns, cancellations of events and travel, significant reductions in demand for certain goods
and services, reductions in business activity and financial transactions, supply chain interruptions and overall economic and
financial market instability both globally and in the United States. Such effects will likely continue for the duration of the
pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties and
cities in the United States, began to relax the early public health restrictions with a view to partially or fully reopening their
economies, many cities, both globally and in the United States, continue to experience, from time to time, surges in the reported
number of cases and hospitalizations related to the COVID-19 pandemic. Increases in cases can and have led to the re-introduction
of restrictions and business shutdowns in certain states, counties and cities in the United States and globally and could continue
to lead to the re-introduction of such restrictions elsewhere. Additionally, the vaccine produced by Johnson & Johnson is
currently authorized for emergency
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use,
and the U.S. Food and Drug Administration (“FDA”) has granted full approval to the vaccines produced by Pfizer-BioNTech
and Moderna, which will now be marketed as Comirnaty and Spikevax, respectively. However, it remains unclear how quickly the vaccines
will be distributed nationwide and globally or when “herd immunity” will be achieved and the restrictions that were
imposed to slow the spread of the virus will be lifted entirely. Various factors could lead people to continue to self-isolate
and not participate in the economy at pre-pandemic levels for a prolonged period of time. Even after the COVID-19 pandemic subsides,
the U.S. economy and most other major global economies may continue to experience a substantial economic downturn or recession,
and our business and operations, as well as the business and operations of our portfolio companies, could be materially adversely
affected by a prolonged economic downturn or recession in the United States and other major markets. Potential consequences of
the current unprecedented measures taken in response to the spread of COVID-19, and current market disruptions and volatility
that may impact the Fund include, but are not limited to:
| ● | sudden,
unexpected and/or severe declines in the market price of our common stock or net asset
value; |
| ● | inability
of the Fund to accurately or reliably value its portfolio; |
| ● | inability
of the Fund to comply with certain asset coverage ratios that would prevent the Fund from paying dividends to our common stockholders; |
| ● | inability
of the Fund to pay any dividends and distributions; |
| ● | inability
of the Fund to maintain its status as a RIC under the Code; |
| ● | potentially
severe, sudden and unexpected declines in the value of our investments; |
| ● | increased
risk of default or bankruptcy by the companies in which we invest; |
| ● | 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; |
| ● | reduced
economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread
of COVID-19, which could impact the continued viability of the companies in which we invest; |
| ● | companies
in which the Fund invests being disproportionally impacted by governmental action aimed at slowing the spread of COVID-19 or mitigating
its economic effects; |
| ● | limited
availability of new investment opportunities; and |
| ● | general
threats to the Fund’s ability to continue investment operations and to operate successfully as a diversified, closed-end
investment company. |
Despite
actions of the U.S. federal government and foreign governments, the uncertainty surrounding the COVID-19 pandemic and other factors
has contributed to significant volatility and declines in the global public equity markets and global debt capital markets, including
the net asset value of the Fund’s shares. These events could have, and/or have had, a significant impact on the Fund’s
performance, net asset value, income, operating results and ability to pay distributions, as well as the performance, income,
operating results and viability of issuers in which it invests.
It
is virtually impossible to determine the ultimate impact of COVID-19 at this time. Further, the extent and strength of any economic
recovery after the COVID-19 pandemic abates, including following any “second wave,” “third wave” or other
intensifying of the pandemic, is uncertain and subject to various
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factors
and conditions. Accordingly, an investment in the Fund is subject to an elevated degree of risk as compared to other market environments.
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 worth less than the amount at the time
the shareholder invested in the Fund, even after taking into account any reinvestment of distributions.
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, among other reasons, 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 those returns.
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, there have been market indicators of a rise in inflation. As inflation increases, the real value of the Fund’s
shares and distributions therefore may decline. In addition, during any periods of rising inflation, dividend rates of any debt
securities issued by the Fund would likely increase, which would tend to further reduce returns to common shareholders. 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. This risk is greater for fixed-income instruments with longer maturities.
Preferred
Stock Risk. 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. |
| ● | 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 |
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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 directors 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 U.S. federal
income tax or securities laws. A redemption by the issuer may negatively impact the return of the security held by the Fund. |
Convertible
Securities Risk. 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.
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.
Selection
Risk. Different types of stocks tend to shift into and out of favor with stock market investors, depending on market and
economic conditions. The performance of funds that invest in value-style stocks may at times be better or worse than the performance
of stock funds that focus on other types of stocks or that have a broader investment style.
Merger
Arbitrage Risk. The Fund may invest 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. The
principal risk of such investments is that certain of such proposed transactions may be renegotiated, terminated or involve a
longer time frame than originally
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contemplated,
in which case the Fund may realize losses. Such risk is sometimes referred to as “merger arbitrage risk.” Among the
factors that affect the level of risk with respect to the completion of the transaction are the deal spread and number of bidders,
the friendliness of the buyer and seller, the strategic rationale behind the transaction, the existence of regulatory hurdles,
the level of due diligence completed on the target company and the ability of the buyer to finance the transaction. If the spread
between the purchase price and the current price of the seller’s stock is small, the risk that the transaction will not
be completed may outweigh the potential return. If there is very little interest by other potential buyers in the target company,
the risk of loss may be higher than where there are back-up buyers that would allow the arbitrageur to realize a similar return
if the current deal falls through. Unfriendly management of the target company or change in friendly management in the middle
of a deal increases the risk that the deal will not be completed even if the target company’s board has approved the transaction
and may involve the risk of litigation expense if the target company pursues litigation in an attempt to prevent the deal from
occurring. The underlying strategy behind the deal is also a risk consideration because the less a target company will benefit
from a merger or acquisition, the greater the risk. There is also a risk that an acquiring company may back out of an announced
deal if, in the process of completing its due diligence of the target company, it discovers something undesirable about such company.
In addition, merger transactions are also subject to regulatory risk because a merger transaction often must be approved by a
regulatory body or pass governmental antitrust review. All of these factors affect the timing and likelihood that the transaction
will close. Even if the Investment Adviser selects announced deals with the goal of mitigating the risks that the transaction
will fail to close, such risks may still delay the closing of such transaction to a date later than the Fund originally anticipated,
reducing the level of desired return to the Fund.
Merger
arbitrage positions are also subject to the risk of overall market movements. To the extent that a general increase or decline
in equity values affects the stocks involved in a merger arbitrage position differently, the position may be exposed to loss.
Finally,
merger arbitrage strategies depend for success on the overall volume of global merger activity, which has historically been cyclical
in nature. During periods when merger activity is low, it may be difficult or impossible to identify opportunities for profit
or to identify a sufficient number of such opportunities to provide balance among potential merger transactions. To the extent
that the number of announced deals and corporate reorganizations decreases or the number of investors in such transactions increases,
it is possible that merger arbitrage spreads will tighten, causing the profitability of investing in such transactions to diminish,
which will in turn decrease the returns to the Fund from such investment activity.
Recapitalization
Risk. In recapitalizations, a corporation may restructure its balance sheet by selling specific assets, significantly
leveraging other assets and creating new classes of equity securities to be distributed, together with a substantial payment in
cash or in debt securities, to existing shareholders. In connection with such transactions, there is a risk that the value of
the cash and new securities distributed will not be as high as the cost of the Fund’s original investment or that no such
distribution will ultimately be made and the value of the Fund’s investment will decline. To the extent an investment in
a company that has undertaken a recapitalization is retained by the Fund, the Fund’s risks will generally be comparable
to those associated with investments in highly leveraged companies, generally including higher than average sensitivity to (i)
short term interest rate fluctuations, (ii) downturns in the general economy or within a particular industry or (iii) adverse
developments within the company itself.
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Distribution
Risk for Equity Income 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, however, does not guarantee that the issuer will continue to pay dividends 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, in the event the issuer does not realize
sufficient income in a particular period both to service its liabilities and to pay dividends on its equity securities, it 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.
Dividend-producing
equity income securities, in particular those whose market price is closely related to their yield, may exhibit greater sensitivity
to interest rate changes. See “—Fixed Income Securities Risks—Interest Rate Risk.” The Fund’s investments
in dividend-producing equity income securities may also limit its potential for appreciation during a broad market advance.
The
prices of dividend-producing equity income securities can be highly volatile. Investors should not assume that the Fund’s
investments in these securities will necessarily reduce the volatility of the Fund’s net asset value or provide “protection,”
compared to other types of equity income securities, when markets perform poorly.
Value
Investing Risk. The Fund focuses its investments on the securities of companies that the Investment Adviser believes to
be undervalued or inexpensive relative to other investments. These types of securities may present risks in addition to the general
risks associated with investing in common and preferred stocks. These securities generally are selected on the basis of an issuer’s
fundamentals relative to current market price. Such securities are subject to the risk of mis-estimation of certain fundamental
factors. In addition, during certain time periods market dynamics may strongly favor “growth” stocks of issuers that
do not display strong fundamentals relative to market price based upon positive price momentum and other factors. Disciplined
adherence to a “value” investment mandate during such periods can result in significant underperformance relative
to overall market indices and other managed investment vehicles that pursue growth style investments and/or flexible equity style
mandates.
Fixed
Income Securities Risks. Fixed
income securities in which the Fund may invest are generally subject to the following risks:
| ● | Interest
Rate Risk. The market value of bonds and other fixed-income or dividend-paying securities changes in response to interest
rate changes and other factors. Interest rate risk is the risk that prices of bonds and other income-or dividend-paying securities
will increase as interest rates fall and decrease as interest rates rise. |
The
Fund may be subject to a greater risk of rising interest rates due to the current period of historically low interest rates and
recent inflationary price movements. 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
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in
a manner not anticipated by Fund management. To the extent the Fund invests in debt securities that may be prepaid at the option
of the obligor (such as mortgage-related securities), 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 debt 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 debt 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 utilize certain strategies,
including taking positions in futures or interest rate swaps, for the purpose of reducing the interest rate sensitivity of income-or dividend-paying securities held by the Fund and decreasing the Fund’s exposure to interest rate risk. The Fund is not
required to hedge its exposure to interest rate risk and may choose not to do so. In addition, there is no assurance that any
attempts by the Fund to reduce interest rate risk will be successful or that any hedges that the Fund may establish will perfectly
correlate with movements in interest rates.
The
Fund may invest in variable and floating rate debt 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, variable and floating
rate instruments generally will not increase in value if interest rates decline. The Fund also may invest in inverse floating
rate debt securities, which may decrease in value if interest rates increase, and which also may exhibit greater price volatility
than fixed rate debt 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.
| ● | Issuer
Risk. Issuer risk is the risk that the value of an income-or dividend-paying security may decline for a number of reasons which
directly relate to the issuer, such as management performance, financial leverage, reduced demand for the issuer’s goods
and services, historical and prospective earnings of the issuer and the value of the assets of the issuer. |
| ● | Credit
Risk. Credit risk is the risk that one or more income-or dividend-paying securities in the Fund’s portfolio will decline
in price or fail to pay interest/distributions or principal when due because the issuer of the security experiences a decline
in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness
of the issuer deteriorates. To the extent the Fund invests in below investment grade securities, it will be exposed to a greater
amount of credit risk than a fund which only invests in investment grade securities. See “—Non-Investment Grade Securities.”
In addition, to the extent the Fund uses credit derivatives, such use will expose it to additional risk in the |
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event
that the bonds underlying the derivatives default. The degree of credit risk depends on the issuer’s financial condition
and on the terms of the securities.
| ● | Prepayment
Risk. Prepayment risk is the risk that during periods of declining interest rates, borrowers may exercise their option to prepay
principal earlier than scheduled. For income-or dividend-paying securities, such payments often occur during periods of declining
interest rates, forcing the Fund to reinvest in lower yielding securities, resulting in a possible decline in the Fund’s
income and distributions to shareholders. This is known as prepayment or “call” risk. Below investment grade securities
frequently have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified
price (typically greater than par) only if certain prescribed conditions are met (“call protection”). For premium
bonds (bonds acquired at prices that exceed their par or principal value) purchased by the Fund, prepayment risk may be enhanced. |
| ● | Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds
from matured, traded or called fixed income securities at market interest rates that are below the Fund portfolio’s current
earnings rate. |
| ● | Duration
and Maturity Risk. The Fund has no set policy regarding portfolio maturity or duration of the fixed-income securities it may hold.
The Investment Adviser may seek to adjust the duration or maturity of the Fund’s fixed-income holdings based on its assessment
of current and projected market conditions and all other factors that the Investment Adviser deems relevant. In comparison to
maturity (which is the date on which the issuer of a debt instrument is obligated to repay the principal amount), duration is
a measure of the price volatility of a debt instrument as a result in changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Specifically, duration measures the anticipated
percentage change in net asset value that is expected for every percentage point change in interest rates. The two have an inverse
relationship. Duration can be a useful tool to estimate anticipated price changes to a fixed pool of income securities associated
with changes in interest rates. For example, a duration of five years means that a 1% decrease in interest rates will increase
the net asset value of the portfolio by approximately 5%; if interest rates increase by 1%, the net asset value will decrease
by 5%. However, in a managed portfolio of fixed income securities having differing interest or dividend rates or payment schedules,
maturities, redemption provisions, call or prepayment provisions and credit qualities, actual price changes in response to changes
in interest rates may differ significantly from a duration-based estimate at any given time. Actual price movements experienced
by a portfolio of fixed income securities will be affected by how interest rates move (i.e., changes in the relationship of long
term interest rates to short term interest rates), the magnitude of any move in interest rates, actual and anticipated prepayments
of principal through call or redemption features, the extension of maturities through restructuring, the sale of securities
for portfolio management purposes, the reinvestment of proceeds from prepayments on and from sales of securities, and credit quality-related
considerations whether associated with financing costs to lower credit quality borrowers or otherwise, as well as other factors.
Accordingly, while duration maybe a useful tool to estimate potential price movements in relation to changes in interest rates,
investors are cautioned that duration alone will not predict actual changes in the net asset or market value of the Fund’s
shares and that actual price movements in the Fund’s portfolio may differ significantly from duration-based estimates. Duration
differs from maturity in that it takes into account a security’s yield, coupon payments and its principal payments |
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in
addition to the amount of time until the security matures. As the value of a security changes over time, so will its duration.
Prices of securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations.
In general, a portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than
a portfolio with a shorter duration. Any decisions as to the targeted duration or maturity of any particular category of investments
will be made based on all pertinent market factors at any given time. The Fund may incur costs in seeking to adjust the portfolio
average duration or maturity. There can be no assurance that the Investment Adviser’s assessment of current and projected
market conditions will be correct or that any strategy to adjust duration or maturity will be successful at any given time.
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.
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 1-week and 2-month U.S. dollar LIBOR settings have ceased to be published
or are no longer be representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-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 (e.g., the Secured Overnight Financing Rate, which is intended to replace the U.S. dollar LIBOR). Neither the effect of the
LIBOR transition process nor its ultimate success can yet be known.
At
this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal
Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial
institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”). 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
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Additional Fund Information (Continued) (Unaudited)
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. This could lead, in some circumstances, including with respect to the rate setting mechanisms for the Series B Preferred
Shares, Series C Preferred Shares and Series E Preferred Shares, to circumstances where a last-resort fallback of fixing any LIBOR-based
reference rate at the last published LIBOR rate will apply. Such a result could lead to divergent and unexpected economic results
for the Fund and holders of any such affected instruments, including holders of the Series B Preferred Shares, Series C Preferred
Shares and Series E Preferred Shares, and could result in the rates payable on any such instruments not representing prevailing
market rates, all of which could have a material adverse effect on the Fund, holders of such instruments, including holders of
Series B Preferred Shares, Series C Preferred Shares and Series E Preferred Shares, or both.
In
addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. There
may also be challenges for the Fund to enter into hedging transactions against such newly-issued instruments until a market for
such hedging transactions develops. All of the aforementioned may adversely affect the Fund’s performance or net asset value.
Corporate
Bonds Risk. The market value of a corporate bond generally may be expected to rise and fall inversely with interest rates.
The market value of intermediate and longer term corporate bonds is generally more sensitive to changes in interest rates than
is the market value of shorter term corporate bonds. The market value of a corporate bond also may be affected by factors directly
related to the issuer, such as investors’ perceptions of the creditworthiness of the issuer, the issuer’s financial
performance, perceptions of the issuer in the market place, performance of management of the issuer, the issuer’s capital
structure and use of financial leverage and demand for the issuer’s goods and services. Certain risks associated with investments
in corporate bonds are described elsewhere in this Annual Report in further detail, including under “—Fixed Income
Securities Risks—Credit Risk,” “—Fixed Income Securities Risks—Interest Rate Risk,” “—Fixed
Income Securities Risks—Prepayment Risk,” and “—General Risks—Inflation Risk.” There is a
risk that the issuers of corporate bonds may not be able to meet their obligations on interest or principal payments at the time
called for by an instrument. Corporate bonds of below investment grade quality are often high risk and have speculative characteristics
and may be particularly susceptible to adverse issuer-specific developments. Corporate bonds of below investment grade quality
are subject to the risks described herein under “—Non-Investment Grade Securities.”
Prepayment
Risks on Government Sponsored Mortgage-Backed Securities.
The yield and maturity characteristics of
government sponsored mortgage-backed securities differ from traditional debt securities. A major difference is that the principal
amount of the obligations may generally be prepaid at any time because the underlying assets (i.e., loans) generally may be prepaid
at any time. Prepayment risks include the following:
the
relationship between prepayments and interest rates may give some lower grade government sponsored mortgage-backed securities
less potential for growth in value than conventional bonds with comparable maturities;
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Additional Fund Information (Continued) (Unaudited)
in
addition, when interest rates fall, the rate of prepayments tends to increase. During such periods, the reinvestment of prepayment
proceeds by the Fund will generally be at lower rates than the rates that were carried by the obligations that have been prepaid;
because
of these and other reasons, a government sponsored mortgage-backed security’s total return and maturity may be difficult
to predict; and
to
the extent that the Fund purchases government sponsored mortgage-backed securities at a premium, prepayments may result in loss
of the Fund’s principal investment to the extent of premium paid.
Non-Investment
Grade Securities. The Fund may invest in below investment-grade securities, also known as high-yield securities or “junk”
bonds. These securities, which may be preferred stock 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 debt securities of comparable quality) are referred to in the financial press as “junk bonds” or “high
yield” securities and generally pay a premium above the yields of U.S. government securities or debt 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 non-investment 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. Non-investment grade
securities tend to be less liquid than investment grade securities. The market value of non-investment 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.
Ratings
are relative and 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.
As
a part of its investments in non-investment grade securities, the Fund may invest in the securities of issuers in default. The
Fund invests in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their
obligations and emerge from bankruptcy protection and that the value of such issuers’ 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.
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Additional Fund Information (Continued) (Unaudited)
Small
and Mid-Cap Company Risk.
The Fund may invest in the equity securities
of small-cap and/or mid-cap companies.
Small
and mid-cap companies offer investment opportunities and additional risks. They may not be well known to the investing public,
may not be significantly owned by institutional investors and may not have steady earnings growth. These companies may have limited
product or business lines and markets, as well as shorter operating histories, less experienced management and more limited financial
resources than larger companies. Changes in any one line of business, therefore, may have a greater impact on a small or mid-cap
company’s stock price than is the case for a larger company. In addition, the securities of such companies may be more vulnerable
to adverse general market or economic developments, more volatile in price, have wider spreads between their bid and ask prices
and have significantly lower trading volumes than the securities of larger capitalization companies. As such, securities of these
small and mid-cap companies may be less liquid than those of larger companies, and may experience greater price fluctuations than
larger companies. In addition, small-cap or mid-cap company securities may not be widely followed by investors, which may result
in reduced demand.
As
a result, the purchase or sale of more than a limited number of shares of the securities of a small or mid-cap company may affect
its market price. The Investment Adviser may need a considerable amount of time to purchase or sell its positions in these securities,
particularly when other Investment Adviser-managed accounts or other investors are also seeking to purchase or sell them.
The
securities of small and mid-cap companies generally trade in lower volumes and are subject to greater and more unpredictable price
changes than larger capitalization securities or the market as a whole. In addition, small and mid-cap securities may be particularly
sensitive to changes in interest rates, borrowing costs and earnings. Investing in small and mid-cap securities requires a longer-term
view.
Small
and mid-cap companies, due to the size and kinds of markets that they serve, may be less susceptible than large-cap companies
to intervention from the U.S. federal government by means of price controls, regulations or litigation.
Financial
Services Sector Risk.
The Fund has in the past invested, and may
in the future invest, a significant portion of its total assets in securities issued by financial services companies. Financial
services are generally involved in banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage,
asset management and custody, corporate lending, insurance, financial investments, or real estate.
The
profitability of many types of financial services companies may be adversely affected in certain market cycles, including periods
of rising interest rates, which may restrict the availability and increase the cost of capital, and declining economic conditions,
which may cause credit losses due to financial difficulties of borrowers. Financial services companies are also subject to extensive
government regulation, including policy and legislative changes in the United States and other countries.
Additional
risks include the effects of changes in interest rates on the profitability of financial services companies, the rate of corporate
and consumer debt defaults, price competition, governmental limitations on a company’s loans, other financial commitments,
product lines and other operations, and recent ongoing changes in financial services companies (including consolidations, development
of new products and changes to such companies’ regulatory framework). Some financial services companies have recently experienced
significant
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losses
in value and the possible recapitalization of such companies may present greater risks of loss. Insurance companies have additional
risks, such as heavy price competition, claims activity and marketing competition, and can be particularly sensitive to specific
events such as man-made and natural disasters (including weather catastrophes), terrorism, mortality risks and morbidity rates.
U.S.
Government Securities and Credit Rating Downgrade Risk.
The Fund may invest in direct obligations
of the government of the United States or its agencies. Obligations issued or guaranteed by the U.S. government, its agencies,
authorities and instrumentalities and backed by the full faith and credit of the U.S. guarantee only that principal and interest
will be timely paid to holders of the securities. These entities do not guarantee that the value of such obligations will increase,
and, in fact, the market values of such obligations may fluctuate. In addition, not all U.S. government securities are backed
by the full faith and credit of the United States; some are the obligation solely of the entity through which they are issued.
There is no guarantee that the U.S. government would provide financial support to its agencies and instrumentalities if not required
to do so by law.
In
2011, S&P lowered its long term sovereign credit rating on the U.S. to “AA+” from “AAA.” The downgrade
by S&P increased volatility in both stock and bond markets, resulting in higher interest rates and higher Treasury yields,
and increased the costs of all kinds of debt. Repeat occurrences of similar events could have significant adverse effects on the
U.S. economy generally and could result in significant adverse impacts on issuers of securities held by the Fund itself. The Investment
Adviser cannot predict the effects of similar events in the future on the U.S. economy and securities markets or on the Fund’s
portfolio. The Investment Adviser monitors developments and seeks to manage the Fund’s portfolio in a manner consistent
with achieving the Fund’s investment objective, but there can be no assurance that it will be successful in doing so and
the Investment Adviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Prepayment
Risks on Government Sponsored Mortgage-Backed Securities.
The yield and maturity characteristics of
government sponsored mortgage-backed securities differ from traditional debt securities. A major difference is that the principal
amount of the obligations may generally be prepaid at any time because the underlying assets (i.e., loans) generally may be prepaid
at any time. Prepayment risks include the following:
the
relationship between prepayments and interest rates may give some lower grade government sponsored mortgage-backed securities
less potential for growth in value than conventional bonds with comparable maturities;
in
addition, when interest rates fall, the rate of prepayments tends to increase. During such periods, the reinvestment of prepayment
proceeds by the Fund will generally be at lower rates than the rates that were carried by the obligations that have been prepaid;
because
of these and other reasons, a government sponsored mortgage-backed security’s total return and maturity may be difficult
to predict; and
to
the extent that the Fund purchases government sponsored mortgage-backed securities at a premium, prepayments may result in loss
of the Fund’s principal investment to the extent of premium paid.
Foreign
Securities Risk. 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
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uniform
accounting, auditing and financial standards and requirements comparable to those applicable to U.S. companies.
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.
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.
The
following provides more detail on certain pronounced risks with foreign investing:
Foreign
Currency Risk. The Fund may 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
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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 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 objective 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.
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 considerations noted above in “Foreign Securities Risk” are generally intensified for investments
in emerging market countries, including countries that may be considered “frontier” markets. 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
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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 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 net asset value of Fund’s shares.
These factors make investing in frontier countries significantly riskier than in other countries and any one of them could cause
the net asset value 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.
Eurozone
Risk. A number of countries in the EU have experienced, and may continue to experience, severe economic and financial difficulties,
increasing the risk of investing in the European markets. In particular, many EU nations are susceptible to economic risks associated
with high levels of debt, notably due to investments in sovereign debt of countries such as Greece, Italy, Spain, Portugal, and
Ireland. As a result, financial markets in the EU have been subject to increased volatility and declines
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in
asset values and liquidity. Responses to these financial problems by European governments, central banks, and others, including
austerity measures and reforms, may not work, may result in social unrest, and may limit future growth and economic recovery or
have other unintended consequences. Further defaults or restructurings by governments and others of their debt could have additional
adverse effects on economies, financial markets, and asset valuations around the world. Greece, Ireland, and Portugal have already
received one or more “bailouts” from other Eurozone member states, and it is unclear how much additional funding they
will require or if additional Eurozone member states will require bailouts in the future. One or more other countries may also
abandon the euro and/or withdraw from the EU, placing its currency and banking system in jeopardy. The impact of these actions,
especially if they occur in a disorderly fashion, is not clear, but could be significant and far-reaching.
Brexit
Risk. On January 31, 2020, the United Kingdom officially withdrew from the EU, commonly referred to as “Brexit”.
Following a transition period, the United Kingdom and the EU signed a Trade and Cooperation Agreement (“UK/EU Trade Agreement”),
which came into full force on May 1, 2021 and set out the foundation of the economic and legal framework for trade between the
United Kingdom and the EU. As the UK/EU Trade Agreement is a new legal framework, the implementation of the UK/EU Trade Agreement
may result in uncertainty in its application and periods of volatility in both the United Kingdom and wider European markets.
The United Kingdom’s exit from the EU is expected to result in additional trade costs and disruptions in this trading relationship.
Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that regulatory
standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global
financial markets, and adversely affect our ability, and the ability of our portfolio companies, to execute our respective strategies
and to receive attractive returns. In particular, currency volatility may mean that our returns and the returns of our portfolio
companies will be adversely affected by market movements and may make it more difficult, or more expensive, for us to implement
appropriate currency hedging. Potential declines in the value of the British Pound and/or the euro against other currencies, along
with the potential downgrading of the United Kingdom’s sovereign credit rating, may also have an impact on the performance
of any of our portfolio companies located in the United Kingdom or Europe.
In
addition, certain European countries have experienced negative interest rates on certain fixed-income instruments. A negative
interest rate policy is an unconventional central bank monetary policy tool where nominal target interest rates are set with a
negative value (i.e., below zero percent) intended to help create self-sustaining growth in the local economy. Negative interest
rates may result in heightened market volatility and may detract from the Fund’s performance to the extent the Fund is exposed
to such interest rates. Among other things, these developments have adversely affected the value and exchange rate of the euro
and pound sterling, and may continue to significantly affect the economies of all EU countries, which in turn may have a material
adverse effect on the Fund’s investments in such countries, other countries that depend on EU countries for significant
amounts of trade or investment, or issuers with exposure to debt issued by certain EU countries.
To
the extent the Fund has exposure to European markets or to transactions tied to the value of the euro, these events could negatively
affect the value and liquidity of the Fund’s investments. All of these developments may continue to significantly affect
the economies of all EU countries, which in turn may have a material adverse
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effect
on the Fund’s investments in such countries, other countries that depend on EU countries for significant amounts of trade
or investment, or issuers with exposure to debt issued by certain EU countries.
Restricted
and Illiquid Securities. 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. The Fund may be unable to sell
illiquid 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
liquid investments, and may lead to differences between the price a security is valued for determining the Fund’s net asset
value and the price the Fund actually receives upon sale.
Special
Risks Related to Investment in Derivatives. 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 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
to maintain “cover” or to segregate securities in connection with the hedging techniques; and
the
creditworthiness of counterparties.
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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 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 can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and the underlying security, and there can be no assurance that the Fund’s hedging transactions will
be effective.
Derivatives
may give rise to a form of leverage and may expose the Fund to greater risk and increase its costs. Recent legislation calls for
new regulation of the derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some
time. New regulation may make derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect
the value or performance of derivatives.
Short
Sales Risk. Short-selling
involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser, with
an obligation to replace the borrowed securities at a later date. If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction
costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer (usually cash and liquid
securities) and the maintenance of collateral with its Custodian. Although the Fund’s gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.
Short-selling
necessarily involves certain additional risks. However, if the short seller does not own the securities sold short (an uncovered
short sale), the borrowed securities must be replaced by securities purchased at market prices in order to close out the short
position, and any appreciation in the price of the borrowed securities
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would
result in a loss. Uncovered short sales expose the Fund to the risk of uncapped losses until a position can be closed out due
to the lack of an upper limit on the price to which a security may rise. Purchasing securities to close out the short position
can itself cause the price of the securities to rise further, thereby exacerbating the loss. There is the risk that the securities
borrowed by the Fund in connection with a short-sale must be returned to the securities lender on short notice. If a request for
return of borrowed securities occurs at a time when other short-sellers of the security are receiving similar requests, a “short
squeeze” can occur, and the Fund may be compelled to replace borrowed securities previously sold short with purchases on
the open market at the most disadvantageous time, possibly at prices significantly in excess of the proceeds received at the time
the securities were originally sold short.
In
September 2008, in response to spreading turmoil in the financial markets, the SEC temporarily banned short selling in the stocks
of numerous financial services companies, and also promulgated new disclosure requirements with respect to short positions held
by investment managers. The SEC’s temporary ban on short selling of such stocks has since expired, but should similar restrictions
and/or additional disclosure requirements be promulgated, especially if market turmoil occurs, the Fund may be forced to cover
short positions more quickly than otherwise intended and may suffer losses as a result. Such restrictions may also adversely affect
the ability of the Fund to execute its investment strategies generally. Similar emergency orders were also instituted in non-U.S. markets in response to increased volatility. The Fund’s ability to engage in short sales is also restricted by various
regulatory requirements relating to short sales.
Industry
Risk. The Fund may invest
up to 25% of its total assets in securities of a single industry. Should the Fund choose to do so, the net asset value of the
Fund will be more susceptible to factors affecting those particular types of companies, which, depending on the particular industry,
may include, among others: governmental regulation; inflation; cost increases in raw materials, fuel and other operating expenses;
technological innovations that may render existing products and equipment obsolete; and increasing interest rates resulting in
high interest costs on borrowings needed for capital investment, including costs associated with compliance with environmental
and other regulations. In such circumstances, the Fund’s investments may be subject to greater risk and market fluctuation
than a fund that had securities representing a broader range of industries.
Leverage
Risk.
The Fund currently uses financial leverage for investment purposes by issuing preferred shares. As of December 31, 2021, the amount
of leverage represented approximately 14% of the Fund’s net assets. The Fund’s leveraged capital structure creates
special risks not associated with unleveraged funds that have 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 any preferred
shares or debt outstanding. 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 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 the Fund is leveraged in its investment operations, the Fund will be subject to substantial risk of loss. The Fund
cannot assure that borrowings or the issuance of preferred shares or notes will result in a higher yield or return
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to
the holders of the common shares. Also, to the extent 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 Subchapter M of the Code. For more information regarding the risks of a leverage capital structure to
holders of the Fund’s common shares, see “Special Risks to Holders of Common Shares—Leverage Risk.”
Market
Discount Risk. The Fund
is a diversified, closed-end management investment company. Whether investors will realize gains or losses upon the sale of additional
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.
Long
Term Objective; Not a Complete Investment Program. The
Fund is intended for investors seeking long term growth of capital. 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 objective 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.
Dependence
on Key Personnel. The
Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect to the
Fund’s investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the Fund
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.
Market
Disruption and Geopolitical Risk. 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, natural/environmental disasters, terrorist
attacks in the United States and around the world, social and political discord, debt crises sovereign debt downgrades, increasingly
strained relations between the United States 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
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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 United States and worldwide.
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, may in the future
result in additional government shutdowns, which could have a material adverse effect on the Fund’s investments and operations.
In addition, the Fund’s ability to raise additional capital in the future through the sale of securities could be materially
affected by a government shutdown. Additional and/or prolonged U.S. 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.
While
the extreme volatility and disruption that U.S. and global markets experienced for an extended period of time beginning in 2007
and 2008 had, until the recent coronavirus (COVID-19) outbreak, generally subsided, uncertainty and periods of volatility still
remain, and risks to a robust resumption of growth persist. Federal Reserve policy, including with respect to certain interest
rates, may adversely affect the value, volatility and liquidity of dividend and interest paying securities. Market volatility,
dramatic changes to interest rates and/or a return to unfavorable economic conditions may lower the Fund’s performance or
impair the Fund’s ability to achieve its investment objective.
While
the extreme volatility and disruption that U.S. and global markets experienced for an extended period of time beginning in 2007
and 2008 had, until the recent coronavirus (COVID-19) outbreak, generally subsided, uncertainty and periods of volatility still
remain, and risks to a robust resumption of growth persist. Federal Reserve policy, including with respect to certain interest
rates, may adversely affect the value, volatility and liquidity of dividend and interest paying securities. Market volatility,
dramatic changes to interest rates and/or a return to unfavorable economic conditions may lower the Fund’s performance or
impair the Fund’s ability to achieve its investment objective.
As
previously discussed, Brexit has led to volatility in the financial markets of the UK and more broadly across Europe and may also
lead to weakening in consumer, corporate and financial confidence in such markets. The decision made in the British referendum
may also lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility
in the European and global markets. This mid-to long-term uncertainty may have an adverse effect on the economy generally and
on the ability of the Fund and its investments to execute its respective strategies and to receive attractive returns. In particular,
currency volatility may mean that the returns of the Fund and its investments are adversely affected by market movements and may
make it more difficult, or more expensive, for the Fund to execute prudent currency hedging policies. Potential decline in the
value of the British Pound and/or the Euro against other currencies, along with the potential downgrading of the United Kingdom’s
sovereign credit rating, may also have an impact on the performance of portfolio companies or investments located in the UK or
Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have on the
Fund, its investments or its organization more generally.
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
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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, the Biden administration
has indicated that it intends to modify key aspects of the Code, including by increasing corporate and individual tax rates. 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, the Fund’s shares or market conditions generally.
Regulation
and Government Intervention Risk. The
global financial crisis led the U.S. government and certain foreign governments to take a number of unprecedented actions designed
to support certain financial institutions and segments of the financial markets that experienced extreme volatility, and in some
cases a lack of liquidity, including through direct purchases of equity and debt securities. Federal, state and other governments
and certain foreign governments and their regulatory agencies or self-regulatory organizations may take legislative and regulatory
actions that affect the regulation of the instruments in which the Fund invests, or the issuers of such instruments, in ways that
are unforeseeable. Such legislation or regulation may change the way in which the Fund is regulated and could limit or preclude
the Fund’s ability to achieve its investment objective.
The
SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory
structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas,
including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, valuation, enhanced
regulatory and public reporting requirements and the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives
resulting from these efforts could increase the Fund’s expenses and impact its returns to shareholders or, in the extreme
case, impact or limit its use of various portfolio management strategies or techniques and adversely impact the Fund.
On
October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule
18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4
will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used
by funds 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 funds whose use of derivatives is more than a limited specified exposure
amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
In
the aftermath of the global financial crisis, there appears to be a renewed popular, political and judicial focus on finance related
consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case
of transactions between financial institutions and the general public, there may be a greater tendency toward strict interpretation
of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk
allocation and/or where consumers are perceived as not having had an opportunity to exercise informed consent to the transaction.
In the event of conflicting
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interests
between retail investors holding common shares of a closed-end investment company such as the Fund and a large financial institution,
a court may similarly seek to strictly interpret terms and legal rights in favor of retail investors.
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the United
States. 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 address the COVID-19
pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline 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 any, of these actions will be taken or, if taken, their effect on the economy, securities markets or the
financial stability of the United States. 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.
Additional
risks arising from the differences in expressed policy preferences among the various constituencies in the branches of the U.S.
government have led in the past, and may lead in the future, to short term or prolonged policy impasses, which could, and have,
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 an adverse impact on companies in the Fund’s portfolios and consequently on the
value of their securities and the Fund’s net asset values.
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.
Loans
of Portfolio Securities Risk. 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, provided that such loans are callable at any time by the Fund (subject
to notice provisions described herein), and are at all times collateralized in accordance with applicable regulatory requirements.
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 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.
Legal,
Tax and Regulatory Risks. 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
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Fund
and the ability of the Fund to pursue its investment strategies. Similarly, the Biden administration has indicated that it intends
to modify key aspects of the Code, including by increasing corporate and individual tax rates. 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, the Fund must, among other things, meet
certain asset diversification tests, derive in each taxable year at least 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 Declaration of Trust
authorizes it to issue an unlimited number of shares. The Board may make certain amendments to the 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 Agreement and Declaration of Trust and By-Laws of the Fund 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.
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 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
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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 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
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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.
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 to Holders of Fixed Rate 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 additional 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. 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 during such period.
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 for Holders of Auction Rate Preferred Shares
Auction
Risk. Holders of auction rate preferred shares may not be able to sell their auction rate preferred shares at an auction
if the auction fails, i.e., if more auction rate preferred shares are offered for sale than there are buyers for those shares.
Also, if you place an order (a hold order) at an auction to retain auction rate preferred shares only at a specified rate that
exceeds the rate set at the auction, you will not retain your auction rate preferred shares. Additionally, if you place a hold
order without specifying a rate below which you would not wish to continue to hold your shares and the auction sets a below-market
rate, you will receive a lower rate of return on your shares than the market rate. Finally, the dividend period may be changed,
subject to certain conditions and with notice to the holders of the auction rate preferred shares, which could also affect the
liquidity of your investment. Due to recent market disruption, most auction rate preferred share auctions have been unable to
hold successful auctions and holders of such shares have suffered reduced liquidity. Since February 2008, all of the auctions
of our Series B Statements of Preferences, Series C Statements of Preferences and Series E Statements of Preferences have failed.
Holders of our auction rate preferred have continued to receive their dividends on the auction rate preferred shares at the maximum
rate determined by reference to short term rates, rather than at a price set by auction. At present, the maximum rate for Series
B Statements of Preferences
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and
Series C Statements of Preferences is equal to the greater of (a) 150% of or (b) 150 bps over the 7-day LIBOR, and equal to the
greater of (a) 250% of or (b) 250 bps over the 7-day LIBOR for Series E Statements of Preferences. A failed auction is not a default
and the Fund has no obligation to redeem its auction rate preferred shares because the auctions continue to fail. There can be
no assurance that liquidity will improve.
Secondary
Market Risk. Holders of auction rate preferred shares who try to sell their auction rate preferred shares between auctions
may not be able to sell them for their liquidation preference per share or such amount per share plus accumulated dividends. If
the Fund has designated a special dividend period of more than seven days, changes in interest rates could affect the price you
would receive if you sold your shares in the secondary market. Broker-dealers that maintain a secondary trading market for the
auction rate preferred shares are not required to maintain this market, and the Fund is not required to redeem auction rate preferred
shares if either an auction or an attempted secondary market sale fails because of a lack of buyers. The auction rate preferred
shares are and will not be registered on a stock exchange. If you sell your auction rate preferred shares to a broker-dealer between
auctions, you may receive less than the price you paid for them, especially when market interest rates have risen since the last
auction or during a special dividend period.
Special
Risks to Holders of Notes and Preferred Shares
Common
Share Repurchases. Repurchases of common shares by the Fund may reduce the net 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 expects that it would 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, 2021, the Fund made distributions of $1.38 per common share, none 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 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
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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
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
Risk to Holders of Common Shares
Dilution
Risk. If the Fund determines
to conduct a rights offering to subscribe for common shares, holders of common shares may experience dilution of the aggregate
net asset value of their common shares. Such dilution will depend upon whether (i) such shareholders participate in the rights
offering and (ii) the Fund’s net asset value per common share is above or below the subscription price on the expiration
date of the rights offering.
Shareholders
who do not exercise their subscription rights may, at the completion of such an offering, own a smaller proportional interest
in the Fund than if they exercised their subscription rights. As a result of such an offering, a shareholder may experience dilution
in net asset value per share if the subscription price per share is below the net asset value per share on the expiration date.
If the subscription price per share is below the net asset value per share of the Fund’s shares on the expiration date,
a shareholder will experience an immediate dilution of the aggregate net asset value of such shareholder’s shares if the
shareholder does not participate in such an offering and the shareholder will experience a reduction in the net asset value per
share of such shareholder’s shares whether or not the shareholder participates in such an offering. The Fund cannot state
precisely the extent of this dilution (if any) if the shareholder does not exercise such shareholder’s subscription rights
because the Fund does not know what the net asset value per share will be when the offer expires or what proportion of the subscription
rights will be exercised.
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
14% of the Fund’s 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
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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 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
the preferred shares or notes. In order to counteract such an event, the Fund might need to liquidate investments in order to
fund a redemption of some or all of the preferred shares 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. The Prospectus Supplement
relating to any sale of preferred shares will set forth dividend rate on such preferred shares. |
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
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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 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 will be payable when due as described
in a Prospectus Supplement 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 14% of the Fund’s total net assets (the Fund’s average
amount of outstanding financial leverage during the fiscal year ended December 31, 2021), and (2) charge interest or involve dividend
payments at a projected blended annual average leverage dividend or interest rate of 3.71%, then the total return generated by
the Fund’s portfolio (net of estimated expenses) must exceed approximately 0.54% of the Fund’s total |
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
net
assets in order to cover such interest or dividend payments and other expenses specifically related to leverage.
Of
course, these numbers are merely 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. The table further reflects leverage representing 14% of the Fund’s net assets (the Fund’s average amount of
outstanding financial leverage during the fiscal year ended December 31, 2021), the Fund’s current projected blended annual
average leverage dividend or interest rate of 3.71% (the average dividend rate on the Fund’s outstanding financial leverage
during the fiscal year ended December 31, 2021), a base management fee at an annual rate of 1.00% and estimated annual incremental
expenses attributable to any outstanding preferred shares of approximately 0.01% of the Fund’s net assets attributable to
common shares. 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.
| Assumed
Return on Portfolio (Net of |
|
|
|
|
|
| Expenses) |
(10)% |
(5)% |
0% |
5% |
10% |
| Corresponding
Return to Common |
|
|
|
|
|
| Shareholder |
(12.50)% |
(6.65)% |
(0.81)% |
5.03% |
10.87% |
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 above in “–General Risks—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.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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.
INVESTMENT
POLICIES
Additional
Investment Policies
Options.
The Fund may 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. The Fund may purchase call or put options as long as the aggregate initial
margins and premiums, measured at the time of such investment, do not exceed 10% of the fair market value of the Fund’s
total assets.
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 on the same instrument as the call written where the exercise price of the call held is (i) equal to
or less than the exercise price of the call written or (ii) greater than the exercise price of the call 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 obligations
with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same instrument
as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written.
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 on the same instrument as the call written where the exercise price of the call held is (i) equal to
or less than the exercise price of the call written or (ii) greater than the exercise price of the call written if the difference
is maintained by the Fund in cash, U.S.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 obligations with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same instrument as the put written where the exercise price of the put
held is equal to or greater than the exercise price of the put 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.
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 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 which provides a secondary market for an option of the same series or in
a private transaction. Although the Fund generally purchases or writes 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, so that 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, or less than, in the case
of a put, the exercise price of the option.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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. Currency options may
be subject to position limits which 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 which 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, without limit, enter into futures
contracts or options on futures contracts. 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.
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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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, or is less than, in the case of a put, the exercise price of the
option on the futures contract. The potential loss related to the purchase of an option on futures contracts 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; losses from investing in futures
transactions that are potentially unlimited; and the segregation requirements described below.
In
the event the Fund sells a put option or enters into long futures contracts, under current interpretations of the 1940 Act, an
amount of cash, U.S. government securities or other liquid assets equal to the market value of the contract must be deposited
and maintained in a segregated account with the Fund’s custodian to collateralize the positions, in order for the Fund to
avoid being treated as having issued a senior security in the amount of its obligations. For short positions in futures contracts
and sales of call options, the Fund may establish a segregated account (not with a futures commission merchant or broker) with
cash, U.S. government securities or other liquid assets that, when added to amounts deposited with a futures commission merchant
or a broker as margin, equal the market value of the instruments or currency underlying the futures contracts or call options,
respectively (but are not less than the stock price of the call option or the market price at which the short positions were established).
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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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.
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 which 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
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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.
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 as 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.
Traditional
Preferred Securities. Traditional
preferred securities generally pay fixed or adjustable rate dividends to investors and generally have a “preference”
over common stock in the payment of dividends and the liquidation of a company’s assets. This means that a company must
pay dividends on preferred stock before paying any dividends on its common stock. In order to be payable, distributions on such
preferred securities must be declared by the issuer’s board of directors. Income payments on typical preferred securities
currently outstanding are cumulative, causing dividends and distributions to accumulate even if not declared by the board of directors
or otherwise made payable. In such a case all accumulated dividends must be paid before any dividend on the common stock can be
paid. However, some traditional preferred stocks are non-cumulative, in which case 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 stock held by
the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays may be adversely affected. There
is no assurance that dividends or distributions on the preferred securities in which the Fund invests will be declared or otherwise
made payable.
Preferred
shareholders usually have no right to vote for corporate directors or on other matters. Shares of preferred stock have a liquidation
value that generally equals the original purchase price at the date of issuance.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
The
market value of preferred securities may be affected by favorable and unfavorable changes impacting companies in which the Fund
invests and by actual and anticipated changes in tax laws, such as changes in corporate income tax rates or the “Dividends
Received Deduction.” Because the claim on an issuer’s earnings represented by preferred securities may become onerous
when interest rates fall below the rate payable on such securities, the issuer may redeem the securities. Thus, in declining interest
rate environments in particular, the Fund’s holdings, if any, of higher rate-paying fixed rate preferred securities may
be reduced and the Fund may be unable to acquire securities of comparable credit quality paying comparable rates with the redemption
proceeds.
Trust
Preferred Securities.
The Fund may invest in trust preferred securities.
Trust preferred securities are typically issued by corporations, generally in the form of interest bearing notes with preferred
securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests
in subordinated debentures or similarly structured securities. The trust preferred securities market consists of both fixed and
adjustable coupon rate securities that are either perpetual in nature or have stated maturity dates.
Trust
preferred securities are typically junior and fully subordinated liabilities of an issuer and benefit from a guarantee that is
junior and fully subordinated to the other liabilities of the guarantor. In addition, trust preferred securities typically permit
an issuer to defer the payment of income for five years or more without triggering an event of default. Because of their subordinated
position in the capital structure of an issuer, the ability to defer payments for extended periods of time without default consequences
to the issuer, and certain other features (such as restrictions on common dividend payments by the issuer or ultimate guarantor
when full cumulative payments on the trust preferred securities have not been made), these trust preferred securities are often
treated as close substitutes for traditional preferred securities, both by issuers and investors. Trust preferred securities have
many of the key characteristics of equity due to their subordinated position in an issuer’s capital structure and because
their quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets
or cash flows.
Trust
preferred securities include but are not limited to trust originated preferred securities (“TOPRS®”); monthly
income preferred securities (“MIPS®”); quarterly income bond securities (“QUIBS®” ); quarterly
income debt securities (“QUIDS®”); quarterly income preferred securities (“QUIPSSM”); corporate trust
securities (“CORTS®”); public income notes (“PINES®”); and other trust preferred securities.
Trust
preferred securities are typically issued with a final maturity date, although some are perpetual in nature. In certain instances,
a final maturity date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a
specified time without default. No redemption can typically take place unless all cumulative payment obligations have been met,
although issuers may be able to engage in open-market repurchases without regard to whether all payments have been paid.
Trust
preferred securities are typically issued with a final maturity date, although some are perpetual in nature. In certain instances,
a final maturity date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a
specified time without default. No redemption can typically take place unless all cumulative payment obligations have been met,
although issuers may be able to engage in open-market repurchases without regard to whether all payments have been paid.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Many
trust preferred securities are issued by trusts or other special purpose entities established by operating companies and are not
a direct obligation of an operating company. At the time the trust or special purpose entity sells such preferred securities to
investors, it purchases debt of the operating company (with terms comparable to those of the trust or special purpose entity securities),
which enables the operating company to deduct for tax purposes the interest paid on the debt held by the trust or special purpose
entity. The trust or special purpose entity is generally required to be treated as transparent for Federal income tax purposes
such that the holders of the trust preferred securities are treated as owning beneficial interests in the underlying debt of the
operating company. Accordingly, payments on the trust preferred securities are treated as interest rather than dividends for Federal
income tax purposes. The trust or special purpose entity in turn would be a holder of the operating company’s debt and would
have priority with respect to the operating company’s earnings and profits over the operating company’s common shareholders,
but would typically be subordinated to other classes of the operating company’s debt. Typically a preferred share has a
rating that is slightly below that of its corresponding operating company’s senior debt securities.
Convertible
Securities.
A convertible security entitles the holder to exchange such security for a fixed number of shares of common stock or other equity
security, usually of the same company, at fixed prices within a specified period of time and to receive the fixed income of a
bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. The fixed income
or dividend component of a convertible security is referred to as the security’s “investment value.”
A
convertible security’s position in a company’s capital structure depends upon its particular provisions. In the case
of subordinated convertible debentures, the holder’s claims on assets and earnings are subordinated to the claims of others
and are senior to the claims of common stockholders.
To
the degree that the price of a convertible security rises above its investment value because of a rise in price of the underlying
common stock, the value of such security is influenced more by price fluctuations of the underlying common stock and less by its
investment value. The price of a convertible security that is supported principally by its conversion value will rise along with
any increase in the price of the common stock, and such price generally will decline along with any decline in the price of the
common stock except that the security will receive additional support as its price approaches investment value. A convertible
security purchased or held at a time when its price is influenced by its conversion value will produce a lower yield than nonconvertible
senior securities with comparable investment values. Convertible securities may be purchased by the Fund at varying price levels
above their investment values and/or their conversion values in keeping with the Fund’s investment objective.
Many
convertible securities in which the Fund will invest have call provisions entitling the issuer to redeem the security at a specified
time and at a specified price. This is one of the features of a convertible security which affects valuation. Calls may vary from
absolute calls to provisional calls. Convertible securities with superior call protection usually trade at a higher premium. If
long term interest rates decline, the interest rates of new convertible securities will also decline. Therefore, in a falling
interest rate environment, companies may be expected to call convertible securities with high coupons and the Fund would have
to invest the proceeds from such called issues in securities with lower coupons. Thus, convertible securities with superior call
protection will permit the Fund to maintain a higher yield than with issues without call protection.
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Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Small-and Mid-Capitalization Company Risk. In
addition to the risks described in the Prospectus, investments in small-and mid-cap company stocks may be subject to the following
risks.
Small-
and Mid-Cap Stock Risk. Small- and mid-cap company stocks can be more volatile than, and perform differently from, larger
company stocks. There may be less trading in a small- or mid-cap company’s stock, which means that buy and sell transactions
in that stock could have a larger impact on the stock’s price than is the case with larger company stocks. Small- and mid-cap
company stocks may be particularly sensitive to changes in interest rates, borrowing costs and earnings. Small- and mid-cap companies
may have fewer business lines; changes in any one line of business, therefore, may have a greater impact on a small- and mid-cap
company’s stock price than is the case for a larger company. As a result, the purchase or sale of more than a limited number
of shares of a small- and mid-cap company may affect its market price. The Fund may need a considerable amount of time to purchase
or sell its positions in these securities. In addition, small- and mid-cap company stocks may not be well known to the investing
public.
Unseasoned
Companies Investment Risk. The Fund may invest in the securities of smaller, less seasoned companies. These investments may
present greater opportunities for growth but also involve greater risks than customarily are associated with investments in securities
of more established companies. Some of the companies in which the Fund may invest will be start-up companies which may have insubstantial
operational or earnings history or may have limited products, markets, financial resources or management depth. Some may also
be emerging companies at the research and development stage with no products or technologies to market or approved for marketing.
In addition, it is more difficult to get information on smaller companies, which tend to be less well known, have shorter operating
histories, do not have significant ownership by large investors and are followed by relatively few securities analysts. Securities
of emerging companies may lack an active secondary market and may be subject to more abrupt or erratic price movements than securities
of larger, more established companies or stock market averages in general. Competitors of certain companies, which may or may
not be in the same industry, may have substantially greater financial resources than many of the companies in which the Fund may
invest.
Small-Cap
and Emerging Growth Companies Investment Risk. Investment in smaller or emerging growth companies involves greater risk than
is customarily associated with investments in more established companies. The securities of smaller or emerging growth companies
may be subject to more abrupt or erratic market movements than larger, more established companies or the market average in general.
These companies may have limited product lines, markets or financial resources, or they may be dependent on a limited management
group.
While
small-cap or emerging growth company issuers may offer greater opportunities for capital appreciation than large-cap issuers,
investments in smaller or emerging growth companies may involve greater risks and thus may be considered speculative. Fund management
believes that properly selected companies of this type have the potential to increase their earnings or market valuation at a
rate substantially in excess of the general growth of the economy. Full development of these companies and trends frequently takes
time.
The
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Additional Fund Information (Continued) (Unaudited)
Small-cap
and emerging growth securities will often be traded only in the OTC market or on a regional securities exchange and may not be
traded every day or in the volume typical of trading on a national securities exchange. As a result, the disposition by the Fund
of portfolio securities may require the Fund to make many small sales over a lengthy period of time, or to sell these securities
at a discount from market prices or during periods when, in Fund management’s judgment, such disposition is not desirable.
The
process of selection and continuous supervision by Fund management does not, of course, guarantee successful investment results;
however, it does provide access to an asset class not available to the average individual due to the time and cost involved. Careful
initial selection is particularly important in this area as many new enterprises have promise but lack certain fundamental factors
necessary to prosper. Investing in small-cap and emerging growth companies requires specialized research and analysis. In addition,
many investors cannot invest sufficient assets in such companies to provide wide diversification.
Small-cap
companies are generally little known to most individual investors although some may be dominant in their respective industries.
The Fund may invest in securities of small issuers in the relatively early stages of business development that have a new technology,
a unique or proprietary product or service, or a favorable market position. Such companies may not develop into major industrial
companies or provide the level of returns anticipated.
Equity
securities of specific small-cap issuers may present different opportunities for long term capital appreciation during varying
portions of economic or securities market cycles, as well as during varying stages of their business development. The market valuation
of small-cap issuers tends to fluctuate during economic or market cycles, presenting attractive investment opportunities at various
points during these cycles.
Forward
Foreign Currency Exchange Contracts. 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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
into
a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount where 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 which the Investment Adviser believes to be creditworthy institutions.
Under
current interpretations of the SEC and its staff under the 1940 Act, the Fund must segregate with its custodian liquid assets,
or engage in other SEC or staff approved measures, to “cover” open positions in certain types of derivative instruments.
The purpose of these requirements is to prevent the Fund from incurring excessive leverage through such instruments. In the case
of futures and forward contracts, for example, that are not required as a result of one or more contractual arrangements to settle
for cash only in an amount equal to the change in value of the contract over its term but rather may settle through physical delivery
or in the notional amount, the Fund must segregate liquid assets equal to such contract’s full notional value while its
position is open. With respect to contracts that the Fund is contractually obligated to settle for cash in an amount equal to
the change in value of the contract, the Fund needs to segregate liquid assets only in an amount equal to the Fund’s unpaid
mark to market obligation rather than the entire notional amount. This is because the Fund’s maximum potential obligation
at that point in time is its net unpaid mark to market obligation rather than the full notional amount.
Securities
of Investment Companies. To the extent permitted by law, the Fund may invest in investment company securities, including preferred
shares and the common equity of such companies. Investments in the common equity of investment companies will cause the Fund to
bear a 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 any securities of another investment company.
In these circumstances, holders of the Fund’s common shares will be subject to duplicative investment expenses.
Warrants
and Rights.
The Fund may invest in warrants and rights (including those acquired in units or attached to other securities) which entitle the
holder to buy equity securities at a specific price for or at the end of a specific period of time. The Fund will do so only if
the underlying equity securities are deemed appropriate by the Investment Adviser for inclusion in the Fund’s portfolio.
Investing
in rights and warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security,
and thus can be a riskier investment. The value of a right or warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or other policies of the Fund whose equity underlies
the warrant, a change in the perception as
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Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
to
the future price of the underlying security, or any combination thereof. Rights and warrants generally pay no dividends and confer
no voting or other rights other than the right to purchase the underlying security.
Asset-Backed
and Mortgage-Backed Securities. The
Fund may invest in asset-backed and mortgage-backed securities, although investments in asset-or mortgage-backed securities do
not constitute a substantial part of the Fund’s investment portfolio.
Mortgage-backed
securities are securities that indirectly represent a participation in, or are secured by and payable from, a pool of mortgage
loans secured by real property. Aggregate principal and interest payments received from the pool are used to pay principal and
interest on a mortgage-backed security. Mortgage-backed securities may be more volatile than other fixed income securities and
are subject to prepayment risk which can result in the Fund failing to recoup all of its investment or achieving lower than expected
returns.
Asset-backed
securities are securities, which through the use of trusts and special purpose vehicles, are securitized with various types of
assets such as automobile receivables, credit card receivables, home equity loans, leases or royalties in pass-through structures
similar to mortgage-backed securities. In general, the collateral supporting asset-backed securities is of shorter maturity than
the collateral supporting mortgage loans and is less likely to experience substantial prepayments. However, asset-backed securities
are not backed by any governmental agency.
Prepayments
of principal generally may be made at any time without penalty on residential mortgages and these prepayments are passed through
to holders of one or more of the classes of mortgage-backed securities. Prepayment rates may change rapidly and greatly, thereby
affecting yield to maturity, reinvestment risk, and market value of the mortgage backed securities. As a result, the high credit
quality of many of these securities may provide little or no protection against loss in market value, and there have been periods
during which many mortgage backed securities have experienced substantial losses in market value. The Investment Adviser believes
that, under certain circumstances, many of these securities may trade at prices below their inherent value on a risk-adjusted
basis and believes that selective purchases by a Fund may provide high yield and total return in relation to risk levels.
Prepayments
of principal may be made at any time on the obligations underlying asset-and mortgage-backed securities and are passed on to
the holders of the asset- and mortgage-backed securities. As a result, if the Fund purchases such a security at a premium, faster
than expected prepayments will reduce and slower than expected prepayments will increase yield to maturity. Conversely, if the
Fund purchases these securities at a discount, faster than expected prepayments will increase and slower than expected prepayments
will reduce yield to maturity.
Sovereign
Government and Supranational Debt. The
Fund may invest in all types of debt securities of governmental issuers in all countries, including emerging market countries.
These sovereign debt securities may include: debt securities issued or guaranteed by governments, governmental agencies or instrumentalities
and political subdivisions located in emerging market countries; debt securities issued by government owned, controlled or sponsored
entities located in emerging market countries; interests in entities organized and operated for the purpose of restructuring the
investment characteristics of instruments issued by any of the above issuers; or debt securities issued by supranational entities
such as the World Bank. A supranational entity
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Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
is
a bank, commission or company established or financially supported by the national governments of one or more countries to promote
reconstruction or development.
Sovereign
government and supranational debt involve all the risks described in the Prospectus regarding foreign and emerging markets investments
as well as the risk of debt moratorium, repudiation or renegotiation. In addition, investments in sovereign debt involve special
risks. Foreign governmental issuers of debt or the governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or pay interest when due. In the event of default, there may be limited or no legal recourse in
that, generally, remedies for defaults must be pursued in the courts of the defaulting party. Political conditions, especially
a sovereign entity’s willingness to meet the terms of its debt obligations, are of considerable significance. The ability
of a foreign sovereign issuer, especially an emerging market country, to make timely payments on its debt obligations will also
be strongly influenced by the sovereign issuer’s balance of payments, including export performance, its access to international
credit facilities and investments, fluctuations of interest rates and the extent of its foreign reserves. The cost of servicing
external debt will also generally be adversely affected by rising international interest rates, as many external debt obligations
bear interest at rates which are adjusted based upon international interest rates. Also, there can be no assurance that the holders
of commercial bank loans to the same sovereign entity may not contest payments to the holders of sovereign debt in the event of
default under commercial bank loan agreements. In addition, there is no bankruptcy proceeding with respect to sovereign debt on
which a sovereign has defaulted and the Fund may be unable to collect all or any part of its investment in a particular issue.
Foreign investment in certain sovereign debt is restricted or controlled to varying degrees, including requiring governmental
approval for the repatriation of income, capital or proceeds of sales by foreign investors. These restrictions or controls may
at times limit or preclude foreign investment in certain sovereign debt and increase the costs and expenses of the Fund.
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, 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’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. 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 day’s 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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 counter party 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.
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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
“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 CEA with a clearing broker registered as a “futures commission merchant”
(“FCM”). The CEA 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
CEA requires each FCM to hold in a separate secure account all funds received from customers with 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 CEA requires a clearing organization approved by the Commodity Futures Trading Commission (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 and options contracts, a clearing organization may use assets of a
non-defaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting
customer of the clearing member to the clearing organization. As a result, in the event of a default or the clearing broker’s
other clients or the clearing broker’s failure to extend own funds in connection with any such default, the Fund would not
be able to recover the full amount of assets deposited by the clearing broker on its behalf with the clearing organization.
Dodd-Frank
Act Risk. Title VII of
the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act) (the “Derivatives Title”)
imposed a new regulatory structure on derivatives markets, with particular emphasis on swaps and security-based swaps (collectively
“swaps”), which are subject to oversight by the CFTC and by the SEC, respectively. The regulatory framework covers
a broad range of swap market participants, including banks, non-banks, credit unions, insurance companies, broker-dealers and
investment advisers.
The
SEC, other U.S. regulators, and to a lesser extent the CFTC (the “Regulators”) still are in the process of adopting
regulations, making determinations and providing guidance to implement the Derivatives Title, though certain aspects of the new
regulatory structure are substantially complete. Until the Regulators complete their rulemaking efforts, the full extent to which
the Derivatives Title and the rules adopted thereunder will impact the Funds is unclear. It is possible that the continued development
of this new regulatory structure for swaps may jeopardize certain trades and/or trading strategies that may be employed by the
Fund, or at least make them more costly.
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Current
regulations require the mandatory central clearing and mandatory exchange trading of particular types of interest rate swaps and
index credit default swaps (together, “Covered Swaps”). Together, these new regulatory requirements change the fund’s
trading of Covered Swaps. With respect to mandatory central clearing, the Fund is now required to clear its Covered Swaps through
a clearing broker, which requires, among other things, posting initial margin and variation margin to the Fund’s clearing
broker in order to enter into and maintain positions in Covered Swaps. With respect to mandatory exchange trading, the Fund may
be required to become a participant of a type of execution platform called a swap execution facility (“SEF”) or may
be required to access the SEF through an intermediary (such as an executing broker) in order to be able to trade Covered Swaps
for the Fund. In either scenario, the Fund may incur additional legal and compliance costs and transaction fees. Just as with
the other regulatory changes imposed as a result of the implementation of the Derivatives Title, the increased costs and fees
associated with trading Covered Swaps may jeopardize certain trades and/or trading strategies that may be employed by the Fund,
or at least make them more costly.
Additionally,
the Regulators have finalized regulations with a phased implementation that may require swap dealers to collect from, and post
to, the Fund variation margin (and initial margin, if the Fund exceeds a specified exposure threshold) for uncleared derivatives
transactions in certain circumstances. U.S. federal banking regulators have also finalized regulations that would impose upon
swap dealers new capital requirements. The CFTC and SEC have adopted capital requirements for swap dealers, and the SEC has finalized
its uncleared margin rules. Such requirements may make certain types of trades and/or trading strategies more costly or impermissible.
There
may be market dislocations due to uncertainty during the implementation period of any new regulation and the Fund cannot know
how the derivatives market will adjust to new regulations. Until the Regulators complete the rulemaking process for the Derivatives
Title, it is unknown the extent to which such risks may materialize.
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 objective. 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 objective 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 objective.
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 purchases or sells 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
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 may be,
but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time
when it is disadvantageous to do so.
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 was 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.
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 United States, may not involve a clearing mechanism and related guarantees, and
are subject to the risk
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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 Fund’s ability 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) lesser trading
volume.
Exchanges
on which options, futures and options on futures are traded may impose limits on the positions that the Fund may take in certain
circumstances.
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.
INVESTMENT
RESTRICTIONS
The
Fund operates under the following restrictions that constitute fundamental policies under the 1940 Act that, except as otherwise
noted, cannot be changed without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding voting securities
(voting together as a single class) of the Fund. The Fund has issued preferred shares and may in the future issue additional series
of preferred shares. Accordingly, the affirmative vote of the holders of a majority, as defined in the 1940 Act, of the outstanding
preferred shares of the Fund voting as a separate class would also be 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. The Fund may not:
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;
purchase
commodities or commodity contracts if such purchase would result in regulation of the Fund as a commodity pool operator;
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 lend money or other
property to other investment 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
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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.
The
Fund may become subject to rating agency guidelines that are more limiting than its current investment restrictions in order to
obtain and maintain a desired rating on its preferred shares, if any. Neither the Fund’s investment objective nor, except
as expressly stated above, any of its policies are fundamental, and each may be modified by the Board without shareholder approval.
With
respect to investment restriction (2), the Fund may only sell commodities or commodity contracts to the extent consistent with
maintaining its or the Investment Adviser’s exclusion from “commodity pool operator” status under CFTC Rule
4.5. See “Investment Policies—Additional Risks Relating to Derivative Investments—Limitations on the Purchase
and Sale of Futures Contracts and Options on Futures Contracts.”
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.” Certain trading practices and
investments, such as reverse repurchase agreements, may be considered to be borrowings or involve leverage and thus are
subject to the 1940 Act restrictions. In accordance with SEC staff guidance and interpretations, when the Fund engages in
certain such transactions, other than reverse repurchase agreements, the Fund, instead of maintaining asset coverage of at
least 300%, may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to the
Fund’s exposure to the transaction (as calculated pursuant to requirements of the SEC). From the outset of the
transaction, in accordance with 1940 Act Release 10666, “Securities Trading Practices of Registered Investment
Companies” (April 18, 1979), for reverse repurchase agreements, the Fund will segregate the full amount of the
Fund’s actual or potential cash payment obligations that the Fund will owe at settlement. The investment restriction in
(5) above will be interpreted to permit the Fund to (a) engage in trading practices and investments that may be considered to
be borrowing or to involve leverage to the extent permitted by the 1940 Act, (b) segregate or earmark liquid assets or
enter into offsetting positions in accordance with SEC staff guidance and interpretations, (c) engage in securities lending
in accordance with SEC staff guidance and interpretations and (d) 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 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. The 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
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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