UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21423
The Gabelli Dividend & Income Trust
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-422-3554
Date of fiscal year end: December 31
Date of reporting period: December 31, 2020
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
| (a) | The Report to Shareholders is attached herewith. |
The
Gabelli Dividend & Income Trust
Annual Report — December 31, 2020
To Our Shareholders,
For the year ended December 31, 2020, the net asset value (NAV) total return of The Gabelli Dividend & Income Trust (the Fund) was 10.5%, compared with a total return of 18.4% for the Standard & Poor’s (S&P) 500 Index. The total return for the Fund’s publicly traded shares was 5.1%. The Fund’s NAV per share was $25.02, while the price of the publicly traded shares closed at $21.46 on the New York Stock Exchange (NYSE). See below for additional performance information.
Enclosed are the financial statements, including the schedule of investments, as of December 31, 2020.
Comparative Results
Average Annual Returns through December 31, 2020 (a) (Unaudited)
| 1 Year | 5 Year | 10 Year |
Since
Inception (11/28/03) |
||||||
| Gabelli Dividend & Income Trust (GDV) | |||||||||
| NAV Total Return (b) | 10.47 | % | 9.46 | % | 9.79 | % | 8.01 | % | |
| Investment Total Return (c) | 5.06 | 10.04 | 10.54 | 7.69 | |||||
| S&P 500 Index | 18.40 | 15.22 | 13.88 | 9.92 | |||||
| Dow Jones Industrial Average | 9.92 | 14.64 | 12.93 | 9.59 | |||||
| Nasdaq Composite Index | 44.91 | 22.18 | 18.54 | 12.85 | (d) |
| (a) | Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. The Fund’s use of leverage may magnify the volatility of net asset value changes versus funds that do not employ leverage. When shares are sold, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The Dow Jones Industrial Average is an unmanaged index of 30 large capitalization stocks. The S&P 500 and the Nasdaq Composite Indices are unmanaged indicators of stock market performance. Dividends are considered reinvested except for the Nasdaq Composite Index. You cannot invest directly in an index. |
| (b) | Total returns and average annual returns reflect changes in the NAV per share and reinvestment of distributions at NAV on the ex-dividend date and adjustment for the spin-off and are net of expenses. Since inception return is based on an initial NAV of $19.06. |
| (c) | Total returns and average annual returns reflect changes in closing market values on the NYSE, reinvestment of distributions and adjustment for the spin-off. Since inception return is based on an initial offering price of $20.00. |
| (d) | From November 30, 2003, the date closest to the Fund’s inception for which data is available. |
| Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.gabelli.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive all future reports on paper free of charge, please contact your financial intermediary, or, if you invest directly with the Fund, you may call 800-422-3554 or send an email request to info@gabelli.com. |
Summary of Portfolio Holdings (Unaudited)
The following table presents portfolio holdings as a percent of total investments as of December 31, 2020:
The Gabelli Dividend & Income Trust
| Financial Services | 16.4% |
| Food and Beverage | 11.2% |
| Health Care | 9.9% |
| Computer Software and Services | 6.4% |
| Consumer Products | 4.3% |
| Electronics | 3.7% |
| Business Services | 3.5% |
| Diversified Industrial | 3.5% |
| Retail | 3.3% |
| Telecommunications | 3.1% |
| Entertainment | 2.7% |
| Machinery | 2.5% |
| Specialty Chemicals | 2.4% |
| Automotive: Parts and Accessories | 2.2% |
| Equipment and Supplies | 1.9% |
| Aerospace | 1.8% |
| Energy and Utilities: Oil | 1.8% |
| Environmental Services | 1.8% |
| U.S. Government Obligations | 1.8% |
| Energy and Utilities: Integrated | 1.7% |
| Building and Construction | 1.6% |
| Cable and Satellite | 1.6% |
| Metals and Mining | 1.3% |
| Consumer Services | 1.2% |
| Energy and Utilities: Natural Gas | 1.1% |
| Computer Hardware | 1.1% |
| Broadcasting | 0.9% |
| Transportation | 0.8% |
| Semiconductors | 0.7% |
| Automotive | 0.6% |
| Energy and Utilities: Electric | 0.6% |
| Hotels and Gaming | 0.4% |
| Communications Equipment | 0.4% |
| Aviation: Parts and Services | 0.4% |
| Real Estate | 0.4% |
| Energy and Utilities: Services | 0.3% |
| Energy and Utilities: Water | 0.3% |
| Energy and Utilities | 0.2% |
| Wireless Communications | 0.1% |
| Paper and Forest Products | 0.1% |
| Closed-End Funds | 0.0%* |
| Publishing | 0.0%* |
| Agriculture | 0.0%* |
| 100.0% |
| * | Amount represents less than 0.05%. |
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the SEC) for the first and third quarters of each year on Form N-PORT. Shareholders may obtain this information at www.gabelli.com or by calling the Fund at 800-GABELLI (800-422-3554). The Fund’s Form N-PORT is available on the SEC’s website at www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330.
Proxy Voting
The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 of each year. A description of the Fund’s proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI (800-422-3554); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC’s website at www.sec.gov.
2
The
Gabelli Dividend & Income Trust
Schedule of Investments — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS — 97.4% | ||||||||||||
| Aerospace — 1.8% | ||||||||||||
| 245,000 | Aerojet Rocketdyne Holdings Inc.† | $ | 3,038,786 | $ | 12,948,250 | |||||||
| 12,000 | HEICO Corp. | 979,419 | 1,588,800 | |||||||||
| 70,000 | Howmet Aerospace Inc. | 1,357,386 | 1,997,800 | |||||||||
| 25,000 | Kaman Corp. | 742,013 | 1,428,250 | |||||||||
| 8,000 | Raytheon Technologies Corp. | 491,461 | 572,080 | |||||||||
| 69,000 | Rockwell Automation Inc. | 2,454,717 | 17,305,890 | |||||||||
| 1,556,666 | Rolls-Royce Holdings plc† | 3,201,864 | 2,368,224 | |||||||||
| 43,800 | The Boeing Co. | 8,967,049 | 9,375,828 | |||||||||
| 21,232,695 | 47,585,122 | |||||||||||
| Agriculture — 0.0% | ||||||||||||
| 5,000 | Corteva Inc. | 156,047 | 193,600 | |||||||||
| Automotive — 0.6% | ||||||||||||
| 50,000 | Ford Motor Co. | 639,713 | 439,500 | |||||||||
| 40,000 | General Motors Co. | 1,569,250 | 1,665,600 | |||||||||
| 175,000 | Navistar International Corp.† | 4,271,601 | 7,693,000 | |||||||||
| 74,000 | PACCAR Inc. | 3,329,867 | 6,384,720 | |||||||||
| 5,500 | Traton SE | 134,224 | 151,885 | |||||||||
| 9,944,655 | 16,334,705 | |||||||||||
| Automotive: Parts and Accessories — 2.2% | ||||||||||||
| 60,676 | Aptiv plc | 3,671,564 | 7,905,476 | |||||||||
| 227,932 | Dana Inc. | 3,914,759 | 4,449,233 | |||||||||
| 85,000 | Garrett Motion Inc.† | 471,707 | 376,550 | |||||||||
| 311,000 | Genuine Parts Co. | 20,923,204 | 31,233,730 | |||||||||
| 6,000 | Lear Corp. | 713,500 | 954,180 | |||||||||
| 20,000 | O’Reilly Automotive Inc.† | 4,727,092 | 9,051,400 | |||||||||
| 115,000 | Tenneco Inc., Cl. A† | 966,430 | 1,219,000 | |||||||||
| 25,000 | Velodyne Lidar Inc.† | 212,614 | 570,500 | |||||||||
| 8,000 | Visteon Corp.† | 600,578 | 1,004,160 | |||||||||
| 36,201,448 | 56,764,229 | |||||||||||
| Aviation: Parts and Services — 0.4% | ||||||||||||
| 51,000 | L3Harris Technologies Inc. | 4,559,941 | 9,640,020 | |||||||||
| Broadcasting — 0.9% | ||||||||||||
| 56,121 | Liberty Broadband Corp.,Cl. C† | 4,393,886 | 8,887,883 | |||||||||
| 15,000 | Liberty Global plc, Cl. A† | 382,640 | 363,300 | |||||||||
| 276,070 | Liberty Global plc, Cl. C† | 6,623,674 | 6,529,055 | |||||||||
| 103,000 | Liberty Media Corp.-Liberty SiriusXM, Cl. C† | 3,685,102 | 4,481,530 | |||||||||
| 60,000 | MSG Networks Inc., Cl. A† | 688,976 | 884,400 | |||||||||
| 72,000 | Sinclair Broadcast Group Inc., Cl. A | 2,153,892 | 2,293,200 | |||||||||
| 17,928,170 | 23,439,368 | |||||||||||
| Building and Construction — 1.6% | ||||||||||||
| 13,000 | Arcosa Inc. | 414,150 | 714,090 | |||||||||
| 12,000 | Carrier Global Corp. | 331,671 | 452,640 | |||||||||
| Shares | Cost |
Market
Value |
||||||||||
| 79,000 | Fortune Brands Home & Security Inc. | $ | 1,473,551 | $ | 6,771,880 | |||||||
| 284,050 | Herc Holdings Inc.† | 9,190,925 | 18,863,761 | |||||||||
| 205,700 | Johnson Controls International plc | 8,686,543 | 9,583,563 | |||||||||
| 11,200 | Sika AG | 1,438,180 | 3,059,031 | |||||||||
| 10,000 | United Rentals Inc.† | 1,277,056 | 2,319,100 | |||||||||
| 22,812,076 | 41,764,065 | |||||||||||
| Business Services — 3.5% | ||||||||||||
| 20,000 | Aramark | 526,281 | 769,600 | |||||||||
| 49,000 | Diebold Nixdorf Inc.† | 415,645 | 522,340 | |||||||||
| 129,546 | Fly Leasing Ltd., ADR† | 1,720,513 | 1,276,028 | |||||||||
| 7,500 | Jardine Matheson Holdings Ltd. | 428,885 | 420,000 | |||||||||
| 50,000 | JCDecaux SA† | 1,470,120 | 1,137,967 | |||||||||
| 545,000 | Macquarie Infrastructure Corp. | 23,057,316 | 20,464,750 | |||||||||
| 162,500 | Mastercard Inc., Cl. A | 14,067,263 | 58,002,750 | |||||||||
| 25,803 | Steel Partners Holdings LP† | 174,572 | 277,382 | |||||||||
| 25,000 | Stericycle Inc.† | 1,395,096 | 1,733,250 | |||||||||
| 28,600 | Visa Inc., Cl. A | 3,471,281 | 6,255,678 | |||||||||
| 46,726,972 | 90,859,745 | |||||||||||
| Cable and Satellite — 1.5% | ||||||||||||
| 47,000 | AMC Networks Inc., Cl. A† | 1,697,711 | 1,681,190 | |||||||||
| 2,445 | Charter Communications Inc., Cl. A† | 347,387 | 1,617,490 | |||||||||
| 15,000 | Cogeco Inc. | 296,908 | 966,062 | |||||||||
| 373,000 | Comcast Corp., Cl. A | 14,996,882 | 19,545,200 | |||||||||
| 202,090 | DISH Network Corp., Cl. A† | 6,084,089 | 6,535,591 | |||||||||
| 63,000 | EchoStar Corp., Cl. A† | 1,520,631 | 1,334,970 | |||||||||
| 2,622 | Liberty Latin America Ltd., Cl. A† | 45,148 | 29,183 | |||||||||
| 41,962 | Liberty Latin America Ltd., Cl. C† | 733,060 | 465,359 | |||||||||
| 95,000 | Rogers Communications Inc., Cl. B | 2,601,018 | 4,426,050 | |||||||||
| 95,000 | WideOpenWest Inc.† | 691,078 | 1,013,650 | |||||||||
| 29,013,912 | 37,614,745 | |||||||||||
| Communications Equipment — 0.4% | ||||||||||||
| 5,000 | Arista Networks Inc.† | 1,074,173 | 1,452,850 | |||||||||
| 76,000 | Corning Inc. | 930,977 | 2,736,000 | |||||||||
| 44,000 | QUALCOMM Inc. | 5,625,791 | 6,702,960 | |||||||||
| 7,630,941 | 10,891,810 | |||||||||||
| Computer Hardware — 1.1% | ||||||||||||
| 195,600 | Apple Inc. | 11,418,134 | 25,954,164 | |||||||||
| 40,000 | Desktop Metal Inc., Cl. A† | 375,396 | 688,000 | |||||||||
| 12,500 | Micron Technology Inc.† | 595,750 | 939,750 | |||||||||
| 12,389,280 | 27,581,914 | |||||||||||
See accompanying notes to financial statements.
3
The Gabelli Dividend &
Income Trust
Schedule of Investments (Continued) — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS (Continued) | ||||||||||||
| Computer Software and Services — 6.4% | ||||||||||||
| 18,800 | Adobe Inc.† | $ | 6,062,870 | $ | 9,402,256 | |||||||
| 1,000 | Alibaba Group Holding Ltd., ADR† | 216,505 | 232,730 | |||||||||
| 4,439 | Alphabet Inc., Cl. A† | 3,850,750 | 7,779,969 | |||||||||
| 21,975 | Alphabet Inc., Cl. C† | 27,640,904 | 38,497,563 | |||||||||
| 7,595 | Amazon.com Inc.† | 14,890,342 | 24,736,383 | |||||||||
| 57,000 | Anaplan Inc.† | 3,316,771 | 4,095,450 | |||||||||
| 34,300 | Applied Materials Inc. | 1,881,338 | 2,960,090 | |||||||||
| 24,000 | Black Knight Inc.† | 440,553 | 2,120,400 | |||||||||
| 20,000 | Cisco Systems Inc. | 839,275 | 895,000 | |||||||||
| 51,000 | Cloudflare Inc., Cl. A† | 2,748,623 | 3,875,490 | |||||||||
| 3,200 | Coupa Software Inc.† | 471,924 | 1,084,512 | |||||||||
| 24,000 | CrowdStrike Holdings Inc., Cl. A† | 3,779,505 | 5,083,680 | |||||||||
| 20,000 | CyrusOne Inc., REIT | 557,572 | 1,463,000 | |||||||||
| 35,000 | eBay Inc. | 782,634 | 1,758,750 | |||||||||
| 50,000 | FireEye Inc.† | 679,000 | 1,153,000 | |||||||||
| 630,000 | Hewlett Packard Enterprise Co. | 8,625,112 | 7,465,500 | |||||||||
| 1,000 | McAfee Corp., Cl. A | 20,000 | 16,690 | |||||||||
| 204,849 | Microsoft Corp. | 16,523,772 | 45,562,515 | |||||||||
| 1,718 | Perspecta Inc. | 31,016 | 41,369 | |||||||||
| 10,400 | ServiceNow Inc.† | 3,260,379 | 5,724,472 | |||||||||
| 86,169 | SolarWinds Corp.† | 1,482,341 | 1,288,227 | |||||||||
| 500 | Unity Software Inc.† | 26,000 | 76,735 | |||||||||
| 4,000 | VMware Inc., Cl. A† | 545,920 | 561,040 | |||||||||
| 98,673,106 | 165,874,821 | |||||||||||
| Consumer Products — 4.3% | ||||||||||||
| 30,000 | Church & Dwight Co. Inc. | 1,199,580 | 2,616,900 | |||||||||
| 373,000 | Edgewell Personal Care Co. | 20,893,079 | 12,898,340 | |||||||||
| 298,700 | Energizer Holdings Inc. | 12,545,887 | 12,599,166 | |||||||||
| 99,000 | Hanesbrands Inc. | 471,699 | 1,443,420 | |||||||||
| 14,500 | Kimberly-Clark Corp. | 1,265,026 | 1,955,035 | |||||||||
| 25,000 | Newell Brands Inc. | 389,482 | 530,750 | |||||||||
| 18,000 | Philip Morris International Inc. | 1,125,875 | 1,490,220 | |||||||||
| 832,000 | Swedish Match AB | 12,593,528 | 64,496,281 | |||||||||
| 7,100 | The Estee Lauder Companies Inc., Cl. A. | 1,197,874 | 1,889,949 | |||||||||
| 74,000 | The Procter & Gamble Co. | 4,308,080 | 10,296,360 | |||||||||
| 55,990,110 | 110,216,421 | |||||||||||
| Consumer Services — 1.0% | ||||||||||||
| 22,000 | Ashtead Group plc | 423,833 | 1,034,322 | |||||||||
| 61,200 | Facebook Inc., Cl. A† | 13,300,631 | 16,717,392 | |||||||||
| 300,000 | Qurate Retail Inc., Cl. A | 2,543,734 | 3,291,000 | |||||||||
| 80,000 | Terminix Global Holdings Inc.† | 2,412,646 | 4,080,800 | |||||||||
| 18,680,844 | 25,123,514 | |||||||||||
| Shares | Cost |
Market
Value |
||||||||||
| Diversified Industrial — 3.5% | ||||||||||||
| 46,284 | Ampco-Pittsburgh Corp.† | $ | 121,085 | $ | 253,636 | |||||||
| 25,000 | Ardagh Group SA | 448,894 | 430,250 | |||||||||
| 93,000 | Bouygues SA | 3,237,800 | 3,823,093 | |||||||||
| 32,700 | Eaton Corp. plc | 1,460,458 | 3,928,578 | |||||||||
| 70,000 | General Electric Co. | 708,469 | 756,000 | |||||||||
| 200,000 | Griffon Corp. | 3,718,158 | 4,076,000 | |||||||||
| 211,000 | Honeywell International Inc. | 24,598,137 | 44,879,700 | |||||||||
| 51,000 | ITT Inc. | 973,582 | 3,928,020 | |||||||||
| 10,000 | Jardine Strategic Holdings Ltd. | 310,238 | 248,800 | |||||||||
| 10,000 | nVent Electric plc | 140,660 | 232,900 | |||||||||
| 15,000 | Pentair plc | 425,273 | 796,350 | |||||||||
| 5,000 | Sulzer AG | 462,738 | 525,810 | |||||||||
| 360,000 | Textron Inc. | 12,403,106 | 17,398,800 | |||||||||
| 6,500 | The Sherwin-Williams Co. | 3,495,769 | 4,776,915 | |||||||||
| 300,000 | Toray Industries Inc. | 2,270,748 | 1,774,926 | |||||||||
| 36,000 | Trinity Industries Inc. | 739,138 | 950,040 | |||||||||
| 55,514,253 | 88,779,818 | |||||||||||
| Electronics — 3.7% | ||||||||||||
| 13,000 | Analog Devices Inc. | 1,883,206 | 1,920,490 | |||||||||
| 149,000 | Intel Corp. | 5,130,434 | 7,423,180 | |||||||||
| 240,000 | Resideo Technologies Inc.† | 2,068,016 | 5,102,400 | |||||||||
| 421,000 | Sony Corp., ADR | 14,323,436 | 42,563,100 | |||||||||
| 53,000 | TE Connectivity Ltd. | 1,702,237 | 6,416,710 | |||||||||
| 78,000 | Texas Instruments Inc. | 2,340,118 | 12,802,140 | |||||||||
| 39,200 | Thermo Fisher Scientific Inc. | 9,989,963 | 18,258,576 | |||||||||
| 37,437,410 | 94,486,596 | |||||||||||
| Energy and Utilities: Electric — 0.6% | ||||||||||||
| 11,000 | ALLETE Inc. | 360,106 | 681,340 | |||||||||
| 5,000 | American Electric Power Co. Inc. | 184,350 | 416,350 | |||||||||
| 30,000 | Electric Power Development Co. Ltd. | 724,782 | 412,861 | |||||||||
| 144,000 | Evergy Inc. | 7,554,696 | 7,993,440 | |||||||||
| 12,000 | Pinnacle West Capital Corp. | 468,584 | 959,400 | |||||||||
| 60,000 | The AES Corp. | 617,140 | 1,410,000 | |||||||||
| 25,000 | WEC Energy Group Inc. | 1,228,284 | 2,300,750 | |||||||||
| 11,137,942 | 14,174,141 | |||||||||||
| Energy and Utilities: Integrated — 1.7% | ||||||||||||
| 135,000 | Avangrid Inc. | 6,102,097 | 6,135,750 | |||||||||
| 22,000 | Chubu Electric Power Co.Inc. | 354,517 | 264,839 | |||||||||
| 20,000 | Endesa SA | 506,664 | 546,078 | |||||||||
| 228,000 | Enel SpA | 1,036,727 | 2,305,166 | |||||||||
| 14,000 | Eversource Energy | 1,187,799 | 1,211,140 | |||||||||
| 23,000 | Hawaiian Electric Industries Inc. | 594,426 | 813,970 | |||||||||
| 410,000 | Hera SpA | 822,662 | 1,492,612 | |||||||||
See accompanying notes to financial statements.
4
The Gabelli Dividend & Income Trust
Schedule of Investments (Continued) — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS (Continued) | ||||||||||||
| Energy and Utilities: Integrated (Continued) | ||||||||||||
| 10,000 | Hokkaido Electric Power Co. Inc. | $ | 77,930 | $ | 36,318 | |||||||
| 45,000 | Iberdrola SA, ADR | 952,490 | 2,587,500 | |||||||||
| 115,000 | Korea Electric Power Corp., ADR† | 1,568,135 | 1,411,050 | |||||||||
| 20,000 | Kyushu Electric Power Co. Inc. | 226,868 | 172,001 | |||||||||
| 28,000 | MGE Energy Inc. | 599,144 | 1,960,840 | |||||||||
| 140,800 | NextEra Energy Inc. | 6,130,209 | 10,862,720 | |||||||||
| 60,000 | NextEra Energy Partners LP | 2,846,114 | 4,023,000 | |||||||||
| 49,000 | NiSource Inc. | 397,054 | 1,124,060 | |||||||||
| 57,500 | OGE Energy Corp. | 685,360 | 1,831,950 | |||||||||
| 12,000 | Ormat Technologies Inc. | 180,000 | 1,083,360 | |||||||||
| 180,000 | PG&E Corp.† | 1,668,268 | 2,242,800 | |||||||||
| 30,000 | PNM Resources Inc. | 1,017,056 | 1,455,900 | |||||||||
| 30,000 | Public Service Enterprise Group Inc. | 906,079 | 1,749,000 | |||||||||
| 49,000 | Shikoku Electric Power Co. Inc. | 896,059 | 318,900 | |||||||||
| 45,000 | The Chugoku Electric Power Co. Inc. | 763,445 | 526,899 | |||||||||
| 16,000 | The Kansai Electric Power Co. Inc. | 197,975 | 150,881 | |||||||||
| 45,000 | Tohoku Electric Power Co. Inc. | 663,612 | 370,442 | |||||||||
| 30,380,690 | 44,677,176 | |||||||||||
| Energy and Utilities: Natural Gas — 1.1% | ||||||||||||
| 95,000 | Enterprise Products Partners LP | 1,913,565 | 1,861,050 | |||||||||
| 66,000 | Kinder Morgan Inc. | 1,802,164 | 902,220 | |||||||||
| 279,000 | National Fuel Gas Co. | 11,469,068 | 11,475,270 | |||||||||
| 30,000 | National Grid plc | 469,640 | 354,866 | |||||||||
| 22,000 | National Grid plc, ADR | 1,086,983 | 1,298,660 | |||||||||
| 14,000 | ONEOK Inc. | 567,297 | 537,320 | |||||||||
| 57,000 | Sempra Energy | 1,763,687 | 7,262,370 | |||||||||
| 30,000 | South Jersey Industries Inc. | 476,644 | 646,500 | |||||||||
| 42,000 | Southwest Gas Holdings Inc. | 1,103,049 | 2,551,500 | |||||||||
| 23,000 | UGI Corp. | 815,188 | 804,080 | |||||||||
| 21,467,285 | 27,693,836 | |||||||||||
| Energy and Utilities: Oil — 1.8% | ||||||||||||
| 16,000 | Apache Corp. | 185,550 | 227,040 | |||||||||
| 23,000 | BP plc, ADR | 732,851 | 471,960 | |||||||||
| 105,222 | Chevron Corp. | 9,210,328 | 8,885,998 | |||||||||
| 25,000 | Concho Resources Inc. | 1,081,692 | 1,458,750 | |||||||||
| 85,000 | ConocoPhillips | 3,961,811 | 3,399,150 | |||||||||
| 140,000 | Eni SpA, ADR | 5,084,692 | 2,884,000 | |||||||||
| 395,000 | Equinor ASA, ADR | 7,127,514 | 6,485,900 | |||||||||
| 52,000 | Exxon Mobil Corp. | 3,109,556 | 2,143,440 | |||||||||
| 15,700 | Hess Corp. | 975,265 | 828,803 | |||||||||
| Shares | Cost |
Market
Value |
||||||||||
| 175,000 | Marathon Petroleum Corp. | $ | 4,965,414 | $ | 7,238,000 | |||||||
| 28,000 | Occidental Petroleum Corp. | 353,138 | 484,680 | |||||||||
| 1,000 | PetroChina Co. Ltd., ADR | 40,300 | 30,720 | |||||||||
| 20,000 | Petroleo Brasileiro SA, ADR | 205,518 | 224,600 | |||||||||
| 52,000 | Phillips 66 | 4,107,965 | 3,636,880 | |||||||||
| 169,000 | Repsol SA, ADR | 3,512,296 | 1,691,690 | |||||||||
| 92,000 | Royal Dutch Shell plc, Cl. A, ADR | 4,989,847 | 3,232,880 | |||||||||
| 70,000 | TOTAL SE, ADR | 3,318,049 | 2,933,700 | |||||||||
| 128,000 | WPX Energy Inc.† | 867,239 | 1,043,200 | |||||||||
| 53,829,025 | 47,301,391 | |||||||||||
| Energy and Utilities: Services — 0.3% | ||||||||||||
| 300,000 | Halliburton Co. | 11,541,142 | 5,670,000 | |||||||||
| 40,000 | Oceaneering International Inc.† | 696,245 | 318,000 | |||||||||
| 135,000 | Schlumberger NV | 4,946,169 | 2,947,050 | |||||||||
| 17,183,556 | 8,935,050 | |||||||||||
| Energy and Utilities: Water — 0.3% | ||||||||||||
| 11,000 | American States Water Co. | 138,388 | 874,610 | |||||||||
| 11,000 | American Water Works Co. Inc. | 1,168,030 | 1,688,170 | |||||||||
| 14,000 | Essential Utilities Inc. | 613,003 | 662,060 | |||||||||
| 180,000 | Mueller Water Products Inc., Cl. A | 1,645,051 | 2,228,400 | |||||||||
| 36,000 | Severn Trent plc. | 927,080 | 1,126,875 | |||||||||
| 24,000 | SJW Group | 428,495 | 1,664,640 | |||||||||
| 7,500 | The York Water Co. | 97,904 | 349,500 | |||||||||
| 6,000 | United Utilities Group plc, ADR | 168,600 | 149,940 | |||||||||
| 5,186,551 | 8,744,195 | |||||||||||
| Entertainment — 2.7% | ||||||||||||
| 60,000 | Discovery Inc., Cl. C† | 1,474,594 | 1,571,400 | |||||||||
| 63,333 | Fox Corp., Cl. A | 2,021,387 | 1,844,257 | |||||||||
| 133,000 | Fox Corp., Cl. B | 4,730,517 | 3,841,040 | |||||||||
| 28,000 | Liberty Media Corp.-Liberty Braves, Cl. A† | 708,629 | 696,360 | |||||||||
| 42,333 | Madison Square Garden Entertainment Corp.† | 1,313,941 | 4,446,658 | |||||||||
| 38,333 | Madison Square Garden Sports Corp.† | 2,386,926 | 7,057,105 | |||||||||
| 17,000 | Netflix Inc.† | 6,714,735 | 9,192,410 | |||||||||
| 38,700 | Take-Two Interactive Software Inc.† | 3,841,338 | 8,041,473 | |||||||||
| 70,000 | The Walt Disney Co.† | 9,000,887 | 12,682,600 | |||||||||
| 29,771 | ViacomCBS Inc., Cl. A | 1,262,999 | 1,125,939 | |||||||||
| 365,000 | ViacomCBS Inc., Cl. B | 12,124,971 | 13,599,900 | |||||||||
| 175,000 | Vivendi SA | 4,514,248 | 5,639,747 | |||||||||
See accompanying notes to financial statements.
5
The Gabelli Dividend & Income Trust
Schedule of Investments (Continued) — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS (Continued) | ||||||||||||
| Entertainment (Continued) | ||||||||||||
| 300,000 | Wow Unlimited Media Inc.†(a)(b) | $ | 345,198 | $ | 106,057 | |||||||
| 50,440,370 | 69,844,946 | |||||||||||
| Environmental Services — 1.8% | ||||||||||||
| 188,000 | Republic Services Inc. | 6,981,261 | 18,104,400 | |||||||||
| 23,000 | Veolia Environnement SA | 275,698 | 562,240 | |||||||||
| 89,222 | Waste Connections Inc. | 3,663,324 | 9,151,501 | |||||||||
| 147,000 | Waste Management Inc. | 5,972,232 | 17,335,710 | |||||||||
| 16,892,515 | 45,153,851 | |||||||||||
| Equipment and Supplies — 1.9% | ||||||||||||
| 63,000 | CIRCOR International Inc.† | 1,824,486 | 2,421,720 | |||||||||
| 12,000 | Cummins Inc. | 2,815,099 | 2,725,200 | |||||||||
| 28,800 | Danaher Corp. | 4,276,715 | 6,397,632 | |||||||||
| 87,500 | Flowserve Corp. | 3,360,374 | 3,224,375 | |||||||||
| 146,000 | Graco Inc. | 2,869,865 | 10,563,100 | |||||||||
| 150,000 | Mueller Industries Inc. | 3,261,518 | 5,266,500 | |||||||||
| 10,000 | Parker-Hannifin Corp. | 2,580,349 | 2,724,100 | |||||||||
| 535,000 | RPC Inc.† | 2,728,430 | 1,685,250 | |||||||||
| 130,000 | Sealed Air Corp. | 3,131,382 | 5,952,700 | |||||||||
| 15,321 | The L.S. Starrett Co., Cl. A† | 60,479 | 64,808 | |||||||||
| 95,000 | The Timken Co. | 3,565,930 | 7,349,200 | |||||||||
| 30,474,627 | 48,374,585 | |||||||||||
| Financial Services — 16.4% | ||||||||||||
| 7,000 | Alleghany Corp. | 2,577,465 | 4,225,830 | |||||||||
| 355,108 | American Express Co. | 30,563,743 | 42,936,108 | |||||||||
| 118,000 | American International Group Inc. | 7,009,318 | 4,467,480 | |||||||||
| 409,000 | Bank of America Corp. | 7,226,376 | 12,396,790 | |||||||||
| 45,000 | Berkshire Hathaway Inc., Cl. B† | 8,130,838 | 10,434,150 | |||||||||
| 19,400 | BlackRock Inc. | 3,746,112 | 13,997,876 | |||||||||
| 28,500 | Brookfield Asset Management Inc., Cl. A | 128,980 | 1,176,195 | |||||||||
| 22,000 | Cannae Holdings Inc.† | 275,343 | 973,940 | |||||||||
| 188,000 | Citigroup Inc. | 9,327,861 | 11,592,080 | |||||||||
| 70,000 | Cohen & Steers Inc. | 2,716,498 | 5,201,000 | |||||||||
| 20,000 | Cullen/Frost Bankers Inc. | 1,468,392 | 1,744,600 | |||||||||
| 100 | Eaton Vance Corp. | 6,121 | 6,793 | |||||||||
| 9,000 | EXOR NV | 536,309 | 728,079 | |||||||||
| 18 | Farmers & Merchants Bank of Long Beach | 126,871 | 119,250 | |||||||||
| 50,000 | Fidelity National Financial Inc. | 524,512 | 1,954,500 | |||||||||
| 210,000 | H&R Block Inc. | 4,793,766 | 3,330,600 | |||||||||
| 19,000 | HSBC Holdings plc, ADR† | 834,887 | 492,290 | |||||||||
| 22,249 | Interactive Brokers Group Inc., Cl. A | 839,448 | 1,355,409 | |||||||||
| 155,000 | Invesco Ltd. | 3,318,821 | 2,701,650 | |||||||||
| Shares | Cost |
Market
Value |
||||||||||
| 373,417 | JPMorgan Chase & Co. | $ | 24,439,907 | $ | 47,450,098 | |||||||
| 65,000 | KeyCorp. | 856,314 | 1,066,650 | |||||||||
| 30,000 | Kinnevik AB, Cl. B | 663,872 | 1,515,023 | |||||||||
| 65,000 | KKR & Co. Inc. | 1,383,979 | 2,631,850 | |||||||||
| 35,000 | M&T Bank Corp. | 2,211,058 | 4,455,500 | |||||||||
| 254,226 | Morgan Stanley | 7,611,234 | 17,422,108 | |||||||||
| 3,400 | MSCI Inc. | 982,837 | 1,518,202 | |||||||||
| 70,000 | National Australia Bank Ltd., ADR | 810,381 | 609,700 | |||||||||
| 130,000 | Navient Corp. | 927,744 | 1,276,600 | |||||||||
| 100,000 | New York Community Bancorp Inc. | 1,584,609 | 1,055,000 | |||||||||
| 91,000 | Northern Trust Corp. | 4,076,449 | 8,475,740 | |||||||||
| 372,221 | Oaktree Specialty Lending Corp. | 2,292,639 | 2,073,271 | |||||||||
| 198,700 | PayPal Holdings Inc.† | 17,423,968 | 46,535,540 | |||||||||
| 30,000 | Pershing Square Tontine Holdings Ltd., Cl. A† | 622,760 | 831,600 | |||||||||
| 80,000 | Resona Holdings Inc. | 381,969 | 279,231 | |||||||||
| 150,000 | SLM Corp. | 593,644 | 1,858,500 | |||||||||
| 150,000 | Spartacus Acquisition Corp.† | 1,500,000 | 1,587,000 | |||||||||
| 179,000 | State Street Corp. | 10,506,782 | 13,027,620 | |||||||||
| 151,824 | T. Rowe Price Group Inc. | 10,777,914 | 22,984,635 | |||||||||
| 640,000 | The Bank of New York Mellon Corp. | 20,880,705 | 27,161,600 | |||||||||
| 75,000 | The Blackstone Group Inc., Cl. A | 3,225,811 | 4,860,750 | |||||||||
| 36,000 | The Goldman Sachs Group Inc. | 6,988,147 | 9,493,560 | |||||||||
| 100,000 | The Hartford Financial Services Group Inc. | 3,349,009 | 4,898,000 | |||||||||
| 195,000 | The PNC Financial Services Group Inc. | 13,531,525 | 29,055,000 | |||||||||
| 96,000 | The Travelers Companies Inc. | 6,632,920 | 13,475,520 | |||||||||
| 20,000 | U.S. Bancorp | 775,227 | 931,800 | |||||||||
| 55,500 | W. R. Berkley Corp. | 1,497,511 | 3,686,310 | |||||||||
| 418,000 | Waddell & Reed Financial Inc., Cl. A | 7,191,774 | 10,646,460 | |||||||||
| 654,500 | Wells Fargo & Co. | 22,367,987 | 19,752,810 | |||||||||
| 4,000 | Willis Towers Watson plc | 324,515 | 842,720 | |||||||||
| 260,564,852 | 421,293,018 | |||||||||||
| Food and Beverage — 11.2% | ||||||||||||
| 12,000 | Ajinomoto Co. Inc. | 205,201 | 271,658 | |||||||||
| 12,500 | Brown-Forman Corp., Cl. B | 439,792 | 992,875 | |||||||||
| 56,000 | Campbell Soup Co. | 2,019,743 | 2,707,600 | |||||||||
| 980,000 | China Mengniu Dairy Co. Ltd. | 1,211,207 | 5,916,065 | |||||||||
| 60,500 | Chr. Hansen Holding A/S† | 2,467,586 | 6,220,406 | |||||||||
| 681,000 | Conagra Brands Inc. | 20,524,773 | 24,693,060 | |||||||||
| 8,000 | Constellation Brands Inc., Cl. A | 283,846 | 1,752,400 | |||||||||
| 182,000 | Danone SA | 8,947,873 | 11,953,015 | |||||||||
See accompanying notes to financial statements.
6
The Gabelli Dividend & Income Trust
Schedule of Investments (Continued) — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS (Continued) | ||||||||||||
| Food and Beverage (Continued) | ||||||||||||
| 2,290,000 | Davide Campari-Milano NV | $ | 6,900,210 | $ | 26,129,383 | |||||||
| 80,000 | Diageo plc, ADR | 10,252,610 | 12,704,800 | |||||||||
| 70,954 | Flowers Foods Inc. | 1,053,433 | 1,605,689 | |||||||||
| 213,000 | General Mills Inc. | 11,844,881 | 12,524,400 | |||||||||
| 18,000 | Heineken Holding NV | 747,987 | 1,694,306 | |||||||||
| 265,000 | ITO EN Ltd. | 5,767,987 | 16,758,995 | |||||||||
| 1,000 | JDE Peet’s NV† | 35,094 | 45,140 | |||||||||
| 80,000 | Kellogg Co. | 5,818,725 | 4,978,400 | |||||||||
| 120,000 | Keurig Dr Pepper Inc. | 1,412,776 | 3,840,000 | |||||||||
| 343,000 | Kikkoman Corp. | 4,051,087 | 23,817,830 | |||||||||
| 10,000 | Lamb Weston Holdings Inc. | 603,226 | 787,400 | |||||||||
| 4,000 | Landec Corp.† | 44,035 | 43,400 | |||||||||
| 95,000 | Maple Leaf Foods Inc. | 1,805,611 | 2,106,136 | |||||||||
| 6,000 | McCormick & Co. Inc., Cl. V | 290,905 | 573,420 | |||||||||
| 130,000 | Molson Coors Beverage Co., Cl. B | 7,384,936 | 5,874,700 | |||||||||
| 531,000 | Mondelez International Inc., Cl. A | 19,872,042 | 31,047,570 | |||||||||
| 30,000 | Morinaga Milk Industry Co. Ltd. | 588,860 | 1,475,958 | |||||||||
| 4,000 | National Beverage Corp. | 192,857 | 339,600 | |||||||||
| 22,000 | Nestlé SA | 1,644,475 | 2,590,896 | |||||||||
| 35,000 | Nestlé SA, ADR | 2,563,158 | 4,123,000 | |||||||||
| 130,000 | Nissin Foods Holdings Co. Ltd. | 4,438,279 | 11,129,727 | |||||||||
| 85,000 | PepsiCo Inc. | 10,222,935 | 12,605,500 | |||||||||
| 61,000 | Pernod Ricard SA | 5,202,267 | 11,684,838 | |||||||||
| 45,000 | Post Holdings Inc.† | 3,612,212 | 4,545,450 | |||||||||
| 24,500 | Remy Cointreau SA | 1,360,469 | 4,558,404 | |||||||||
| 18,000 | Suntory Beverage & Food Ltd. | 573,702 | 636,289 | |||||||||
| 333,500 | The Coca-Cola Co. | 12,028,824 | 18,289,140 | |||||||||
| 65,000 | The Hain Celestial Group Inc.† | 1,333,889 | 2,609,750 | |||||||||
| 24,000 | The Kraft Heinz Co. | 716,243 | 831,840 | |||||||||
| 25,000 | Unilever plc, ADR | 800,393 | 1,509,000 | |||||||||
| 239,000 | Yakult Honsha Co. Ltd. | 5,769,324 | 12,036,221 | |||||||||
| 165,033,453 | 288,004,261 | |||||||||||
| Health Care — 9.7% | ||||||||||||
| 35,000 | Abbott Laboratories | 2,146,812 | 3,832,150 | |||||||||
| 40,196 | AbbVie Inc. | 3,463,715 | 4,307,001 | |||||||||
| 20,000 | Alexion Pharmaceuticals Inc.† | 2,346,406 | 3,124,800 | |||||||||
| 60,000 | AmerisourceBergen Corp. | 4,237,210 | 5,865,600 | |||||||||
| 13,000 | Anthem Inc. | 2,548,777 | 4,174,170 | |||||||||
| 120,000 | Bausch Health Cos. Inc.† | 2,665,462 | 2,496,000 | |||||||||
| 45,000 | Baxter International Inc. | 1,893,609 | 3,610,800 | |||||||||
| 22,000 | Becton, Dickinson and Co. | 5,005,502 | 5,504,840 | |||||||||
| 1,000 | BioMarin Pharmaceutical Inc.† | 76,290 | 87,690 | |||||||||
| Shares | Cost |
Market
Value |
||||||||||
| 8,000 | Bio-Rad Laboratories Inc., Cl. A† | $ | 2,559,160 | $ | 4,663,520 | |||||||
| 143,000 | Bristol-Myers Squibb Co. | 8,128,232 | 8,870,290 | |||||||||
| 45,000 | Cardiovascular Systems Inc.† | 1,274,517 | 1,969,200 | |||||||||
| 10,000 | Catalent Inc.† | 933,475 | 1,040,700 | |||||||||
| 13,861 | Charles River Laboratories International Inc.† | 1,554,359 | 3,463,309 | |||||||||
| 5,000 | Chemed Corp. | 323,859 | 2,663,050 | |||||||||
| 62,000 | Cigna Corp. | 11,371,998 | 12,907,160 | |||||||||
| 40,000 | DaVita Inc.† | 2,525,358 | 4,696,000 | |||||||||
| 25,000 | DENTSPLY SIRONA Inc. | 1,232,965 | 1,309,000 | |||||||||
| 26,700 | Edwards Lifesciences Corp.† | 1,446,496 | 2,435,841 | |||||||||
| 15,000 | eHealth Inc.† | 1,096,663 | 1,059,150 | |||||||||
| 41,000 | Elanco Animal Health Inc.† | 347,072 | 1,257,470 | |||||||||
| 47,000 | Eli Lilly and Co. | 1,731,832 | 7,935,480 | |||||||||
| 385,000 | Evolent Health Inc., Cl. A† | 5,308,110 | 6,171,550 | |||||||||
| 15,000 | Gerresheimer AG | 977,229 | 1,607,997 | |||||||||
| 49,271 | Gilead Sciences Inc. | 3,646,825 | 2,870,528 | |||||||||
| 40,000 | GlaxoSmithKline plc, ADR | 1,827,420 | 1,472,000 | |||||||||
| 50,000 | HCA Healthcare Inc. | 5,162,792 | 8,223,000 | |||||||||
| 10,000 | Henry Schein Inc.† | 443,595 | 668,600 | |||||||||
| 10,000 | ICU Medical Inc.† | 1,916,238 | 2,144,900 | |||||||||
| 3,400 | Illumina Inc.† | 932,366 | 1,258,000 | |||||||||
| 5,000 | Incyte Corp.† | 416,219 | 434,900 | |||||||||
| 40,000 | Integer Holdings Corp.† | 1,893,193 | 3,247,600 | |||||||||
| 2,000 | Intuitive Surgical Inc.† | 987,642 | 1,636,200 | |||||||||
| 102,100 | Johnson & Johnson | 9,535,208 | 16,068,498 | |||||||||
| 25,000 | Laboratory Corp. of America Holdings† | 3,139,224 | 5,088,750 | |||||||||
| 15,000 | Ligand Pharmaceuticals Inc.† | 1,439,596 | 1,491,750 | |||||||||
| 17,500 | McKesson Corp. | 2,757,397 | 3,043,600 | |||||||||
| 55,500 | Medtronic plc | 5,241,892 | 6,501,270 | |||||||||
| 206,589 | Merck & Co. Inc. | 12,678,945 | 16,898,980 | |||||||||
| 30,000 | NeoGenomics Inc.† | 224,995 | 1,615,200 | |||||||||
| 176,250 | Option Care Health Inc.† | 2,049,791 | 2,756,550 | |||||||||
| 45,000 | Orthofix Medical Inc.† | 1,458,930 | 1,934,100 | |||||||||
| 81,000 | Patterson Cos. Inc. | 2,090,044 | 2,400,030 | |||||||||
| 30,000 | PerkinElmer Inc. | 3,568,225 | 4,305,000 | |||||||||
| 90,000 | Perrigo Co. plc | 4,814,664 | 4,024,800 | |||||||||
| 50,000 | Personalis Inc.† | 498,350 | 1,830,500 | |||||||||
| 75,000 | PetIQ Inc.† | 2,118,216 | 2,883,750 | |||||||||
| 377,588 | Pfizer Inc. | 8,265,426 | 13,899,014 | |||||||||
| 1,000 | Quidel Corp.† | 176,165 | 179,650 | |||||||||
| 15,000 | Stryker Corp. | 1,929,225 | 3,675,600 | |||||||||
| 125,850 | Takeda Pharmaceutical Co. Ltd., ADR | 2,433,939 | 2,290,470 | |||||||||
| 500 | Teladoc Health Inc.† | 76,590 | 99,980 | |||||||||
| 50,000 | Tenet Healthcare Corp.† | 949,780 | 1,996,500 | |||||||||
| 9,000 | The Cooper Companies Inc. | 1,097,258 | 3,269,880 | |||||||||
| 100,000 | Trillium Therapeutics Inc.† | 1,650,715 | 1,471,000 | |||||||||
See accompanying notes to financial statements.
7
The Gabelli Dividend & Income Trust
Schedule of Investments (Continued) — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS (Continued) | ||||||||||||
| Health Care (Continued) | ||||||||||||
| 22,500 | UnitedHealth Group Inc. | $ | 6,515,683 | $ | 7,890,300 | |||||||
| 121,850 | Viatris Inc.† | 1,588,966 | 2,283,469 | |||||||||
| 43,000 | Zimmer Biomet Holdings Inc. | 4,341,287 | 6,625,870 | |||||||||
| 105,038 | Zoetis Inc. | 3,753,014 | 17,383,789 | |||||||||
| 166,814,923 | 248,916,796 | |||||||||||
| Hotels and Gaming — 0.4% | ||||||||||||
| 19,000 | Accor SA† | 654,124 | 687,056 | |||||||||
| 90,000 | Boyd Gaming Corp. | 469,440 | 3,862,800 | |||||||||
| 20,000 | Entain plc† | 259,138 | 310,012 | |||||||||
| 22,000 | Las Vegas Sands Corp. | 1,307,662 | 1,311,200 | |||||||||
| 400,000 | Mandarin Oriental International Ltd.† | 680,880 | 680,000 | |||||||||
| 49,000 | MGM Resorts International | 1,118,993 | 1,543,990 | |||||||||
| 16,000 | Ryman Hospitality Properties Inc., REIT | 753,660 | 1,084,160 | |||||||||
| 350,000 | William Hill plc† | 667,608 | 1,292,766 | |||||||||
| 7,000 | Wyndham Destinations Inc. | 238,201 | 314,020 | |||||||||
| 5,000 | Wyndham Hotels & Resorts Inc. | 191,090 | 297,200 | |||||||||
| 6,340,796 | 11,383,204 | |||||||||||
| Machinery — 2.5% | ||||||||||||
| 21,000 | Astec Industries Inc. | 752,860 | 1,215,480 | |||||||||
| 140,000 | CNH Industrial NV† | 1,047,704 | 1,765,895 | |||||||||
| 1,330,000 | CNH Industrial NV, New York† | 10,685,182 | 17,077,200 | |||||||||
| 73,600 | Deere & Co. | 5,075,612 | 19,802,080 | |||||||||
| 6,000 | Otis Worldwide Corp. | 333,099 | 405,300 | |||||||||
| 15,000 | Twin Disc Inc.† | 94,452 | 117,750 | |||||||||
| 223,905 | Xylem Inc. | 10,386,281 | 22,791,290 | |||||||||
| 28,375,190 | 63,174,995 | |||||||||||
| Metals and Mining — 1.3% | ||||||||||||
| 65,000 | Agnico Eagle Mines Ltd. | 2,061,450 | 4,583,150 | |||||||||
| 20,000 | Alliance Resource Partners LP | 104,683 | 89,600 | |||||||||
| 15,000 | Arconic Corp.† | 183,218 | 447,000 | |||||||||
| 167,588 | Barrick Gold Corp. | 3,255,274 | 3,817,655 | |||||||||
| 8,000 | BHP Group Ltd., ADR | 217,549 | 522,720 | |||||||||
| 36,000 | Franco-Nevada Corp. | 1,500,629 | 4,513,787 | |||||||||
| 145,000 | Freeport-McMoRan Inc. | 1,820,069 | 3,772,900 | |||||||||
| 280,332 | Newmont Corp. | 11,142,703 | 16,789,083 | |||||||||
| 10,000 | TimkenSteel Corp.† | 79,563 | 46,700 | |||||||||
| 20,365,138 | 34,582,595 | |||||||||||
| Paper and Forest Products — 0.1% | ||||||||||||
| 50,000 | International Paper Co. | 2,279,935 | 2,486,000 | |||||||||
| Publishing — 0.0% | ||||||||||||
| 600 | Graham Holdings Co., Cl. B | 296,058 | 320,028 | |||||||||
| Shares | Cost |
Market
Value |
||||||||||
| Real Estate — 0.4% | ||||||||||||
| 14,000 | Crown Castle International Corp., REIT | $ | 1,811,873 | $ | 2,228,660 | |||||||
| 5,000 | Equinix Inc., REIT | 1,978,269 | 3,570,900 | |||||||||
| 10,000 | QTS Realty Trust Inc., Cl. A, REIT | 203,043 | 618,800 | |||||||||
| 80,000 | Weyerhaeuser Co., REIT | 2,512,413 | 2,682,400 | |||||||||
| 6,505,598 | 9,100,760 | |||||||||||
| Retail — 3.3% | ||||||||||||
| 21,000 | Advance Auto Parts Inc. | 3,081,638 | 3,307,710 | |||||||||
| 104,000 | AutoNation Inc.† | 4,820,829 | 7,258,160 | |||||||||
| 1,500 | AutoZone Inc.† | 1,394,630 | 1,778,160 | |||||||||
| 19,000 | Bassett Furniture Industries Inc. | 96,034 | 381,520 | |||||||||
| 21,000 | CarMax Inc.† | 1,648,739 | 1,983,660 | |||||||||
| 6,100 | Costco Wholesale Corp. | 1,575,995 | 2,298,358 | |||||||||
| 254,000 | CVS Health Corp. | 17,995,737 | 17,348,200 | |||||||||
| 123,500 | Ingles Markets Inc., Cl. A | 2,005,377 | 5,268,510 | |||||||||
| 44,400 | Lowe’s Companies Inc. | 989,699 | 7,126,644 | |||||||||
| 7,500 | MSC Industrial Direct Co. Inc., Cl. A | 528,089 | 632,925 | |||||||||
| 51,100 | NIKE Inc., Cl. B | 4,939,792 | 7,229,117 | |||||||||
| 37,500 | Rush Enterprises Inc., Cl. B | 599,173 | 1,420,875 | |||||||||
| 232,200 | Sally Beauty Holdings Inc.† | 3,535,824 | 3,027,888 | |||||||||
| 110,000 | Seven & i Holdings Co. Ltd. | 3,335,405 | 3,898,019 | |||||||||
| 50,000 | Starbucks Corp. | 3,629,439 | 5,349,000 | |||||||||
| 30,600 | The Home Depot Inc. | 7,134,288 | 8,127,972 | |||||||||
| 132,000 | Walgreens Boots Alliance Inc. | 5,716,268 | 5,264,160 | |||||||||
| 20,000 | Walmart Inc. | 970,066 | 2,883,000 | |||||||||
| 63,997,022 | 84,583,878 | |||||||||||
| Semiconductors — 0.7% | ||||||||||||
| 19,000 | Advanced Micro Devices Inc.† | 1,840,388 | 1,742,490 | |||||||||
| 6,600 | ASML Holding NV. | 1,957,758 | 3,218,952 | |||||||||
| 9,600 | KLA Corp. | 1,845,414 | 2,485,536 | |||||||||
| 5,700 | Lam Research Corp. | 1,620,609 | 2,691,939 | |||||||||
| 15,900 | NVIDIA Corp. | 3,435,827 | 8,302,980 | |||||||||
| 10,699,996 | 18,441,897 | |||||||||||
| Specialty Chemicals — 2.4% | ||||||||||||
| 12,000 | Air Products and Chemicals Inc. | 1,396,313 | 3,278,640 | |||||||||
| 60,000 | Ashland Global Holdings Inc. | 2,434,452 | 4,752,000 | |||||||||
| 10,000 | Axalta Coating Systems Ltd.† | 251,294 | 285,500 | |||||||||
| 35,000 | Dow Inc. | 1,817,630 | 1,942,500 | |||||||||
| 450,000 | DuPont de Nemours Inc. | 27,305,143 | 31,999,500 | |||||||||
| 410,000 | Ferro Corp.† | 4,386,829 | 5,998,300 | |||||||||
| 70,000 | GCP Applied Technologies Inc.† | 1,581,181 | 1,655,500 | |||||||||
See accompanying notes to financial statements.
8
The Gabelli Dividend & Income Trust
Schedule of Investments (Continued) — December 31, 2020
| Shares | Cost |
Market
Value |
||||||||||
| COMMON STOCKS (Continued) | ||||||||||||
| Specialty Chemicals (Continued) | ||||||||||||
| 67,000 | International Flavors & Fragrances Inc. | $ | 8,119,799 | $ | 7,292,280 | |||||||
| 86,000 | Olin Corp. | 1,545,352 | 2,112,160 | |||||||||
| 9,000 | Sensient Technologies Corp. | 585,514 | 663,930 | |||||||||
| 118,263 | Valvoline Inc. | 2,358,279 | 2,736,606 | |||||||||
| 51,781,786 | 62,716,916 | |||||||||||
| Telecommunications — 3.0% | ||||||||||||
| 173,000 | AT&T Inc. | 5,046,769 | 4,975,480 | |||||||||
| 188,000 | BCE Inc. | 5,122,011 | 8,046,400 | |||||||||
| 430,000 | Deutsche Telekom AG, ADR | 7,239,214 | 7,856,100 | |||||||||
| 195,000 | Hellenic Telecommunications Organization SA, ADR | 1,323,723 | 1,550,250 | |||||||||
| 132,000 | Loral Space & Communications Inc. | 4,823,752 | 2,770,680 | |||||||||
| 45,000 | Orange SA, ADR | 942,030 | 533,700 | |||||||||
| 50,000 | Pharol SGPS SA† | 14,182 | 7,623 | |||||||||
| 36,000 | Proximus SA | 1,090,267 | 712,906 | |||||||||
| 50,000 | Telefonica SA, ADR | 460,702 | 202,000 | |||||||||
| 295,000 | Telekom Austria AG | 1,968,837 | 2,281,248 | |||||||||
| 23,000 | Telenet Group Holding NV | 1,046,305 | 985,676 | |||||||||
| 129,000 | Telephone and Data Systems Inc. | 3,479,706 | 2,395,530 | |||||||||
| 110,000 | Telstra Corp. Ltd., ADR | 2,014,389 | 1,260,600 | |||||||||
| 270,000 | TELUS Corp. | 1,405,698 | 5,346,000 | |||||||||
| 40,000 | T-Mobile US Inc.† | 2,310,516 | 5,394,000 | |||||||||
| 106,000 | VEON Ltd., ADR | 301,371 | 160,060 | |||||||||
| 518,086 | Verizon Communications Inc. | 24,056,717 | 30,437,553 | |||||||||
| 105,000 | Vodafone Group plc, ADR | 2,458,246 | 1,730,400 | |||||||||
| 65,104,435 | 76,646,206 | |||||||||||
| Transportation — 0.8% | ||||||||||||
| 220,000 | GATX Corp. | 6,895,794 | 18,299,600 | |||||||||
| 10,000 | Kansas City Southern | 167,897 | 2,041,300 | |||||||||
| 7,063,691 | 20,340,900 | |||||||||||
| Wireless Communications — 0.1% | ||||||||||||
| 111,000 | United States Cellular Corp.† | 4,851,513 | 3,406,590 | |||||||||
| TOTAL COMMON STOCKS | 1,571,958,807 | 2,507,447,708 | ||||||||||
| CLOSED-END FUNDS — 0.0% | ||||||||||||
| 40,000 | Altaba Inc., Escrow† | 30,596 | 582,000 | |||||||||
| CONVERTIBLE PREFERRED STOCKS — 0.1% | ||||||||||||
| Telecommunications — 0.1% | ||||||||||||
| 50,000 | Cincinnati Bell Inc., 6.750%, Ser. B | 1,402,228 | 2,479,085 | |||||||||
| Shares | Cost |
Market
Value |
||||||||||
| MANDATORY CONVERTIBLE SECURITIES (c) — 0.3% | ||||||||||||
| Energy and Utilities — 0.2% | ||||||||||||
| 125,000 | El Paso Energy Capital Trust I, 4.750%, 03/31/28 | $ | 4,524,145 | $ | 6,470,000 | |||||||
| Health Care — 0.1% | ||||||||||||
| 25,000 | Avantor Inc., 6.250%, Ser. A, 05/15/22 | 1,490,250 | 2,222,750 | |||||||||
| TOTAL MANDATORY CONVERTIBLE SECURITIES | 6,014,395 | 8,692,750 | ||||||||||
| PREFERRED STOCKS — 0.3% | ||||||||||||
| Consumer Services — 0.2% | ||||||||||||
| 50,450 | Qurate Retail Inc., 8.000%, 03/15/31 | 5,275,282 | 4,994,550 | |||||||||
| Health Care — 0.1% | ||||||||||||
| 133,681 | The Phoenix Companies Inc., 7.450%, 01/15/32 | 2,857,139 | 1,961,434 | |||||||||
| TOTAL PREFERRED STOCKS | 8,132,421 | 6,955,984 | ||||||||||
| WARRANTS — 0.0% | ||||||||||||
| Automotive: Parts and Accessories — 0.0% | ||||||||||||
| 90,000 | Velodyne Lidar Inc., expire 12/31/25† | 134,590 | 777,600 | |||||||||
| Diversified Industrial — 0.0% | ||||||||||||
| 32,000 | Ampco-Pittsburgh Corp., expire 08/01/25† | 21,862 | 28,160 | |||||||||
| Energy and Utilities: Oil — 0.0% | ||||||||||||
| 12,257 | Occidental Petroleum Corp., expire 08/03/27† | 60,672 | 83,470 | |||||||||
| Energy and Utilities: Services — 0.0% | ||||||||||||
| 3,081 | Weatherford International plc, expire 12/13/23† | 0 | 545 | |||||||||
| Financial Services — 0.0% | ||||||||||||
| 3,333 | Pershing Square Tontine Holdings Ltd., | |||||||||||
| expire 07/24/21† | 20,285 | 31,997 | ||||||||||
| TOTAL WARRANTS | 237,409 | 921,772 | ||||||||||
|
Principal
Amount |
||||||||||||
| CONVERTIBLE CORPORATE BONDS — 0.1% | ||||||||||||
| Cable and Satellite — 0.1% | ||||||||||||
| $ | 1,700,000 | DISH Network Corp., 3.375%, 08/15/26 | 1,700,000 | 1,624,744 | ||||||||
See accompanying notes to financial statements.
9
| The Gabelli Dividend & Income Trust |
| Schedule of Investments (Continued) — December 31, 2020 |
| (a) | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. This security may be resold in transactions exempt from registration, normally to qualified institutional buyers. |
| (b) | At December 31, 2020, the Fund held an investment in a restricted and illiquid security amounting to $106,057 or 0.00% of total investments, which was valued under methods approved by the Board of Trustees as follows: |
|
Acquisition
Shares |
Issuer |
Acquisition
Date |
Acquisition
Cost |
12/31/20
Carrying Value Per Share |
||||
| 300,000 | Wow Unlimited Media Inc. | 06/05/18 | $345,198 | $0.3535 |
| (c) | Mandatory convertible securities are required to be converted on the dates listed; they generally may be converted prior to these dates at the option of the holder. |
| † | Non-income producing security. |
| †† | Represents annualized yield at date of purchase. |
| ††† | Represents annualized yields at dates of purchase. |
| ADR | American Depositary Receipt |
| REIT | Real Estate Investment Trust |
| Geographic Diversification |
%
of Total
Investments |
Market
Value |
||||||
| Long Positions | ||||||||
| North America | 84.2 | % | $ | 2,167,824,878 | ||||
| Europe | 10.7 | 275,456,256 | ||||||
| Japan | 4.6 | 119,185,566 | ||||||
| Asia/Pacific | 0.5 | 11,332,385 | ||||||
| Latin America | 0.0 | * | 224,600 | |||||
| Total Investments | 100.0 | % | $ | 2,574,023,685 | ||||
| * | Amount represents less than 0.05%. |
See accompanying notes to financial statements.
10
The Gabelli Dividend & Income Trust
Statement of Assets and Liabilities
December 31, 2020
| Assets: | ||||
| Investments, at value (cost $1,634,820,063) | $ | 2,574,023,685 | ||
| Foreign currency, at value (cost $10,127) | 10,150 | |||
| Cash | 6,962 | |||
| Receivable for investments sold | 447,851 | |||
| Dividends and interest receivable | 3,037,406 | |||
| Deferred offering expense | 102,839 | |||
| Prepaid expenses | 46,043 | |||
| Total Assets | 2,577,674,936 | |||
| Liabilities: | ||||
| Distributions payable | 134,451 | |||
| Payable for investments purchased | 365,478 | |||
| Payable for investment advisory fees | 3,607,049 | |||
| Payable for payroll expenses | 61,505 | |||
| Payable for accounting fees | 3,750 | |||
| Payable for shareholder communications expenses | 220,434 | |||
| Other accrued expenses | 369,583 | |||
| Total Liabilities | 4,762,250 | |||
| Cumulative Preferred Shares, each at $0.001 par value: | ||||
| Series B (Auction Market, $25,000 liquidation value, 4,000 shares authorized with 2,647 shares issued and outstanding) | 66,175,000 | |||
| Series C (Auction Market, $25,000 liquidation value, 4,800 shares authorized with 3,244 shares issued and outstanding) | 81,100,000 | |||
| Series E (Auction Rate, $25,000 liquidation value, 5,400 shares authorized with 480 shares issued and outstanding) | 12,000,000 | |||
| Series G (5.250%, $25 liquidation value, 4,000,000 shares authorized with 4,000,000 shares issued and outstanding) | 100,000,000 | |||
| Series H (5.375%, $25 liquidation value, 2,000,000 shares authorized with 2,000,000 shares issued and outstanding) | 50,000,000 | |||
| Total Preferred Shares | 309,275,000 | |||
| Net Assets Attributable to Common Shareholders | $ | 2,263,637,686 | ||
| Net Assets Attributable to Common Shareholders Consist of: | ||||
| Paid-in capital | $ | 1,338,241,436 | ||
| Total distributable earnings | 925,396,250 | |||
| Net Assets | $ | 2,263,637,686 | ||
| Net Asset Value per Common Share at $0.001 par value: | ||||
| ($2,263,637,686 ÷ 90,476,735 shares outstanding; unlimited number of shares authorized) | $ | 25.02 | ||
Statement of Operations
For the Year Ended December 31, 2020
| Investment Income: | ||||
| Dividends (net of foreign withholding taxes of $954,030) | $ | 47,440,395 | ||
| Interest | 623,212 | |||
| Total Income | 48,063,607 | |||
| Expenses: | ||||
| Investment advisory fees | 23,582,628 | |||
| Shareholder communications expenses | 449,620 | |||
| Custodian fees | 307,906 | |||
| Trustees’ fees | 300,500 | |||
| Payroll expenses | 203,715 | |||
| Legal and audit fees | 95,759 | |||
| Shareholder services fees | 82,422 | |||
| Accounting fees | 45,000 | |||
| Interest expense | 2,892 | |||
| Miscellaneous expenses | 301,455 | |||
| Total Expenses | 25,371,897 | |||
| Less: | ||||
| Advisory fee reduction (See Note 3) | (1,038,175 | ) | ||
| Expenses paid indirectly by broker (See Note 3) | (16,231 | ) | ||
| Total Credits and Reductions | (1,054,406 | ) | ||
| Net Expenses | 24,317,491 | |||
| Net Investment Income | 23,746,116 | |||
| Net Realized and Unrealized Gain on | ||||
| Investments and Foreign Currency: | ||||
| Net realized gain on investments | 110,480,945 | |||
| Net realized gain on foreign currency transactions | 435,000 | |||
| Net realized gain on investments and foreign currency transactions | 110,915,945 | |||
|
Net
change in unrealized appreciation/depreciation:
on investments |
66,246,131 | |||
| on foreign currency translations | 23,532 | |||
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | 66,269,663 | |||
| Net Realized and Unrealized Gain on Investments and Foreign Currency | 177,185,608 | |||
| Net Increase in Net Assets Resulting from Operations | 200,931,724 | |||
| Total Distributions to Preferred Shareholders | (15,279,706 | ) | ||
| Net Increase in Net Assets Attributable to | ||||
| Common Shareholders Resulting from Operations | $ | 185,652,018 | ||
See accompanying notes to financial statements.
11
The Gabelli Dividend & Income Trust
Statements of Changes in Net Assets Attributable to Common Shareholders
| Year Ended | Year Ended | |||||||
| December 31, 2020 | December 31, 2019 | |||||||
| Operations: | ||||||||
| Net investment income | $ | 23,746,116 | $ | 28,877,496 | ||||
| Net realized gain on investments and foreign currency transactions | 110,915,945 | 102,580,817 | ||||||
| Net change in unrealized appreciation/depreciation on investments and foreign currency translations | 66,269,663 | 336,627,429 | ||||||
| Net Increase in Net Assets Resulting from Operations | 200,931,724 | 468,085,742 | ||||||
| Distributions to Preferred Shareholders | (15,279,706 | ) | (24,833,499 | ) | ||||
| Net Increase in Net Assets Attributable to Common Shareholders Resulting from Operations | 185,652,018 | 443,252,243 | ||||||
| Distributions to Common Shareholders: | ||||||||
| Accumulated earnings | (118,886,275 | ) | (106,634,718 | ) | ||||
| Return of capital | (639,170 | ) | (3,082,841 | ) | ||||
| Total Distributions to Common Shareholders | (119,525,445 | ) | (109,717,559 | ) | ||||
| Fund Share Transactions: | ||||||||
| Net decrease from repurchase of common shares | (2,721,114 | ) | — | |||||
| Net increase in net assets from repurchase of preferred shares | 13,626,875 | — | ||||||
| Net increase in net assets from common shares issued in rights offering | — | 164,864,860 | ||||||
| Offering costs for common shares charged to paid-in capital | (96,871 | ) | (928,331 | ) | ||||
| Offering costs for preferred shares charged to paid-in capital | — | (1,854,595 | ) | |||||
| Net Increase in Net Assets from Fund Share Transactions | 10,808,890 | 162,081,934 | ||||||
| Net Increase in Net Assets Attributable to Common Shareholders | 76,935,463 | 495,616,618 | ||||||
| Net Assets Attributable to Common Shareholders: | ||||||||
| Beginning of year | 2,186,702,223 | 1,691,085,605 | ||||||
| End of year | $ | 2,263,637,686 | $ | 2,186,702,223 | ||||
See accompanying notes to financial statements.
12
The Gabelli Dividend & Income Trust
Financial Highlights
Selected data for a common share of beneficial interest outstanding throughout each year:
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| Operating Performance: | ||||||||||||||||||||
| Net asset value, beginning of year | $ | 24.12 | $ | 20.51 | $ | 25.11 | $ | 22.30 | $ | 21.07 | ||||||||||
| Net investment income | 0.26 | 0.35 | 0.45 | 0.32 | 0.36 | |||||||||||||||
| Net realized and unrealized gain/(loss) on investments, securities sold short, and foreign currency transactions | 1.97 | 5.25 | (3.43 | ) | 4.09 | 2.45 | ||||||||||||||
| Total from investment operations | 2.23 | 5.60 | (2.98 | ) | 4.41 | 2.81 | ||||||||||||||
| Distributions to Preferred Shareholders: (a) | ||||||||||||||||||||
| Net investment income | (0.03 | ) | (0.07 | ) | (0.08 | ) | (0.06 | ) | (0.05 | ) | ||||||||||
| Net realized gain | (0.14 | ) | (0.23 | ) | (0.22 | ) | (0.22 | ) | (0.17 | ) | ||||||||||
| Total distributions to preferred shareholders | (0.17 | ) | (0.30 | ) | (0.30 | ) | (0.28 | ) | (0.22 | ) | ||||||||||
| Net Increase/(Decrease) in Net Assets Attributable to Common Shareholders Resulting from Operations | 2.06 | 5.30 | (3.28 | ) | 4.13 | 2.59 | ||||||||||||||
| Distributions to Common Shareholders: | ||||||||||||||||||||
| Net investment income | (0.23 | ) | (0.29 | ) | (0.37 | ) | (0.28 | ) | (0.31 | ) | ||||||||||
| Net realized gain | (1.08 | ) | (0.99 | ) | (0.93 | ) | (0.97 | ) | (1.01 | ) | ||||||||||
| Return of capital | (0.01 | ) | (0.04 | ) | (0.02 | ) | (0.07 | ) | — | |||||||||||
| Total distributions to common shareholders | (1.32 | ) | (1.32 | ) | (1.32 | ) | (1.32 | ) | (1.32 | ) | ||||||||||
| Fund Share Transactions: | ||||||||||||||||||||
| Decrease in net asset value from common shares issued in rights offering | — | (0.34 | ) | — | — | — | ||||||||||||||
| Increase in net asset value from repurchase of common shares | 0.01 | — | — | — | 0.00 | (b) | ||||||||||||||
| Increase in net asset value from repurchase of preferred shares | 0.15 | — | — | — | — | |||||||||||||||
| Offering costs and adjustment to offering costs for common shares charged to paid-in capital | (0.00 | )(b) | (0.01 | ) | — | — | — | |||||||||||||
| Offering costs and adjustment to offering costs for preferred shares charged to paid-in capital | — | (0.02 | ) | — | 0.00 | (b) | (0.04 | ) | ||||||||||||
| Total from Fund share transactions | 0.16 | (0.37 | ) | — | 0.00 | (b) | (0.04 | ) | ||||||||||||
| Net Asset Value Attributable to Common Shareholders, End of Year | $ | 25.02 | $ | 24.12 | $ | 20.51 | $ | 25.11 | $ | 22.30 | ||||||||||
| NAV total return † | 10.47 | % | 22.82 | % | (13.75 | )% | 19.14 | % | 12.70 | % | ||||||||||
| Market value, end of year | $ | 21.46 | $ | 21.95 | $ | 18.30 | $ | 23.41 | $ | 20.04 | ||||||||||
| Investment total return †† | 5.06 | % | 28.13 | % | (17.10 | )% | 24.11 | % | 16.47 | % | ||||||||||
| Ratios to Average Net Assets and Supplemental Data: | ||||||||||||||||||||
| Net assets including liquidation value of preferred shares, end of year (in 000’s) | $ | 2,572,913 | $ | 2,660,903 | $ | 2,197,065 | $ | 2,629,129 | $ | 2,397,663 | ||||||||||
| Net assets attributable to common shares, end of year (in 000’s) | $ | 2,263,638 | $ | 2,186,702 | $ | 1,691,086 | $ | 2,069,871 | $ | 1,838,405 | ||||||||||
| Ratio of net investment income to average net assets attributable to common shares before preferred share distributions | 1.22 | % | 1.50 | % | 1.87 | % | 1.38 | % | 1.69 | % | ||||||||||
| Ratio of operating expenses to average net assets attributable to common shares before fees waived(c)(d) | 1.30 | % | 1.21 | %(e) | 1.35 | % | 1.38 | % | 1.39 | % | ||||||||||
| Ratio of operating expenses to average net assets attributable to common shares net of advisory fee reduction, if any (c)(f) | 1.25 | % | 1.21 | %(e) | 1.13 | % | 1.38 | % | 1.39 | % | ||||||||||
| Portfolio turnover rate | 15.6 | % | 16.0 | % | 10.8 | % | 13.3 | % | 15.6 | % | ||||||||||
See accompanying notes to financial statements.
13
The
Gabelli Dividend & Income Trust
Financial Highlights (Continued)
Selected data for a common share of beneficial interest outstanding throughout each year:
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| Cumulative Preferred Shares: | ||||||||||||||||||||
| 5.875% Series A Preferred | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | — | $ | 76,201 | $ | 76,201 | $ | 76,201 | $ | 76,201 | |||||||||||
| Total shares outstanding (in 000’s) | — | 3,048 | 3,048 | 3,048 | 3,048 | |||||||||||||||
| Liquidation preference per share | — | $ | 25.00 | $ | 25.00 | $ | 25.00 | $ | 25.00 | |||||||||||
| Average market value (g) | — | $ | 26.09 | $ | 25.66 | $ | 26.31 | $ | 26.32 | |||||||||||
| Asset coverage per share (h) | — | $ | 140.28 | $ | 108.56 | $ | 117.53 | $ | 107.18 | |||||||||||
| Series B Auction Market Preferred | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | $ | 66,175 | $ | 90,000 | $ | 90,000 | $ | 90,000 | $ | 90,000 | ||||||||||
| Total shares outstanding (in 000’s) | 3 | 4 | 4 | 4 | 4 | |||||||||||||||
| Liquidation preference per share | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
| Liquidation value (i) | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
| Asset coverage per share (h) | $ | 207,979 | $ | 140,284 | $ | 108,555 | $ | 117,528 | $ | 107,181 | ||||||||||
| Series C Auction Market Preferred | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | $ | 81,100 | $ | 108,000 | $ | 108,000 | $ | 108,000 | $ | 108,000 | ||||||||||
| Total shares outstanding (in 000’s) | 3 | 4 | 4 | 4 | 4 | |||||||||||||||
| Liquidation preference per share | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
| Liquidation value (i) | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
| Asset coverage per share (h) | $ | 207,979 | $ | 140,284 | $ | 108,555 | $ | 117,528 | $ | 107,181 | ||||||||||
| 6.000% Series D Preferred | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | — | — | $ | 31,779 | $ | 63,557 | $ | 63,557 | ||||||||||||
| Total shares outstanding (in 000’s) | — | — | 1,271 | 2,542 | 2,542 | |||||||||||||||
| Liquidation preference per share | — | — | $ | 25.00 | $ | 25.00 | $ | 25.00 | ||||||||||||
| Average market value (g) | — | — | $ | 25.83 | $ | 26.57 | $ | 26.58 | ||||||||||||
| Asset coverage per share (h) | — | — | $ | 108.56 | $ | 117.53 | $ | 107.18 | ||||||||||||
See accompanying notes to financial statements.
14
The
Gabelli Dividend & Income Trust
Financial Highlights (Continued)
Selected data for a common share of beneficial interest outstanding throughout each year:
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
| Series E Auction Rate Preferred | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | $ | 12,000 | $ | 50,000 | $ | 100,000 | $ | 121,500 | $ | 121,500 | ||||||||||
| Total shares outstanding (in 000’s) | — | (j) | 2 | 4 | 5 | 5 | ||||||||||||||
| Liquidation preference per share | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
| Liquidation value (i) | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
| Asset coverage per share (h) | $ | 207,979 | $ | 140,284 | $ | 108,555 | $ | 117,528 | $ | 107,181 | ||||||||||
| 5.250% Series G Preferred | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | $ | 100,000 | $ | 100,000 | $ | 100,000 | $ | 100,000 | $ | 100,000 | ||||||||||
| Total shares outstanding (in 000’s) | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | |||||||||||||||
| Liquidation preference per share | $ | 25.00 | $ | 25.00 | $ | 25.00 | $ | 25.00 | $ | 25.00 | ||||||||||
| Average market value (g) | $ | 25.77 | $ | 25.40 | $ | 24.83 | $ | 25.29 | $ | 25.20 | ||||||||||
| Asset coverage per share (h) | $ | 207.98 | $ | 140.28 | $ | 108.56 | $ | 117.53 | $ | 107.18 | ||||||||||
| 5.375% Series H Preferred (k) | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | $ | 50,000 | $ | 50,000 | — | — | — | |||||||||||||
| Total shares outstanding (in 000’s) | 2,000 | 2,000 | — | — | — | |||||||||||||||
| Liquidation preference per share | $ | 25.00 | $ | 25.00 | — | — | — | |||||||||||||
| Average market value (g) | $ | 26.49 | $ | 26.08 | — | — | — | |||||||||||||
| Asset coverage per share (h) | $ | 207.98 | $ | 140.28 | — | — | — | |||||||||||||
| Asset Coverage (l) | 832 | % | 561 | % | 434 | % | 470 | % | 429 | % | ||||||||||
| † | Based on net asset value per share and reinvestment of distributions at net asset value on the ex-dividend date. |
| †† | Based on market value per share, adjusted for reinvestment of distributions at prices determined under the Fund’s dividend reinvestment plan. |
| (a) | Calculated based on average common shares outstanding on the record dates throughout the years. (b) Amount represents less than $0.005 per share. |
| (c) | The Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. For all periods presented there was no impact on the expense ratios. |
| (d) | Ratio of operating expenses to average net assets including liquidation value of preferred shares before fee waived for the years ended December 31, 2020, 2019, 2018, 2017, and 2016 would have been 1.07%, 0.96%, 1.06%, 1.07%, and 1.07%, respectively. |
| (e) | In 2019, due to failed auctions relating to previous fiscal years, the Fund reversed accumulated auction agent fees. The 2019 ratio of operating expenses to average net assets attributable to common shares and the ratio of operating expenses to average net assets including the liquidation value of preferred shares, excluding the reversal of auction agent fees, were 1.35% and 1.07%, respectively. |
| (f) | Ratio of operating expenses to average net assets including liquidation value of preferred shares net of advisory fee reduction for the years ended December 31, 2020, 2019, 2018, 2017, and 2016 would have been 1.03%, 0.96%, 0.89%, 1.07%, and 1.07%, respectively. |
| (g) | Based on weekly prices. |
| (h) | Asset coverage per share is calculated by combining all series of preferred shares. |
| (i) | 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 auctions. | |
| (j) | Actual number of shares outstanding is less than 1,000. |
| (k) | The 5.375% Series H Preferred was issued June 7, 2019. |
| (l) | Asset coverage is calculated by combining all series of preferred shares. |
See accompanying notes to financial statements.
15
The
Gabelli Dividend & Income Trust
1. Organization. The Gabelli Dividend & Income Trust (the Fund) currently operates as a diversified closed-end management investment company organized as a Delaware statutory trust on November 18, 2003 and registered under the Investment Company Act of 1940, as amended (the 1940 Act). Investment operations commenced on November 28, 2003.
The Fund’s investment objective is to provide a high level of total return on its assets with an emphasis on dividends and income. The Fund will attempt to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in dividend paying securities (such as common and preferred stock) or other income producing securities (such as fixed income debt securities and securities that are convertible into equity securities).
2. Significant Accounting Policies. As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles (GAAP) that may require the use of management estimates and assumptions in the preparation of its financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
The global outbreak of the novel coronavirus disease, known as COVID-19, has caused adverse effects on many companies, sectors, nations, regions and the markets in general, and may continue for an unpredictable duration. The effects of this pandemic may materially impact the value and performance of the Fund, its ability to buy and sell fund investments at appropriate valuations, and its ability to achieve its investment objectives.
New Accounting Pronouncements. To improve the effectiveness of fair value disclosure requirements, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) 2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which added, removed, and modified certain aspects relating to fair value disclosure. Management has fully adopted the updates set forth in ASU 2018-13 in these financial statements.
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provides optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the financial statements.
Security Valuation. Portfolio securities listed or traded on a nationally recognized securities exchange or traded in the U.S. over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market’s official closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Trustees (the Board) so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. Portfolio securities traded on more than one national
16
The Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the Adviser).
Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market, but prior to the close of business on the day the securities are being valued. Debt obligations for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the securities are valued using the closing bid price, unless the Board determines such amount does not reflect the securities’ fair value, in which case these securities will be fair valued as determined by the Board. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. OTC futures and options on futures for which market quotations are readily available will be valued by quotations received from a pricing service or, if no quotations are available from a pricing service, by quotations obtained from one or more dealers in the instrument in question by the Adviser.
Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about the company; comparisons with the valuation and changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S. dollar value American Depositary Receipt securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security.
The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
| ● | Level 1 — quoted prices in active markets for identical securities; |
| ● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and |
| ● | Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments). |
17
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities by inputs used to value the Fund’s investments as of December 31, 2020 is as follows:
| Valuation Inputs | ||||||||||||
|
Level 1
Quoted Prices |
Level 2
Other Significant
Observable Inputs |
Total
Market Value
at 12/31/20 |
||||||||||
| INVESTMENTS IN SECURITIES: | ||||||||||||
| ASSETS (Market Value): | ||||||||||||
| Common Stocks (a) | $ | 2,507,447,708 | — | $ | 2,507,447,708 | |||||||
| Closed-End Funds | — | $ | 582,000 | 582,000 | ||||||||
| Convertible Preferred Stocks (a) | 2,479,085 | — | 2,479,085 | |||||||||
| Mandatory Convertible Securities (a) | 8,692,750 | — | 8,692,750 | |||||||||
| Preferred Stocks (a) | 4,994,550 | 1,961,434 | 6,955,984 | |||||||||
| Warrants (a) | 921,772 | — | 921,772 | |||||||||
| Convertible Corporate Bonds (a) | — | 1,897,384 | 1,897,384 | |||||||||
| Corporate Bonds (a) | — | 51,053 | 51,053 | |||||||||
| U.S. Government Obligations | — | 44,995,949 | 44,995,949 | |||||||||
| TOTAL INVESTMENTS IN SECURITIES – ASSETS | $ | 2,524,535,865 | $ | 49,487,820 | $ | 2,574,023,685 | ||||||
| (a) | Please refer to the Schedule of Investments for the industry classifications of these portfolio holdings. |
During the year ended December 31, 2020, the Fund did not have transfers into or out of Level 3.
Additional Information to Evaluate Qualitative Information.
General. The Fund uses recognized industry pricing services – approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds are ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.
Fair Valuation. Fair valued securities may be common or preferred equities, warrants, options, rights, or fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. When fair valuing a security, factors to consider include recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.
18
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
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.
Securities Sold Short. The Fund may enter into short sale transactions. Short selling involves selling securities that may or may not be owned and, at times, borrowing the same securities for delivery to the purchaser, with an obligation to replace such borrowed securities at a later date. The proceeds received from short sales are recorded as liabilities and the Fund records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of an open short position on the day of determination. The Fund records a realized gain or loss when the short position is closed out. By entering into a short sale, the Fund bears the market risk of an unfavorable change in the price of the security sold short. Dividends on short sales are recorded as an expense by the Fund on the ex-dividend date and interest expense is recorded on the accrual basis. The broker retains collateral for the value of the open positions, which is adjusted periodically as the value of the position fluctuates.
Investments in Other Investment Companies. The Fund may invest, from time to time, in shares of other investment companies (or entities that would be considered investment companies but are excluded from the definition pursuant to certain exceptions under the 1940 Act) (the Acquired Funds) in accordance with the 1940 Act and related rules. Shareholders in the Fund would bear the pro rata portion of the periodic expenses of the Acquired Funds in addition to the Fund’s expenses. For the year ended December 31, 2020, the Fund’s pro rata portion of the periodic expenses charged by the Acquired Funds was less than x basis point.
Foreign Currency Translations. The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments, and other assets and liabilities are translated into U.S. dollars at current exchange rates. Purchases and sales of investment securities, income, and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses that result from changes in foreign exchange rates and/or changes in market prices of securities have been included in unrealized appreciation/depreciation on investments and foreign currency translations. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase trade date and subsequent sale trade date is included in realized gain/(loss) on investments.
Foreign Securities. The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the inability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than securities of comparable U.S. issuers.
Foreign Taxes. The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
19
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
Restricted Securities. The Fund is not subject to an independent limitation on the amount it may invest in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and, accordingly, the Board will monitor their liquidity. For the restricted securities the Fund held at December 31, 2020, refer to the Schedule of Investments.
Securities Transactions and Investment Income. Securities transactions are accounted for on the trade date with realized gain/(loss) on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on an accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method or amortized to earliest call date, if applicable. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities that are recorded as soon after the ex-dividend date as the Fund becomes aware of such dividends.
Custodian Fee Credits. When cash balances are maintained in the custody account, the Fund receives credits which are used to offset custodian fees. The gross expenses paid under the custody arrangement are included in custodian fees in the Statement of Operations with the corresponding expense offset, if any, shown as “Custodian fee credits.”
Distributions to Shareholders. Distributions to common shareholders are recorded on the ex-dividend date. The characterization of distributions are based on income and capital gains as determined in accordance with federal income tax regulations, which may differ from income and capital gains as determined under GAAP. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Distributions from net investment income for federal income tax purposes include net realized gains on foreign currency transactions. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. Permanent differences were primarily due to the tax treatment of currency gains and losses and reversal of prior year real estate investment trust capital gain. These reclassifications have no impact on the NAV of the Fund. For the year ended December 31, 2020, reclassifications were made to decrease paid-in capital by $415,836, with an offsetting adjustment to total distributable earnings.
Under the Fund’s current common share distribution policy, the Fund declares and pays monthly distributions from net investment income, capital gains, and paid-in capital. The actual source of the distribution is determined after the end of the calendar 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.
20
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
Distributions to shareholders of the Fund’s 5.875% Series A Preferred Shares, Series B Auction Market Preferred Shares, Series C Auction Market Preferred Shares, Series E Auction Rate Preferred Shares, 5.250% Series G Preferred Shares, and 5.375% Series H 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, 2020 and 2019 was as follows:
| Year Ended | Year Ended | |||||||||||||||
| December 31, 2020 | December 31, 2019 | |||||||||||||||
| Common | Preferred | Common | Preferred | |||||||||||||
| Distributions paid from: | ||||||||||||||||
| Ordinary income (inclusive of short term capital gains) | $ | 22,340,720 | $ | 2,871,312 | $ | 27,072,100 | $ | 6,304,653 | ||||||||
| Net long term capital gains | 96,545,555 | 12,408,394 | 79,562,618 | 18,528,846 | ||||||||||||
| Return of capital | 639,170 | — | 3,082,841 | — | ||||||||||||
| Total distributions paid | $ | 119,525,445 | $ | 15,279,706 | $ | 109,717,559 | $ | 24,833,499 | ||||||||
Provision for Income Taxes. The Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for federal income taxes is required.
As of December 31, 2020, the components of accumulated earnings/losses on a tax basis were as follows:
| Net unrealized appreciation on investments and foreign currency translations | $ | 926,241,702 | ||
| Other temporary differences* | (134,451 | ) | ||
| Post October loss deferrals** | (711,001 | ) | ||
| Total | $ | 925,396,250 |
| * | Other temporary differences are due to preferred share class distributions payable. |
| ** | Under the current law, qualified late year losses realized after October 31 and prior to the Fund’s year end may be elected as occurring on the first day of the following year. For the year ended December 31, 2020, the Fund elected to defer $711,001 of late year ordinary income losses. |
At December 31, 2020, the temporary differences between book basis and tax basis unrealized appreciation on investments were primarily due to the deferral of losses from wash sales for tax purposes.
The following summarizes the tax cost of investments and the related net unrealized appreciation at December 31, 2020:
| Gross | Gross | ||||||
| Unrealized | Unrealized | Net Unrealized | |||||
| Cost | Appreciation | Depreciation | Appreciation | ||||
| Investments | $1,647,807,030 | $1,008,242,655 | $(82,026,000) | $926,216,655 |
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. During the year ended December 31, 2020, the Fund did not incur any income tax, interest, or penalty. As of December 31, 2020, the Adviser has reviewed all open tax years and concluded that there was
21
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
no impact to the Fund’s net assets or results of operations. The Fund’s federal and state tax returns for the prior three 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.
3. Investment Advisory Agreement and Other Transactions. The Fund has entered into an investment advisory agreement (the Advisory Agreement) with the Adviser which provides that the Fund will pay the Adviser a fee, computed weekly and paid monthly, equal on an annual basis to 1.00% of the value of the Fund’s average weekly net assets including the liquidation value of preferred shares. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Fund’s portfolio and oversees the administration of all aspects of the Fund’s business and affairs.
The Adviser has agreed to reduce the management fee on the incremental assets attributable to the Series A, 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, 2020, the Fund’s total return on the NAV of the common shares did not exceed the stated dividend rate on the Preferred Shares at the time of their redemption. Thus, advisory fees with respect to the liquidation value of the Preferred Shares were reduced by $1,038,175. Advisory fees were accrued on the Series G and Series H Preferred Shares.
During the year ended December 31, 2020, the Fund paid $38,684 in brokerage commissions on security trades to G.research, LLC, an affiliate of the Adviser.
During the year ended December 31, 2020, the Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. The amount of such expenses paid through this directed brokerage arrangement during this period was $16,231.
The cost of calculating the Fund’s NAV per share is a Fund expense pursuant to the Advisory Agreement. Under the sub-administration agreement with Bank of New York Mellon, the fees paid include the cost of calculating the Fund’s NAV. The Fund reimburses the Adviser for this service. During the year ended December 31, 2020, the Fund accrued $45,000 in accounting fees in the Statement of Operations.
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, 2020, the Fund accrued $203,715 in payroll expenses in the Statement of Operations.
The Fund pays each Trustee who is not considered an affiliated person an annual retainer of $18,000 plus $2,000 for each Board meeting attended. Each Trustee is reimbursed by the Fund for any out of pocket expenses incurred in attending meetings. All Board committee members receive $1,000 per meeting attended, the Audit Committee Chairman receives an annual fee of $3,000, and the Nominating Committee Chairman and the Lead Trustee each receives an annual fee of $2,000. A Trustee may receive a single meeting fee, allocated among the participating funds, for participation in certain meetings held on behalf of multiple funds. Trustees
22
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund.
4. Portfolio Securities. Purchases and sales of securities during the year ended December 31, 2020, other than short term securities and U.S. Government obligations, aggregated $357,736,905, and $554,919,105, respectively.
5. Capital. The Fund is authorized to issue an unlimited number of common shares of beneficial interest (par value $0.001). The Board has authorized the repurchase and retirement of its common shares on the open market when the shares are trading at a discount of 7.5% or more (or such other percentage as the Board may determine from time to time) from the NAV of the shares. During the year ended December 31, 2020, the Fund repurchased and retired 198,934 common shares in the open market at an investment of $2,721,114 and an average discount of approximately 18.65% from its NAV. During the year ended December 31, 2019, the Fund did not repurchase any common shares.
For the year ended December 31, 2020, transactions in common stock were as follows:
| Year Ended | ||||||||
| December 31, 2020 | ||||||||
| Shares | Amount | |||||||
| Net decrease from repurchase of common shares | (198,934 | ) | $ | (2,721,114 | ) | |||
The Fund has an effective shelf registration initially authorizing the offering of an additional $500 million of common or preferred shares or notes under the current shelf registration. As of December 31, 2020, after considering the common shares rights offering, the Fund has approximately $335 million available for issue under the current shelf registration.
During the year ended December 31, 2019, the Fund completed a rights offering whereby one transferable right was issued for each common share held as of October 7, 2019. Ten rights were required to purchase one additional common share at the subscription price of $20.00. On November 21, 2019, the Fund issued 8,243,243 common shares receiving net proceeds of $163,936,529, after the deduction of offering expenses of $548,000 and solicitation fees of $477,202. The NAV of the Fund was reduced by $(0.34) per share on the day the additional common shares were issued due to the additional common shares being issued below NAV.
On June 7, 2019, the Fund issued 2,000,000 shares of Series H Preferred, receiving $48,145,405 after the deduction of offering expenses of $279,595 and underwriting fees of $1,575,000. The Series H Preferred has a liquidation value of $25 per share, annual dividend rate of 5.375%, and is noncallable before June 7, 2024.
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, and Series H Preferred Shares at redemption prices of $25,000, $25,000, $25,000, $25, 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
23
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
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.
For Series B, Series C, and Series E Preferred Shares, the dividend rates, as set by the auction process that is generally held every seven days, are expected to vary with short term interest rates. Since February 2008, the number of Series B, Series C, and Series E Preferred Shares subject to bid orders by potential holders has been less than the number of shares of Series B, Series C, and Series E Preferred Shares subject to sell orders. Holders that have submitted sell orders have not been able to sell any or all of the Series B, Series C, and Series E Preferred Shares for which they have submitted sell orders. Therefore the weekly auctions have failed, and the dividend rate has been the maximum rate. The current maximum rate for Series B, Series C, and Series E Preferred Shares is 150, 150, and 250 basis points, respectively, greater than the seven day ICE LIBOR rate on the date of such auction. Existing Series B, Series C, and Series E Preferred shareholders may submit an order to hold, bid, or sell such shares on each auction date, or trade their shares in the secondary market. During the year ended December 31, 2019, the Fund redeemed and retired 2,000 shares of its outstanding Series E Auction Rate Preferred Shares at the liquidation value of $50,000,000. During the year ended December 31, 2020 the Fund repurchased and retired 953 shares of Series B Preferred, 1,076 shares of Series C Preferred, and 1,520 shares of Series E Preferred plus dividends accrued to the dates of redemption.
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 December 26, 2019, the Fund redeemed and retired 1,271,148 shares of the Series D Preferred Stock at the liquidation value of $25 per share plus accrued and unpaid dividends. 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, 2020 and 2019, the Fund did not repurchase any Series G 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.
24
The
Gabelli Dividend & Income Trust
Notes to Financial Statements (Continued)
The following table summarizes Cumulative Preferred Share information:
| Series | Issue Date | Authorized |
Number of Shares
Outstanding at 12/31/20 |
Net
Proceeds |
2020 Dividend
Rate Range |
Dividend
Rate at 12/31/20 |
Accrued
Dividend at 12/31/20 |
|||||||||||||||||
| B Auction Market | October 12, 2004 | 4,000 | 2,647 | $ | 98,858,617 | 1.593% to 3.086% | 1.602 | % | $ | 2,904 | ||||||||||||||
| C Auction Market | October 12, 2004 | 4,800 | 3,244 | 118,630,341 | 1.592% to 3.093% | 1.596 | % | 21,304 | ||||||||||||||||
| E Auction Rate | November 3, 2005 | 5,400 | 480 | 133,379,387 | 2.594% to 4.075% | 2.595 | % | — | ||||||||||||||||
| G 5.250% | July 1, 2016 | 4,000,000 | 4,000,000 | 96,634,565 | Fixed Rate | 5.250 | % | 72,917 | ||||||||||||||||
| H 5.375% | June 7, 2019 | 2,000,000 | 2,000,000 | 48,145,405 | Fixed Rate | 5.375 | % | 37,326 | ||||||||||||||||
The holders of Preferred Shares generally are entitled to one vote per share held on each matter submitted to a vote of shareholders of the Fund and will vote together with holders of common shares as a single class. The holders of Preferred Shares voting together as a single class also have the right currently to elect two Trustees and under certain circumstances are entitled to elect a majority of the Board of Trustees. In addition, the affirmative vote of a majority of the votes entitled to be cast by holders of all outstanding shares of the Preferred Shares, voting as a single class, will be required to approve any plan of reorganization adversely affecting the Preferred Shares, and the approval of two-thirds of each class, voting separately, of the Fund’s outstanding voting stock must approve the conversion of the Fund from a closed-end to an open-end investment company. The approval of a majority (as defined in the 1940 Act) of the outstanding Preferred Shares and a majority (as defined in the 1940 Act) of the Fund’s outstanding voting securities are required to approve certain other actions, including changes in the Fund’s investment objectives or fundamental investment policies.
6. Indemnifications. The Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
7. Subsequent Events. Management has evaluated the impact on the Fund of all other subsequent events occurring through the date the financial statements were issued and has determined that there were no other subsequent events requiring recognition or disclosure in the financial statements.
25
The Gabelli Dividend & Income Trust
Report of Independent Registered Public Accounting Firm
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, 2020, the related statement of operations for the year ended December 31, 2020, the statement of changes in net assets attributable to common shareholders for each of the two years in the period ended December 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2020 (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, 2020, the results of its operations for the year then ended, the changes in its net assets attributable to common shareholders for each of the two years in the period ended December 31, 2020 and the financial highlights for each of the five years in the period ended December 31, 2020 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, 2020 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 26, 2021
We have served as the auditor of one or more investment companies in the Gabelli/GAMCO Fund Complex since 1986.
26
The
Gabelli Dividend & Income Trust
Additional Fund Information (Unaudited)
Summary of Updated Information Regarding the Fund
The following information in this annual report is a summary of certain information about the Fund and changes since the Fund’s last annual report to shareholders as of December 31, 2019, for the fiscal year ended December 31, 2020. This information may not reflect all of the changes that have occurred since you invested in the Fund.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective 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 and in the SAI 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.
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.
27
The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 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. 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
28
The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 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, therefore, it is likely that they 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.
29
The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis. Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue to hold the securities.
Fixed income securities, including non-investment grade securities and comparable unrated securities, frequently have call or buy-back features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security, thus resulting in a decreased return for the Fund.
The market for non-investment grade and comparable unrated securities has experienced periods of significantly adverse price and liquidity several times, particularly at or around times of economic recession. Past market recessions have adversely affected the value of such securities and the ability of certain issuers of such securities to repay principal and pay interest thereon or to refinance such securities. The market for those securities may react in a similar fashion in the future.
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.
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,
30
The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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.
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. 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
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declines in long positions in the same or similar securities. The short sale of a security 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 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.”
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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 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 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.
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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 Prospectus and in the SAI. 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.
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.
Investment Restrictions. The Fund has adopted certain fundamental investments policies designed to limit investment risk and maintain portfolio diversification. See “Investment Restrictions” in the SAI 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” in the SAI, 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 Fund’s Series A Preferred, Series B Auction Market Preferred, Series C Auction Market Preferred, Series D Preferred, Series E Auction Rate Preferred, Series G Preferred and Series H Preferred respective Statements of Preferences, 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” in the SAI.
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.”
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
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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.
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.
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.
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The Fund’s successful use of options on indices depends upon its ability to predict the direction of the market and is subject to various additional risks. The correlation between movements in the index and the price of the securities being hedged against is imperfect and the risk from imperfect correlation increases as the composition of the Fund diverges from the composition of the relevant index. Accordingly, a decrease in the value of the securities being hedged against may not be wholly offset by a gain on the exercise or sale of a securities index put option held by the Fund.
Options on Foreign Currencies. Instead of purchasing or selling currency futures (as described below), the Fund may attempt to accomplish similar objectives by purchasing put or call options on currencies or by writing put options or call options on currencies either on exchanges or in OTC markets. A put option gives the Fund the right to sell a currency at the exercise price until the option expires. A call option gives the Fund the right to purchase a currency at the exercise price until the option expires. Both types of options serve to insure against adverse currency price movements in the underlying portfolio assets designated in a given currency. The Fund’s use of options on currencies will be subject to the same limitations as its use of options on securities described above. 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 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
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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 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 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
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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 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.
Many trust preferred securities are issued by trusts or other special purpose entities established by operating companies and are not a
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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.
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 |
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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.
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 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.
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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 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
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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 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 and this SAI 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 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
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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.
RISK FACTORS AND SPECIAL CONSIDERATION
Investors should consider the following risk factors and special considerations associated with investing in the Fund:
General Risks
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 will invest 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.
Coronavirus (“COVID-19”) and Global Health Event Risk. There is an outbreak of a highly contagious form of a novel coronavirus known as “COVID-19,” which the World Health Organization has declared a global pandemic. The United States has declared a national emergency, and for the first time in its history, every state in the United States is under a federal disaster declaration. Many states, including those in which we and our portfolio companies operate, have 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, have since experienced a surge in the reported number of cases and hospitalizations related to the COVID-19 pandemic. This increase in cases has 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, in December 2020, the U.S. Food and Drug Administration authorized vaccines produced by Pfizer-BioNTech and Moderna for emergency use. 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. The delay in distributing the vaccines 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 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 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 our business include, but are not limited to:
| ● | sudden, unexpected and/or severe declines in the market price of our securities 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 to any class of equity holders; |
| ● | inability of the Fund to service debt to the extent it has any notes or credit facilities outstanding; |
| ● | 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; |
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| ● | increased risk of default or bankruptcy by the companies in which we invest; |
| ● | increased risk of companies in which we invest being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as a going concern; |
| ● | inability of the companies in which we invest to complete announced transactions; |
| ● | 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 we invest being disproportionally impacted by governmental action aimed at slowing the spread of COVID-19; |
| ● | 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 market price of our common and preferred shares.
It is virtually impossible to determine the ultimate impact of COVID-19 at this time. Accordingly, an investment in the Fund is subject to an elevated degree of risk as compared to other market environments.
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 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. 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.
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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 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.
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
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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 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. The Fund may be subject to a greater risk of rising interest rates due to the current period of historically low interest rates. Recently, there have been some modest signs of inflationary price movements. There is a possibility that interest rates may rise, which would likely drive down the prices of income- or dividend-paying securities. Fluctuations in the market price of the Fund’s investments will not affect interest income derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. The Fund may lose money if short term or long term interest rates rise sharply in a manner not anticipated by Fund management. To the extent the Fund invests in 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 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 |
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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 NAV 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 NAV of the portfolio by approximately 5%; if interest rates increase by 1%, the NAV 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 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. |
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 prospectus 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; | |
| ● | 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; |
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| ● | 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; | |
| ● | 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.
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
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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 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.
The events surrounding negotiations regarding the U.S. federal government debt ceiling and deficit reduction could adversely affect the Fund’s ability to achieve its investment objective. 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 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
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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 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 |
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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 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 NAV 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 NAV of a fund’s shares to decline. |
Governments of many frontier countries in which the Fund may invest may exercise substantial influence over many aspects of the private sector. In some cases, the governments of such frontier countries may own or control certain companies. Accordingly, government actions could have a significant effect on economic conditions in a frontier country and on market conditions, prices and yields of securities in the Fund’s portfolio. Moreover, the economies of frontier countries may be heavily dependent upon international trade and, accordingly, have been and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade.
| ● | Eurozone Risk. A number of countries in the EU have experienced, and may continue to experience, severe economic and financial difficulties. 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 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. |
On June 23, 2016, the United Kingdom (“UK”) held a referendum on whether to remain a member state of the European Union (“EU”), in which voters favored the UK’s withdrawal from the EU, an event widely referred to as “Brexit” and which triggered a two-year period of negotiations on the terms of withdrawal. The formal notification to the European Council required under Article 50 of the Treaty on EU was made on March 29, 2017, triggering a two year period during which the terms of exit were negotiated. Formal negotiations have concluded between the UK and the EU; however, the deal still requires ratification by the U.K. Parliament and implementation into law through the European Union (Withdrawal) Act 2018. Approval by the U.K. Parliament is not guaranteed,
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and therefore political uncertainty in the UK continues. As a result of Brexit, the financial markets experienced high levels of volatility and it is likely that, in the near term, Brexit will continue to bring about higher levels of uncertainty and volatility. During this period of uncertainty, the negative impact on not only the UK and European economies, but the broader global economy, could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth for companies that rely significantly on Europe for their business activities and revenues. It is possible, that certain economic activity will be curtailed until some signs of clarity begin to emerge, including negotiations around the terms for the UK’s exit out of the EU. Any further exits from the EU, or the possibility of such exits, would likely cause additional market disruption globally and introduce new legal and regulatory uncertainties.
In addition, certain European countries have recently 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 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 hedged positions to avoid adverse tax consequences; |
| ● | the possible inability of the Fund to purchase or sell a security or instrument at a time that otherwise would be favorable for it to do so, or the possible need for the Fund to sell a security or instrument at a disadvantageous time due to a need for the Fund to maintain “cover” or to segregate securities in connection with the hedging techniques; and |
| ● | the creditworthiness of counterparties. |
Options, futures contracts, swaps contracts, and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States, may not involve a
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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 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.
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Leverage Risk. The Fund currently uses financial leverage for investment purposes by issuing preferred shares. As of December 31, 2018, the amount of leverage represented approximately 23% 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 will result in a higher yield or return 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 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 play 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 the aftermath of the war in Iraq, instability in Afghanistan, Pakistan, Egypt, Libya, Syria, Russia, Ukraine and the Middle East, ongoing epidemics 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 (such as the Greek crisis), sovereign debt downgrades, increasingly strained relations between the United States and a number of foreign countries, including traditional allies, such as certain European countries, and historical adversaries, such as North Korea, Iran, China and Russia, and the international community generally, new and continued political unrest in various countries, such as Venezuela and Spain, the exit or potential exit of one or more countries from the EU or the European Monetary Union (the “EMU”), continued changes in the balance of political power among and within the branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the United States and worldwide.
Due to a lapse in appropriations, a partial U.S. government shutdown occurred from December 22, 2018 through January 25, 2019. The impact of the shutdown on the Fund, issuers in which the Fund invests, the financial markets and the broader economy is uncertain. 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
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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.
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 UK’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.
The occurrence of any of these above events could have a significant adverse impact on the value and risk profile of the Fund’s portfolio. The Fund does not know how long the securities markets may be affected by similar events and cannot predict the effects of similar events in the future on the U.S. economy and securities markets. There can be no assurance that similar events and other market disruptions will not have other material and adverse implications.
Economic Events and Market Risk. Periods of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events both within and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s securities uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If there is a significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s outstanding leverage.
Risks resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery, the financial condition of financial institutions and our business, financial condition and results of operation. Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect to certain interest rates and the decision to end its quantitative easing policy, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return to unfavorable economic conditions could impair the Fund’s ability to achieve its investment objective.
Tax Cuts and Jobs Act of 2017. Congress has enacted a tax reform bill that, among other things, significantly changes the taxation of business entities (including by significantly lowering corporate tax rates), the deductibility of interest expense, and the timing in which certain income items are recognized (potentially including, in certain cases, income from debt and other financial instruments). We cannot predict the impact, if any, of these changes to our business. Until we can evaluate how these changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them.
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, their regulatory agencies or self-regulatory organizations may take actions that affect the regulation of the issuers in which the Fund invests. Legislation or regulation may also change the way in which the Fund is regulated. Such legislation or regulation could limit or preclude the Fund’s ability to achieve its investment objective.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), signed into law by President Obama on July 21, 2010, contains sweeping financial legislation regarding the operation of banks, private fund managers and other financial institutions. The Dodd-Frank Act includes provisions regarding, among other things, the regulation of derivatives (see “Investment Objective and Policies — Additional Risks Relating to Derivative Investments — Dodd-Frank Act Risk” in the SAI), the identification, monitoring and prophylactic regulation of systemic risks to financial markets, and the regulation of proprietary trading and investment activity of banking institutions. The continuing implementation of the Dodd-Frank Act and any other regulations could adversely affect the Investment Adviser and the Fund. The Investment Adviser may attempt to take certain actions to lessen the impact of the Dodd-Frank Act and any other legislation or regulation affecting the Fund, although no assurances can be given that such actions would be successful and no assurances can be given that such actions would not have a significant negative impact on the Fund. The ultimate impact of the Dodd-Frank Act, and
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any additional future legislation or regulation, is not yet certain and the Investment Adviser and the Fund may be affected by governmental action in ways that are unforeseeable.
Furthermore, the Dodd-Frank Act created the Financial Stability Oversight Council (“FSOC”), an interagency body charged with identifying and monitoring systemic risks to financial markets. The FSOC has the authority to require that non-bank financial companies that are “predominantly engaged in financial activities,” such as the Fund and the Investment Adviser, whose failure it determines would pose systemic risk, be placed under the supervision of the Federal Reserve. The FSOC has the authority to recommend that the Federal Reserve adopt more stringent prudential standards and reporting and disclosure requirements for non-bank financial companies supervised by the Federal Reserve. The FSOC also has the authority to make recommendations to the Federal Reserve on various other matters that may affect the Fund, including requiring financial firms to submit resolution plans, mandating credit exposure reports, establishing concentration limits and limiting short-term debt. The FSOC may also recommend that other federal financial regulators impose more stringent regulation upon, or ban altogether, financial activities of any financial firm that poses what it determines are significant risks to the financial system. In the event that the FSOC designates the Fund or the Investment Adviser as a systemic risk to be placed under the Federal Reserve’s supervision, the Fund or the Investment Adviser could face stricter prudential standards, including risk-based capital requirements, leverage limits, liquidity requirements, concentration requirements and overall risk management requirements, among other restrictions. Such requirements could hinder the Fund’s ability to meet its investment objective and may place the Fund at a disadvantage with respect to its competitors.
Moreover, 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, 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 the Fund’s use of various portfolio management strategies or techniques and adversely impact the Fund.
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 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.
The Trump administration has called for, and in certain instances has begun to implement, significant changes to U.S. trade, healthcare, immigration, foreign, and government regulatory policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels. Recent events have created a climate of heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far reaching implications. There has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. To the extent the U.S. Congress or Trump administration implements changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business, they could adversely affect our business, financial condition, operating results and cash flows. Until we know what policy changes are made and how those changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them.
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.
LIBOR Risk. According to various reports, certain financial institutions, commencing as early as 2005 and throughout the global financial crisis, routinely made artificially low submissions in the LIBOR setting process. Since the LIBOR scandal came to light, several financial institutions have been fined significant amounts by various financial regulators in connection with allegations of manipulation of LIBOR rates. Other financial institutions in various countries are being investigated for similar actions. These developments may have adversely affected the interest rates on securities whose interest payments were determined by reference to LIBOR. Any future similar developments could, in turn, reduce the value of such securities owned by the Fund.
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. In August 2017, the Federal Reserve Board requested public comment on a proposal by the Federal Reserve Bank of New York, in cooperation with the Office of Financial Research, to produce three new reference rates intended to serve as alternatives to LIBOR. These alternative rates are based on overnight repurchase agreement transactions secured by U.S. Treasury Securities. In December 2017, following consideration of public comments, the Federal Reserve Board concluded that the public would benefit if the Federal Reserve
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Bank of New York published the three proposed reference rates as alternatives to LIBOR (the “Federal Reserve Board Notice”). The Federal Reserve Bank of New York published these alternative rates in April 2018.
There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. Abandonment of or modifications to LIBOR could have adverse impacts on newly issued financial instruments and existing financial instruments which reference LIBOR. While some instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate setting methodology, not all instruments may have such provisions and there is significant uncertainty regarding the effectiveness of any such alternative methodologies. Abandonment of or modifications to LIBOR could lead to significant short-term and long-term uncertainty and market instability. It remains uncertain how such changes would be implemented and the effects such changes would have on the Fund, issuers of instruments in which the Fund invests and financial markets generally.
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.
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. As inflation increases, the real value of the Fund’s shares and distributions thereon can 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.
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 in the SAI), 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. For example, the regulatory and tax environment for derivative instruments in which the Fund may participate is evolving, and such changes in the regulation or taxation of derivative instruments may have material adverse effects on the value of derivative instruments held by the Fund and the ability of the Fund to pursue its investment strategies.
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, 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.
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. See “Anti-Takeover Provisions of the Fund’s Governing Documents.”
Legislation Risk. At any time after the date of this Prospectus, 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
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obligations to the Fund in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Fund at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance and returns to shareholders. The termination of the Fund’s relationship with any service provider, or any delay in appointing a replacement for such service provider, could materially disrupt the business of the Fund and could have a material adverse effect on the Fund’s performance and returns to shareholders.
Cyber Security Risk. The Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized access to relevant systems, compromises to networks or devices that the Fund and its service providers use to service the Fund’s operations; or operational disruption or failures in the physical infrastructure or operating systems that support the Fund and its service providers. Cyber attacks 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 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.
Misconduct of Employees and of Service Providers Risk. Misconduct or misrepresentations by employees of the Investment Adviser or the Fund’s service providers could cause significant losses to the Fund. Employee misconduct may include binding the Fund to transactions that exceed authorized limits or present unacceptable risks and unauthorized trading activities, concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions by the Fund’s service providers, including, without limitation, failing to recognize trades and misappropriating assets. In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation or serious financial harm, including limiting the Fund’s business prospects or future marketing activities. Despite the Investment Adviser’s due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully comprehended, thereby potentially undermining the Investment Adviser’s due diligence efforts. As a result, no assurances can be given that the due diligence performed by the Investment Adviser will identify or prevent any such misconduct.
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 Auction Market Preferred, Series C Auction Market Preferred and Series E Auction Rate Preferred have failed. Holders of our auction rate preferred have continued to receive their dividends on the auction rate preferred
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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 Auction Market Preferred and Series C Auction Market Preferred 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 Auction Rate Preferred. 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, 2018, the Fund made distributions of $1.32 per common share, approximately $0.0204 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 borrowings, 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. With respect to ratings (if any) of the notes or preferred shares, a rating by a ratings 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 does not address the liquidity or any other market risks of the securities being rated. A rating agency could downgrade the rating of our notes or preferred shares, which may make such securities less liquid in the secondary market. If a rating agency downgrades the rating assigned to our preferred shares or notes, we may alter our portfolio or redeem all or a portion of the preferred shares or notes that are then redeemable 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 Risks 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 or accretion of the aggregate net asset value of their common shares. Such dilution or accretion 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
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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, 2018, the amount of leverage represented approximately 23% of the Fund’s net assets.
The Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset coverage for the preferred shares. Such volatility may increase the likelihood of the Fund having to sell investments in order to meet its obligations to make distributions on the preferred shares or principal or interest payments on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use of leverage may require it to 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 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 notes 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 and exceeds 200% of the amount of preferred shares and debt outstanding, 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
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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. See “Description of the Securities — Preferred Shares” and “Description of the Securities — Notes.”
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. |
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 desribed 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.
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 purchaseable 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.
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)
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or because of a credit or liquidity problem, thus causing the Fund to suffer a loss. Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the Fund has concentrated its transactions with a single or small group of counterparties.
Failure of Futures Commission Merchants and Clearing Organizations Risk. The Fund may deposit funds required to margin open positions in the derivative instruments subject to the 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 Dodd-Frank Act (the “Derivatives Title”) imposes a new regulatory structure on derivatives markets, with particular emphasis on swaps and security based swaps (collectively “swaps”). This new 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 Fund 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 Investment Adviser, or at least make them more costly.
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 Adviser may be required to become a participant of a new 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 Adviser and/or 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 Adviser, or at least make them more costly.
Additionally, the Regulators have finalized regulations with a phased implementation that 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 each proposed, but not yet adopted, capital requirements for swap dealers, and the SEC is still in the process of finalizing its proposed uncleared margin rules. As uncleared margin and capital requirements have been and continue to be finalized and implemented, 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 Investment Adviser 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
62
The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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 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 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.
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The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
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.
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY
CASH PURCHASE PLANS
Under the Fund’s Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan (the “Plan”), a Shareholder whose shares of common stock are registered in his or her own name will have all distributions reinvested automatically by Computershare Trust Company, N.A. (“Computershare”), which is an agent under the Plan, unless the shareholder elects to receive cash. Distributions with respect to shares registered in the name of a broker-dealer or other nominee (that is, in “street name”) will be reinvested by the broker or nominee in additional shares under the Plan, unless the service is not provided by the broker or nominee or the shareholder elects to receive distributions in cash. Investors who own shares of common stock registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record holder by Computershare as dividend-disbursing agent.
Enrollment in the Plan
It is the policy of The Gabelli Dividend & Income Trust (the “Fund”) to automatically reinvest dividends payable to common shareholders. As a “registered” shareholder you automatically become a participant in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”). The Plan authorizes the Fund to credit common shares to participants upon an income dividend or a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value. All distributions to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to the Plan in additional shares of the Fund. Plan participants may send their common shares certificates to Computershare Trust Company, N.A. (“Computershare”) to be held in their dividend reinvestment account. Registered shareholders wishing to receive their distributions in cash may submit this request through the Internet, by telephone or in writing to:
The Gabelli Dividend & Income Trust
c/o Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Telephone: (800) 336-6983
Website: www.computershare.com/investor
Shareholders requesting this cash election must include the shareholder’s name and address as they appear on the Fund’s records. Shareholders with additional questions regarding the Plan or requesting a copy of the terms of the Plan, may contact Computershare at the website or telephone number above.
If your shares are held in the name of a broker, bank, or nominee, you should contact such institution. If such institution is not participating in the Plan, your account will be credited with a cash dividend. In order to participate in the Plan through such institution, it may be necessary for you to have your shares taken out of “street name” and re-registered in your own name. Once registered in your own name your distributions will be automatically reinvested. Certain brokers participate in the Plan. Shareholders holding shares in “street name” at participating institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at such institution must contact their broker to make this change.
The number of shares of common shares distributed to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market price of the Fund’s common shares is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued shares of common shares valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Fund’s common shares. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange (“NYSE”) trading day, the next trading day. If the net asset value of the common shares at the time of valuation exceeds the market price of the common shares, participants will receive shares from the Fund valued at market price. If the Fund should declare a dividend or capital gains distribution payable only in cash, Computershare will buy shares of common shares in the open market, or on the NYSE or elsewhere, for the participants’ accounts, except that Computershare will endeavor to terminate purchases in the open market and cause the Fund to issue shares at net asset value if, following the commencement of such purchases, the market value of the common shares exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will not relieve participants of any income tax which may be payable
64
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Additional Fund Information (Continued) (Unaudited)
on such distributions. A participant in the Plan will be treated for federal income tax purposes as having received, on a dividend payment date, a dividend or distribution in an amount equal to the cash the participant could have received instead of shares.
Voluntary Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their investment in the Fund. In order to participate in the Voluntary Cash Purchase Plan, shareholders must have their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making additional cash payments to Computershare for investments in the Fund’s shares at the then current market price. shareholders may send an amount from $250 to $10,000. Computershare will use these funds to purchase shares in the open market on or about the 1st and 15th of each month. Computershare will charge each shareholder who participates $0.75, plus a per share fee (currently $0.02 per share). Per share fees include any applicable brokerage commissions Computershare is required to pay and fees for such purchases are expected to be less than the usual fees for such transactions. It is suggested that any voluntary cash payments be sent to Computershare, P.O. Box 6006, Carol Stream, IL 60197-6006 such that Computershare receives such payments approximately two business days before the 1st and 15th of the month. Funds not received at least two business days before the investment date shall be held for investment until the next purchase date. A payment may be withdrawn without charge if notice is received by Computershare at least two business days before such payment is to be invested.
Shareholders wishing to liquidate shares held at Computershare may do so through the Internet, in writing or by telephone to the above-mentioned website, address or telephone number. Include in your request your name, address, and account number. Computershare will sell such shares through a broker-dealer selected by Computershare within 5 business days of receipt of the request. The sale price will equal the weighted average price of all shares sold through the Plan on the day of the sale, less applicable fees . Participants should note that Computershare is unable to accept instructions to sell on a specific date or at a specific price. The cost to liquidate shares is $2.50 per transaction as well as the per share fee (currently $0.10 per share) Per share fees include any applicable brokerage commissions Computershare is required to pay and are expected to be less than the usual fees for such transactions.
More information regarding the Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan is available by calling (914) 921-5070 or by writing directly to the Fund.
The Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of the Plan at least 30 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by Computershare on at least 30 days written notice to participants in the Plan.
Unresolved Staff Comments
The Fund does not believe that there are any material unresolved written comments, received 180 days or more before September 30, 2020 from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act or the Investment Company Act, or its registration statement.
65
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
Financial Highlights 2011-2015
| Year Ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
| Operating Performance: | ||||||||||||||||||||
| Net asset value, beginning of year | $ | 23.57 | $ | 24.18 | $ | 18.58 | $ | 17.24 | $ | 17.64 | ||||||||||
| Net investment income | 0.30 | 0.41 | 0.36 | 0.47 | 0.38 | |||||||||||||||
| Net realized and unrealized gain on investments, securities sold short, swap contracts, and foreign currency transactions | (1.39 | ) | 1.54 | 6.45 | 2.00 | 0.28 | ||||||||||||||
| Total from investment operations. | (1.09 | ) | 1.95 | 6.81 | 2.47 | 0.66 | ||||||||||||||
| Distributions to Preferred Shareholders: (a) | ||||||||||||||||||||
| Net investment income | (0.06 | ) | (0.03 | ) | (0.05 | ) | (0.09 | ) | (0.11 | ) | ||||||||||
| Net realized gain | (0.12 | ) | (0.15 | ) | (0.13 | ) | (0.08 | ) | (0.05 | ) | ||||||||||
| Total distributions to preferred shareholders . | (0.18 | ) | (0.18 | ) | (0.18 | ) | (0.17 | ) | (0.16 | ) | ||||||||||
| Net Increase in Net Assets Attributable to Common Shareholders Resulting from Operations | (1.27 | ) | 1.77 | 6.63 | 2.30 | 0.50 | ||||||||||||||
| Distributions to Common Shareholders: | ||||||||||||||||||||
| Net investment income | (0.31 | ) | (0.39 | ) | (0.31 | ) | (0.37 | ) | (0.27 | ) | ||||||||||
| Net realized gain on investments | (0.65 | ) | (1.97 | ) | (0.72 | ) | (0.31 | ) | (0.14 | ) | ||||||||||
| Return of capital | (0.28 | ) | (0.02 | ) | — | (0.28 | ) | (0.49 | ) | |||||||||||
| Total distributions to common shareholders | (1.24 | ) | (2.38 | ) | (1.03 | ) | (0.96 | ) | (0.90 | ) | ||||||||||
| Fund Share Transactions: | ||||||||||||||||||||
| Increase in net asset value from repurchase of common shares | 0.01 | — | 0.00 | (b) | 0.00 | (b) | 0.00 | (b) | ||||||||||||
| Total from Fund share transactions | 0.01 | — | 0.00 | (b) | 0.00 | (b) | 0.00 | (b) | ||||||||||||
| Net Asset Value Attributable to Common Shareholders, End of Year | $ | 21.07 | $ | 23.57 | $ | 24.18 | $ | 18.58 | $ | 17.24 | ||||||||||
| NAV total return † | (5.59 | )% | 7.48 | % | 36.47 | % | 14.40 | % | 3.61 | % | ||||||||||
| Market value, end of year | $ | 18.46 | $ | 21.66 | $ | 22.17 | $ | 16.18 | $ | 15.42 | ||||||||||
| Investment total return †† | (9.32 | )% | 8.82 | % | 44.38 | % | 11.38 | % | 6.42 | % | ||||||||||
| Ratios to Average Net Assets and Supplemental Data: | ||||||||||||||||||||
| Net assets including liquidation value of preferred shares, end of year (in 000’s) | $ | 2,198,198 | $ | 2,410,290 | $ | 2,460,474 | $ | 1,998,057 | $ | 1,888,654 | ||||||||||
| Net assets attributable to common shares, end of year (in 000’s) | $ | 1,738,940 | $ | 1,951,032 | $ | 2,001,217 | $ | 1,538,799 | $ | 1,429,397 | ||||||||||
| Ratio of net investment income to average net assets attributable to common shares before preferred share distributions | 1.60 | % | 1.71 | % | 1.65 | % | 2.62 | % | 2.12 | % | ||||||||||
| Ratio of operating expenses to average net assets attributable to common shares before fees waived | 1.33 | %(c) | 1.36 | % | 1.34 | % | 1.41 | % | 1.50 | % | ||||||||||
| Ratio of operating expenses to average net assets attributable to common shares net of advisory fee reduction, if any | 1.09 | %(c) | 1.36 | % | 1.34 | % | 1.41 | % | 1.40 | % | ||||||||||
| Ratio of operating expenses to average net assets including liquidation value of preferred shares before fees waived | 1.07 | %(c) | 1.10 | % | 1.07 | % | 1.08 | % | 1.14 | % | ||||||||||
| Ratio of operating expenses to average net assets including liquidation value of preferred shares net of advisory fee reduction, if any | 0.88 | %(c) | 1.10 | % | 1.07 | % | 1.08 | % | 1.07 | % | ||||||||||
| Portfolio turnover rate | 8.1 | % | 18.4 | % | 15.8 | % | 14.5 | % | 15.0 | % | ||||||||||
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The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
| Year Ended December 31, | ||||||||||||||||||||
| 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
| Preferred Stock: | ||||||||||||||||||||
| 5.875% Series A Cumulative Preferred Shares | ||||||||||||||||||||
| Liquidation value, end of year (in 000’s) | $ | 76,201 | $ | 76,201 | $ | 76,200 | $ | 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) | $ | 25.63 | $ | 25.26 | $ | 25.31 | $ | 25.72 | $ | 25.30 | ||||||||||
| Asset coverage per share (e) | $ | 119.66 | $ | 131.21 | $ | 133.94 | $ | 108.77 | $ | 102.81 | ||||||||||
| 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) | $ | 119,660 | $ | 131,206 | $ | 133,938 | $ | 108,766 | $ | 102,810 | ||||||||||
| 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) | $ | 119,660 | $ | 131,206 | $ | 133,938 | $ | 108,766 | $ | 102,810 | ||||||||||
| 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) | $ | 25.70 | $ | 25.53 | $ | 26.25 | $ | 26.79 | $ | 26.09 | ||||||||||
| Asset coverage per share (e) | $ | 119.66 | $ | 131.21 | $ | 133.94 | $ | 108.77 | $ | 102.81 | ||||||||||
| 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) | $ | 119,660 | $ | 131,206 | $ | 133,938 | $ | 108,766 | $ | 102,810 | ||||||||||
| Asset Coverage (g) | 479 | % | 525 | % | 536 | % | 435 | % | 411 | % | ||||||||||
| † | For the years ended 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 years ended 2012 and 2011 were 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 on 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 year ended December 31, 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 business and affairs of the Fund are managed under the direction of the Fund’s Board of Trustees. Information pertaining to the Trustees and officers of the Fund is set forth below. The Fund’s Statement of Additional Information includes additional information about the Fund’s Trustees and is available without charge, upon request, by calling 800-GABELLI (800-422-3554) or by writing to The Gabelli Dividend & Income Trust at One Corporate Center, Rye, NY 10580-1422.
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The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
|
Name,
Position(s)
Address1 and Age |
Term
of Office
and Length of Time Served2 |
Number
of Funds
in Fund Complex Overseen by Trustee |
Principal
Occupation(s)
During Past Five Years |
Other
Directorships
Held by Trustee3 |
||||
| INTERESTED TRUSTEES4: | ||||||||
|
Mario J. Gabelli, CFA
Chairman and Chief Investment Officer Age: 78 |
Since 2003** | 33 | Chairman, Chief Executive Officer, and Chief Investment Officer– Value Portfolios of GAMCO Investors, Inc. and Chief Investment Officer– Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc.; Director/ Trustee or Chief Investment Officer of other registered investment companies within the Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc. | Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director of ICTC Group Inc. (communications) (2013-2018) | ||||
|
Edward T. Tokar
Trustee Age: 73 |
Since 2003* | 2 | Private investor; Senior Managing Director of Beacon Trust Company (trust services) (2004-2016); Chief Executive Officer of Allied Capital Management LLC (1977- 2004); Vice President of Honeywell International Inc. (1977-2004) | Trustee of William & Mary Business School Foundation; Director of CH Energy Group (energy services) (2009-2013); Director, Teton Advisors, Inc. (financial services) (2008-2010) | ||||
| INDEPENDENT TRUSTEES5: | ||||||||
|
Anthony J. Colavita6,7
Trustee Age: 85 |
Since 2003*** | 20 | President of the law firm of Anthony J. Colavita, P.C. | — | ||||
|
James P. Conn6
Trustee Age: 82 |
Since 2003* | 23 | Former Managing Director and Chief Investment Officer of Financial Security Assurance Holdings Ltd. (1992-1998) | — | ||||
|
Frank J. Fahrenkopf, Jr.7
Trustee Age: 81 |
Since 2003*** | 12 | Co-Chairman of the Commission on Presidential Debates; Former President and Chief Executive Officer of the American Gaming Association (1995-2013); Former Chairman of the Republican National Committee (1983- 1989) | Director of First Republic Bank (banking); Director of Eldorado Resorts, Inc. (casino entertainment company) | ||||
|
Michael J. Melarkey
Trustee Age: 71 |
Since 2003** | 21 | Of Counsel in the law firm of McDonald Carano Wilson LLP; Partner in the law firm of Avansino, Melarkey, Knobel, Mulligan & McKenzie (1980-2015) | Chairman of Southwest Gas Corporation (natural gas utility) | ||||
|
Kuni Nakamura
Trustee Age: 52 |
Since 2018** | 33 | President of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long Island University Board of Trustees | — | ||||
|
Salvatore M. Salibello
Trustee Age: 75 |
Since 2003* | 6 | Senior Partner of Bright Side Consulting (consulting); Certified Public Accountant and Managing Partner of the certified public accounting firm of Salibello & Broder LLP (1978-2012); Partner of BDO Seidman, LLP (2012-2013) | Director of Nine West, Inc. (consumer products) (2002-2014) | ||||
|
Anthonie C. van Ekris7
Trustee Age: 86 |
Since 2003*** | 23 | Chairman and Chief Executive Officer of BALMAC International, Inc. (global import/export company) | — | ||||
|
Susan V. Watson
Trustee Age: 68 |
Since 2017** | 1 | Executive Search Associate with Spencer Stuart (2010- 2016); President of Investor Relations Association (1998- 2000) | — | ||||
|
Salvatore J. Zizza7,8
Trustee Age: 75 |
Since 2003*** | 31 | President of Zizza & Associates Corp. (private holding company); President of Bergen Cove Realty Inc.; Chairman of Harbor Diversified, Inc. (pharmaceuticals) (2009-2018); Chairman of BAM (semiconductor and aerospace manufacturing)(2000-2018); Chairman of Metropolitan Paper Recycling Inc. (recycling) (2005-2014) | Director and Chairman of Trans-Lux Corporation (business services); Director and Chairman of Harbor Diversified Inc. (pharmaceuticals) (2009-2018) | ||||
68
The
Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
|
Name,
Position(s)
Address1 and Age |
Term
of Office
and Length of Time Served2 |
Principal
Occupation(s)
During Past Five Years |
||
| OFFICERS: | ||||
|
Bruce N. Alpert
President Age: 69 |
Since 2003 | Executive Vice President and Chief Operating Officer of Gabelli Funds, LLC since 1988; Officer of registered investment companies within the Fund Complex; Senior Vice President of GAMCO Investors, Inc. since 2008; Chief Executive Officer of G.distributors, LLC (January 2020-November 2020) | ||
|
John C. Ball
Treasurer Age: 44 |
Since 2017 | Treasurer of registered investment companies within the Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds, 2014-2017 | ||
|
Peter Goldstein
Secretary and Vice President Age: 67 |
Since 2020 | General Counsel, Gabelli Funds, LLC since July 2020; General Counsel and Chief Compliance Officer, Buckingham Capital Management, Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020) | ||
|
Richard J. Walz
Chief Compliance Officer Age: 61 |
Since 2013 | Chief Compliance Officer of registered investment companies within the Fund Complex since 2013; Chief Compliance Office for Gabelli Funds, LLC since 2015 | ||
|
Carter W. Austin
Vice President and Ombudsman Age: 54 |
Since 2003 | Vice President and/or Ombudsman of closed-end funds within the Fund Complex; Senior Vice President (since 2015) and Vice President (1996-2015) of Gabelli Funds, LLC | ||
|
Laurissa M. Martire
Vice President and Ombudsman Age: 44 |
Since 2011 | Vice President and/or Ombudsman of closed-end funds within the Fund Complex; Senior Vice President (since 2019) and other positions (2003-2019) of GAMCO Investors, Inc. | ||
|
David I. Schachter
Vice President Age: 67 |
Since 2011 | Vice President and/or Ombudsman of closed-end funds within the Fund Complex; Senior Vice President (since 2015) and Vice President (1999-2015) of G.research, LLC |
| 1 | Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
| 2 | The Fund’s Board of Trustees is divided into three classes, each class having a term of three years. Each year the term of office of one class expires and the successor or successors elected to such class serve for a three year term. The three year term for each class expires as follows: |
| * | Term expires at the Fund’s 2021 Annual Meeting of Shareholders or until their successors are duly elected and qualified. |
| ** | Term expires at the Fund’s 2022 Annual Meeting of Shareholders or until their successors are duly elected and qualified. |
| *** | Term expires at the Fund’s 2023 Annual Meeting of Shareholders or until their successors are duly elected and qualified. |
For officers, includes time served in prior officer positions with the Fund. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified.
| 3 | This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment companies registered under the 1940 Act. |
| 4 | “Interested person” of the Fund, as defined in the 1940 Act. Mr. Gabelli is considered an “interested person” because of his affiliation with Gabelli Funds, LLC which acts as the Fund’s investment adviser. Mr. Tokar is considered an “interested person” because of his son’s employment by an affiliate of the investment adviser. |
| 5 | Trustees who are not interested persons are considered “Independent” Trustees. |
| 6 | This Trustee is elected solely by and represents the shareholders of the preferred shares issued by this Fund. |
| 7 | Mr. Colavita’s son, Anthony S. Colavita, and Mr. Fahrenkopf’s daughter, Leslie F. Foley, serve as directors of other funds in Gabelli/GAMCO Fund Complex. Mr. van Ekris is an independent director of Gabelli International Ltd., Gabelli Fund, LDC, GAMA Capital Opportunities Master Ltd., and GAMCO International SICAV, Mr Zizza is an independent director of Gabelli International Ltd., all of which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Adviser. |
| 8 | Mr. Zizza is an independent director of Gabelli International Ltd., which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza |
69
The Gabelli Dividend & Income Trust
Additional Fund Information (Continued) (Unaudited)
entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation regarding the making of false statements or omissions to the accountants of a company concerning a related party transaction. The company in question is not an affiliate of, nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed to cease and desist committing or causing any future violations of Rule 13b2-2 of the Securities Exchange Act of 1934, as amended. The Board has discussed this matter and has determined that it does not disqualify Mr. Zizza from serving as an Independent Trustee.
70
THE
GABELLI DIVIDEND & INCOME TRUST
INCOME TAX INFORMATION (Unaudited)
December 31, 2020
| Cash Dividends and Distributions | ||||||||||||||||||||||
|
Payable
Date |
Record
Date |
Ordinary
Investment Income(a) |
Long
Term
Capital Gains |
Return
of
Capital(b) |
Total
Amount
Paid Per Share(c) |
Dividend
Reinvestment Price |
||||||||||||||||
| Common Shares | ||||||||||||||||||||||
| 01/24/20 | 01/16/20 | $ | 0.01995 | $ | 0.08882 | $ | 0.00123 | $ | 0.11000 | $ | 21.81300 | |||||||||||
| 02/21/20 | 02/13/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 21.42980 | ||||||||||||||||
| 03/24/20 | 03/17/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 13.42210 | ||||||||||||||||
| 04/23/20 | 04/16/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 16.02020 | ||||||||||||||||
| 05/21/20 | 05/14/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 17.05020 | ||||||||||||||||
| 06/23/20 | 06/16/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 17.85330 | ||||||||||||||||
| 07/24/20 | 07/17/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 18.30090 | ||||||||||||||||
| 08/24/20 | 08/17/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 19.28720 | ||||||||||||||||
| 09/23/20 | 09/16/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 17.97450 | ||||||||||||||||
| 10/23/20 | 10/16/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 18.50260 | ||||||||||||||||
| 11/20/20 | 11/13/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 20.70350 | ||||||||||||||||
| 12/18/20 | 12/11/20 | 0.01995 | 0.08882 | 0.00123 | 0.11000 | 21.22230 | ||||||||||||||||
| $ | 0.23940 | $ | 1.06584 | $ | 0.01476 | $ | 1.32000 | |||||||||||||||
| 5.875% Series A Cumulative Preferred Shares | ||||||||||||||||||||||
| 03/26/20 | 03/19/20 | $ | 0.0673670 | $ | 0.2998205 | — | $ | 0.3671875 | ||||||||||||||
| 05/06/20 | 05/06/20 | 0.0299409 | 0.1332535 | — | 0.1631944 | |||||||||||||||||
| 06/26/20 | 06/19/20 | 0.0673670 | 0.2998205 | — | 0.3671875 | |||||||||||||||||
| 09/25/20 | 09/25/20 | 0.0666185 | 0.2964891 | — | 0.3631076 | |||||||||||||||||
| $ | 0.2312934 | $ | 1.0293836 | — | $ | 1.2606770 | ||||||||||||||||
| 5.250% Series G Cumulative Preferred Shares | ||||||||||||||||||||||
| 03/26/20 | 03/19/20 | $ | 0.0602000 | $ | 0.2679250 | — | $ | 0.3281250 | ||||||||||||||
| 06/26/20 | 06/19/20 | 0.0602000 | 0.2679250 | — | 0.3281250 | |||||||||||||||||
| 09/28/20 | 09/21/20 | 0.0602000 | 0.2679250 | — | 0.3281250 | |||||||||||||||||
| 12/28/20 | 12/18/20 | 0.0602000 | 0.2679250 | — | 0.3281250 | |||||||||||||||||
| $ | 0.2408000 | $ | 1.0717000 | — | $ | 1.3125000 | ||||||||||||||||
| 5.375% Series H Cumulative Preferred Shares | ||||||||||||||||||||||
| 03/26/20 | 03/19/20 | $ | 0.0616337 | $ | 0.2743038 | — | $ | 0.3359375 | ||||||||||||||
| 06/26/20 | 06/19/20 | 0.0616337 | 0.2743038 | 0.3359375 | ||||||||||||||||||
| 09/28/20 | 09/21/20 | 0.0616337 | 0.2743038 | 0.3359375 | ||||||||||||||||||
| 12/28/20 | 12/18/20 | 0.0616337 | 0.2743038 | 0.3359375 | ||||||||||||||||||
| $ | 0.2465348 | $ | 1.0972152 | — | $ | 1.3437500 | ||||||||||||||||
Series B and C Auction Market Cumulative and Series E Auction Rate Cumulative Preferred Shares
Auction Market and Auction Rate Preferred Shares pay dividends weekly based on the maximum rate. The distributions derived from long term capital gains for the Series B, Series C, or Series E Auction Preferred Shares were $4,020,200 for the year ended December 31, 2020.
A Form 1099-DIV has been mailed to all shareholders of record for the distributions mentioned above, setting forth specific amounts to be included in the 2020 tax returns. Ordinary income distributions include net investment income and realized net short term capital gains, if any. Ordinary income is reported in box 1a of Form 1099-DIV. Capital gain distributions are reported in box 2a of Form 1099-DIV. The long term gain distributions on common shares for the year ended December 31, 2020 were $96,545,555.
Corporate Dividends Received Deduction, Qualified Dividend Income, and U.S. Government Securities Income
In 2020, the Fund paid to common, 5.875% Series A, 5.250% Series G, and 5.375% Series H Cumulative Preferred shareholders ordinary income dividends of $0.23940, $0.23129, $0.24080, and $0.24653 per share, respectively. The Fund paid weekly distributions to Series B, C, and E preferred shareholders at varying rates throughout the year, including ordinary income dividends totaling $88.79, $90.90, and $134.69 per share, respectively. For the year ended December 31, 2020, 100% of the ordinary dividend qualified for the dividends received deduction available to corporations and 100% of the ordinary income distribution was deemed qualified dividend income, 100% of the ordinary income distribution was qualified short term capital gain, and 1.23% of the ordinary income distribution was deemed qualified interest income. The percentage of ordinary income dividends paid by the Fund during 2020 derived from U.S. Treasury securities was 1.07%. Such income is exempt from state and local tax in all states. However, many states, including New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least 50% of its assets at the end of each quarter of the Fund’s fiscal year in U.S. Government securities. The percentage of U.S. Treasury securities held as of December 31, 2020 was 1.8%.
71
THE
GABELLI DIVIDEND & INCOME TRUST
INCOME TAX INFORMATION (Unaudited) (Continued)
December 31, 2020
| Historical Distribution Summary | ||||||||||||
|
Investment
Income(a) |
Short
Term
Capital Gains(a) |
Long
Term
Capital Gains |
Return
of
Capital(b) |
Total
Distributions(c) |
Adjustment
to Cost Basis(d) |
|||||||
| Common Shares | ||||||||||||
| 2020 | $ 0.23712 | $ 0.00228 | $ 1.06584 | $ 0.01476 | $ 1.32000 | $ 0.01476 | ||||||
| 2019 | 0.29580 | 0.03072 | 0.95748 | 0.03600 | 1.32000 | 0.03600 | ||||||
| 2018 | 0.36840 | — | 0.93120 | 0.02040 | 1.32000 | 0.02040 | ||||||
| 2017 | 0.28190 | — | 0.96370 | 0.07440 | 1.32000 | 0.07440 | ||||||
| 2016 | 0.30600 | 0.00840 | 1.00560 | — | 1.32000 | — | ||||||
| 2015 | 0.30852 | 0.02780 | 0.62160 | 0.28208 | 1.24000 | 0.28208 | ||||||
| 2014(e) | 0.38937 | 0.06471 | 1.90232 | 0.02360 | 2.38000 | 0.02360 | ||||||
| 2013 | 0.31020 | 0.00550 | 0.71430 | — | 1.03000 | — | ||||||
| 2012 | 0.37632 | 0.30588 | — | 0.27780 | 0.96000 | 0.27780 | ||||||
| 2011 | 0.26832 | 0.13452 | — | 0.49716 | 0.90000 | 0.49716 | ||||||
| 5.875% Series A Cumulative Preferred Shares | ||||||||||||
| 2020 | $ 0.22905 | $ 0.00224 | $ 1.02938 | — | $ 1.26068 | — | ||||||
| 2019 | 0.33838 | 0.03509 | 1.09529 | — | 1.46875 | — | ||||||
| 2018 | 0.41585 | — | 1.05290 | — | 1.46875 | |||||||
| 2017 | 0.33224 | — | 1.13651 | — | 1.46875 | — | ||||||
| 2016 | 0.34045 | 0.00930 | 1.11900 | — | 1.46875 | — | ||||||
| 2015 | 0.47310 | 0.04264 | 0.95301 | — | 1.46875 | — | ||||||
| 2014 | 0.24271 | 0.04031 | 1.18573 | — | 1.46875 | — | ||||||
| 2013 | 0.44235 | 0.00795 | 1.01845 | — | 1.46875 | — | ||||||
| 2012 | 0.81025 | 0.65850 | — | — | 1.46875 | — | ||||||
| 2011 | 0.97821 | 0.49054 | — | — | 1.46875 | — | ||||||
| 6.000% Series D Cumulative Preferred Shares | ||||||||||||
| 2020 | — | — | — | — | — | — | ||||||
| 2019 | $ 0.34556 | $ 0.03584 | $ 1.11860 | — | $ 1.50000 | — | ||||||
| 2018 | 0.42472 | — | 1.07528 | — | 1.50000 | |||||||
| 2017 | 0.33930 | — | 1.16070 | — | 1.50000 | — | ||||||
| 2016 | 0.34768 | 0.00952 | 1.14280 | — | 1.50000 | — | ||||||
| 2015 | 0.48316 | 0.04356 | 0.97328 | — | 1.50000 | — | ||||||
| 2014 | 0.24788 | 0.04116 | 1.21096 | — | 1.50000 | — | ||||||
| 2013 | 0.45176 | 0.00812 | 1.04012 | — | 1.50000 | — | ||||||
| 2012 | 0.82760 | 0.67240 | — | — | 1.50000 | — | ||||||
| 2011 | 0.99920 | 0.50080 | — | — | 1.50000 | — | ||||||
| 5.250% Series G Cumulative Preferred Shares | ||||||||||||
| 2020 | $ 0.23846 | $ 0.00234 | $ 1.07170 | — | $ 1.31250 | — | ||||||
| 2019 | 0.30238 | 0.03135 | 0.97877 | — | 1.31250 | — | ||||||
| 2018 | 0.37161 | — | 0.94089 | — | 1.31250 | — | ||||||
| 2017 | 0.29689 | — | 1.01561 | — | 1.31250 | — | ||||||
| 2016 | 0.14789 | 0.00404 | 0.48609 | — | 0.63802 | — | ||||||
| 5.375% Series H Cumulative Preferred Shares | ||||||||||||
| 2020 | $ 0.24414 | $ 0.00239 | $ 1.09722 | — | $ 1.34375 | — | ||||||
| 2019 | 0.17113 | 0.01774 | 0.55392 | — | 0.74280 | — | ||||||
72
THE
GABELLI DIVIDEND & INCOME TRUST
INCOME TAX INFORMATION (Unaudited) (Continued)
December 31, 2020
Historical Distribution Summary
|
Investment
Income(a) |
Short
Term
Capital Gains(a) |
Long
Term
Capital Gains |
Return
of
Capital(b) |
Total
Distributions(c) |
||||||||||||||||
|
Auction
Market/Rate Cumulative
Preferred Shares |
||||||||||||||||||||
| 2020 Class B Shares | $ | 87.92391 | $ | 0.86154 | $ | 395.14455 | — | $ | 483.93000 | |||||||||||
| 2020 Class C Shares | 90.01332 | 0.88201 | 404.53467 | — | 495.43000 | |||||||||||||||
| 2020 Class E Shares | 133.38207 | 1.30697 | 599.44097 | — | 734.13000 | |||||||||||||||
| 2019 Class B Shares | 212.87165 | 22.07221 | 689.04614 | — | 923.99000 | |||||||||||||||
| 2019 Class C Shares | 213.29786 | 22.11640 | 690.42574 | — | 925.84000 | |||||||||||||||
| 2019 Class E Shares | 251.55758 | 26.08347 | 814.26895 | — | 1,091.91000 | |||||||||||||||
| 2018 Class B Shares | 247.46148 | — | 626.54852 | — | 874.01000 | |||||||||||||||
| 2018 Class C Shares | 242.70483 | — | 614.50517 | — | 857.21000 | |||||||||||||||
| 2018 Class E Shares | 341.12203 | — | 863.68797 | — | 1,204.81000 | |||||||||||||||
| 2017 Class B Shares | 146.74851 | — | 499.55149 | — | 646.30000 | |||||||||||||||
| 2017 Class C Shares | 147.18673 | — | 501.04327 | — | 648.23000 | |||||||||||||||
| 2017 Class E Shares | 204.25358 | — | 695.30642 | — | 899.56000 | |||||||||||||||
| 2016 Class B Shares | 113.64000 | 3.11000 | 373.52000 | — | 490.27000 | |||||||||||||||
| 2016 Class C Shares | 113.83000 | 3.11000 | 374.13000 | — | 491.07000 | |||||||||||||||
| 2016 Class E Shares | 172.25000 | 4.71000 | 566.16000 | — | 743.12000 | |||||||||||||||
| 2015 Class B Shares | 135.24823 | 12.19058 | 272.44119 | — | 419.88000 | |||||||||||||||
| 2015 Class C Shares | 135.44794 | 12.20858 | 272.84348 | — | 420.50000 | |||||||||||||||
| 2015 Class E Shares | 216.66839 | 19.52938 | 436.45223 | — | 672.65000 | |||||||||||||||
| 2014 Class B Shares | 67.75947 | 11.25488 | 331.03565 | — | 410.05000 | |||||||||||||||
| 2014 Class C Shares | 69.08641 | 11.47528 | 337.51831 | — | 418.08000 | |||||||||||||||
| 2014 Class E Shares | 109.54380 | 18.19527 | 535.17093 | — | 662.91000 | |||||||||||||||
| 2013 Class B Shares | 125.97838 | 2.26456 | 290.04706 | — | 418.29000 | |||||||||||||||
| 2013 Class C Shares | 126.00248 | 2.26499 | 290.10253 | — | 418.37000 | |||||||||||||||
| 2013 Class E Shares | 206.03966 | 3.70373 | 474.37661 | — | 684.12000 | |||||||||||||||
| 2012 Class B Shares | 221.40190 | 179.93810 | — | — | 401.34000 | |||||||||||||||
| 2012 Class C Shares | 216.87831 | 176.26169 | — | — | 393.14000 | |||||||||||||||
| 2012 Class E Shares | 299.97988 | 243.80012 | — | — | 543.78000 | |||||||||||||||
| 2011 Class B Shares | 243.86841 | 122.29159 | — | — | 366.16000 | |||||||||||||||
| 2011 Class C Shares | 243.76851 | 122.24149 | — | — | 366.01000 | |||||||||||||||
| 2011 Class E Shares | 285.90068 | 143.36932 | — | — | 429.27000 | |||||||||||||||
| 2010 Class B Shares | 381.65000 | — | — | — | 381.65000 | |||||||||||||||
| 2010 Class C Shares | 381.65000 | — | — | — | 381.65000 | |||||||||||||||
| 2010 Class E Shares | 444.84000 | — | — | — | 444.84000 | |||||||||||||||
(a) Taxable as ordinary income for Federal tax purposes.
(b) Non-taxable.
(c) Total amounts may differ due to rounding.
(d) Decrease in cost basis.
(e) Includes the spin-off of the Gabelli Global Small and Mid Cap Value Trust (GGZ). On June 23, 2014, the Fund distributed shares of GGZ valued at $12.00 per share. Common shareholders of GDV received one share of GGZ for every ten shares owned of GDV.
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
73
THE GABELLI DIVIDEND & INCOME TRUST
ANNUAL APPROVAL OF CONTINUANCE OF INVESTMENT ADVISORY AGREEMENT (Unaudited)
At its meeting on November 12, 2020, the Board of Trustees (Board) of the Fund approved the continuation of the investment advisory agreement with the Adviser for the Fund on the basis of the recommendation by the trustees who are not interested persons of the Fund (the Independent Board Members). The following paragraphs summarize the material information and factors considered by the Independent Board Members as well as their conclusions relative to such factors.
Nature, Extent, and Quality of Services. The Independent Board Members considered information regarding the portfolio managers, the depth of the analyst pool available to the Adviser and the portfolio managers, the scope of supervisory, administrative, shareholder, and other services supervised or provided by the Adviser and the absence of significant service problems reported to the Board. The Independent Board Members noted the experience, length of service, and reputation of the portfolio managers.
The Independent Board Members also noted that they were impressed with the overall quality of the materials relating to the Board’s consideration of the Advisory Agreement.
Investment Performance. The Independent Board Members reviewed the performance of the Fund over the one, three, five, and ten year periods (as of September 30, 2020) against a peer group of twelve other comparable funds prepared by the Adviser (the Adviser Peer Group) and against a larger peer group of 22 closed-end funds constituting the Fund’s Lipper category (Objective Equity Funds) (the Lipper Peer Group). The Independent Board Members noted that the Fund’s performance was in the third quartile for the one and ten year periods and the fourth quartile for the three and five year periods for the Adviser Peer Group, and in the third quartile for the one, three, five, and ten year periods for the Lipper Peer Group. The Independent Board Members discussed the impact of COVID-19 on the Fund’s performance and the Fund’s focus on value stocks and the potential for value stocks to be a positive source of performance in the future.
Profitability. The Independent Board Members reviewed summary data regarding the profitability of the Fund to the Adviser.
Economies of Scale. The Independent Board Members discussed the major elements of the Adviser’s cost structure and the relationship of those elements to potential economies of scale and reviewed data provided by the Adviser. The Independent Board Members noted that the Fund was a closed-end fund trading at a discount to net asset value and accordingly unlikely to achieve growth of the type that might lead to economies of scale that the shareholders would not participate in.
Sharing of Economies Scale. The Independent Board Members noted that the investment management fee schedule for the Fund does not take into account any potential economies of scale.
Service and Cost Comparisons. The Independent Board Members compared the expense ratios of the investment management fee, other expenses, and total expenses of the Fund to similar expense ratios of the Adviser Peer Group and the Lipper Peer Group. The Independent Board Members noted that the Adviser’s management fee includes substantially all administrative services of the Fund as well as investment advisory services. The Independent Board Members noted that the Fund was larger than average within each peer group and that its expense ratios were either roughly average or above average within each peer group. The Independent Board Members also noted that the management fee structure was the same as that in effect for most of the Gabelli funds. The Independent Board Members were presented with, but did not attach significance to, information comparing the management fee with the fee for other types of accounts managed by an affiliate of the Adviser.
74
THE GABELLI DIVIDEND & INCOME TRUST
ANNUAL APPROVAL OF CONTINUANCE OF INVESTMENT ADVISORY AGREEMENT (Unaudited) (Continued)
Conclusions. The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services, good ancillary services and an acceptable performance record. The Independent Board Members also concluded that the Fund’s expense ratios and the profitability to the Adviser of managing the Fund were reasonable, and that, in part due to the Fund’s structure as a closed-end fund, economies of scale were not a significant factor in their thinking. The Independent Board Members did not view the potential profitability of ancillary services as material to their decision. On the basis of the foregoing and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend continuation of the Advisory Agreement to the full Board.
Based on a consideration of all these factors in their totality, the Board Members, including all of the Independent Board Members, determined that the Fund’s advisory fee was appropriate in light of the quality of services provided and in light of the other factors described above that the Board deemed relevant. Accordingly, the Board Members determined to approve the continuation of the Fund’s Advisory Agreement. The Board Members based their decision on evaluations of all these factors as a whole and did not consider any one factor as all-important or controlling.
75
AUTOMATIC
DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLANS
Under the Fund’s Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan (the “Plan”), a Shareholder whose shares of common stock are registered in his or her own name will have all distributions reinvested automatically by Computershare Trust Company, N.A. (“Computershare”), which is an agent under the Plan, unless the shareholder elects to receive cash. Distributions with respect to shares registered in the name of a broker-dealer or other nominee (that is, in “street name”) will be reinvested by the broker or nominee in additional shares under the Plan, unless the service is not provided by the broker or nominee or the shareholder elects to receive distributions in cash. Investors who own shares of common stock registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors who do not participate in the Plan will be paid by check mailed directly to the record holder by Computershare as dividend-disbursing agent.
Enrollment in the Plan
It is the policy of The Gabelli Dividend & Income Trust (the “Fund”) to automatically reinvest dividends payable to common shareholders. As a “registered” shareholder you automatically become a participant in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”). The Plan authorizes the Fund to credit common shares to participants upon an income dividend or a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value. All distributions to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to the Plan in additional shares of the Fund. Plan participants may send their common shares certificates to Computershare Trust Company, N.A. (“Computershare”) to be held in their dividend reinvestment account. Registered shareholders wishing to receive their distributions in cash may submit this request through the Internet, by telephone or in writing to:
The
Gabelli Dividend & Income Trust
c/o Computershare P.O.
Box 505000
Louisville, KY 40233-5000
Telephone: (800) 336-6983
Website: www.computershare.com/investor
Shareholders requesting this cash election must include the shareholder’s name and address as they appear on the Fund’s records. Shareholders with additional questions regarding the Plan or requesting a copy of the terms of the Plan, may contact Computershare at the website or telephone number above.
If your shares are held in the name of a broker, bank, or nominee, you should contact such institution. If such institution is not participating in the Plan, your account will be credited with a cash dividend. In order to participate in the Plan through such institution, it may be necessary for you to have your shares taken out of “street name” and re-registered in your own name. Once registered in your own name your distributions will be automatically reinvested. Certain brokers participate in the Plan. Shareholders holding shares in “street name” at participating institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at such institution must contact their broker to make this change.
The number of shares of common shares distributed to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market price of the Fund’s common shares is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued shares of common shares valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Fund’s common shares. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange (“NYSE”) trading day, the next trading day. If the net asset value of the common shares at the time of valuation exceeds the market price of the common shares, participants will receive shares from the Fund valued at market price. If the Fund should declare a dividend or capital gains distribution payable only in cash, Computershare will buy shares of common shares in the open market, or on the NYSE or elsewhere, for the participants’ accounts, except that Computershare will endeavor to terminate purchases in the open market and cause the Fund to issue shares at net asset value if, following the commencement of such purchases, the market value of the common shares exceeds the then current net asset value.
The automatic reinvestment of dividends and capital gains distributions will not relieve participants of any income tax which may be payable on such distributions. A participant in the Plan will be treated for federal income tax purposes as having received, on a dividend payment date, a dividend or distribution in an amount equal to the cash the participant could have received instead of shares.
Voluntary Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their investment in the Fund. In order to participate in the Voluntary Cash Purchase Plan, shareholders must have their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option of making additional cash payments to Computershare for investments in the Fund’s shares at the then current market price. shareholders may send an amount from $250 to $10,000. Computershare will use these funds to purchase shares in the open market on or about the 1st and 15th of each month. Computershare will charge each shareholder who participates $0.75, plus a per share fee (currently $0.02 per share). Per share fees include any applicable brokerage commissions Computershare is required to pay and fees for such purchases are expected to be less than the usual fees for such transactions. It is suggested that any voluntary cash payments be sent to Computershare, P.O. Box 6006, Carol Stream, IL 60197-6006 such that Computershare receives such payments approximately two business days before the 1st and 15th of the month. Funds not received at least two business days before the investment date shall be held for investment
76
AUTOMATIC
DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLANS
(Continued)
until the next purchase date. A payment may be withdrawn without charge if notice is received by Computershare at least two business days before such payment is to be invested.
Shareholders wishing to liquidate shares held at Computershare may do so through the Internet, in writing or by telephone to the above-mentioned website, address or telephone number. Include in your request your name, address, and account number. Computershare will sell such shares through a broker-dealer selected by Computershare within 5 business days of receipt of the request. The sale price will equal the weighted average price of all shares sold through the Plan on the day of the sale, less applicable fees . Participants should note that Computershare is unable to accept instructions to sell on a specific date or at a specific price. The cost to liquidate shares is $2.50 per transaction as well as the per share fee (currently $0.10 per share) Per share fees include any applicable brokerage commissions Computershare is required to pay and are expected to be less than the usual fees for such transactions.
More information regarding the Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan is available by calling (914) 921-5070 or by writing directly to the Fund.
The Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of the Plan at least 30 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by Computershare on at least 30 days written notice to participants in the Plan.
77
THE
GABELLI DIVIDEND & INCOME TRUST
AND YOUR PERSONAL PRIVACY
Who are we?
The Gabelli Dividend & Income Trust is a closed-end management investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940. We are managed by Gabelli Funds, LLC, which is affiliated with GAMCO Investors, Inc., a publicly held company that has subsidiaries that provide investment advisory services for a variety of clients.
What kind of non-public information do we collect about you if you become a Fund shareholder?
When you purchase shares of the Fund on the New York Stock Exchange, you have the option of registering directly with our transfer agent in order, for example, to participate in our dividend reinvestment plan.
| ● | Information you give us on your application form. This could include your name, address, telephone number, social security number, bank account number, and other information. |
| ● | Information about your transactions with us. This would include information about the shares that you buy or sell; it may also include information about whether you sell or exercise rights that we have issued from time to time. If we hire someone else to provide services — like a transfer agent —we will also have information about the transactions that you conduct through them. |
What information do we disclose and to whom do we disclose it?
We do not disclose any non-public personal information about our customers or former customers to anyone other than our affiliates, our service providers who need to know such information, and as otherwise permitted by law. If you want to find out what the law permits, you can read the privacy rules adopted by the Securities and Exchange Commission. They are in volume 17 of the Code of Federal Regulations, Part 248. The Commission often posts information about its regulations on its website, www.sec.gov.
What do we do to protect your personal information?
We restrict access to non-public personal information about you to the people who need to know that information in order to provide services to you or the Fund and to ensure that we are complying with the laws governing the securities business. We maintain physical, electronic, and procedural safeguards to keep your personal information confidential.
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THE
GABELLI DIVIDEND & INCOME TRUST
One Corporate Center
Rye, NY 10580-1422
Portfolio Management Team Biographies
|
Mario J. Gabelli, CFA, is Chairman, Chief Executive Officer, and Chief Investment Officer - Value Portfolios of GAMCO Investors, Inc. that he founded in 1977, and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive Chairman of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University. |
|
Christopher J. Marangi joined Gabelli in 2003 as a research analyst. Currently he is a Managing Director and Co-Chief Investment Officer for GAMCO Investors, Inc.’s Value team. In addition, he serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Fund Complex. Mr. Marangi graduated magna cum laude and Phi Beta Kappa with a BA in Political Economy from Williams College and holds an MBA degree with honors from Columbia Business School. |
|
Kevin V. Dreyer joined Gabelli in 2005 as a research analyst covering companies within the consumer sector. Currently he is a Managing Director and Co-Chief Investment Officer for GAMCO Investors, Inc.’s Value team. In addition, he serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Fund Complex. Mr. Dreyer received a BSE from the University of Pennsylvania and an MBA degree from Columbia Business School. |
|
Regina M. Pitaro is a Managing Director and Head of Institutional Marketing at GAMCO Investors, Inc. Ms. Pitaro joined the Firm in 1984 and coordinates the organization’s focus with consultants and plan sponsors. She also serves as a Managing Director and Director of GAMCO Asset Management, Inc., and serves as a portfolio manager for Gabelli Funds, LLC. Ms. Pitaro holds an MBA in Finance from the Columbia University Graduate School of Business, a Master’s degree in Anthropology from Loyola University of Chicago, and a Bachelor’s degree from Fordham University. |
|
Howard F. Ward, CFA, joined Gabelli Funds in 1995 and currently serves as GAMCO’s Chief Investment Officer of Growth Equities as well as a Gabelli Funds, LLC portfolio manager for several funds within the Fund Complex. Prior to joining Gabelli, Mr. Ward served as Managing Director and Lead Portfolio Manager for several Scudder mutual funds. He also was an Investment Officer in the Institutional Investment Department with Brown Brothers, Harriman & Co. Mr. Ward received his BA in Economics from Northwestern University. |
|
Hendi Susanto joined Gabelli in 2007 as the lead technology research analyst. He spent his early career in supply chain management consulting and operations in the technology industry. He currently is a portfolio manager of Gabelli Funds, LLC and a Vice President of Associated Capital Group Inc. Mr. Susanto received a BS degree summa cum laude from the University of Minnesota, an MS from Massachusetts Institute of Technology, and an MBA from the Wharton School of Business. |
| We have separated the portfolio managers’ commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio managers’ commentary is unrestricted. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com. |
The Net Asset Value per share appears in the Publicly Traded Funds column, under the heading “General Equity Funds,” in Monday’s The Wall Street Journal. It is also listed in Barron’s Mutual Funds/Closed End Funds section under the heading “General Equity Funds.”
The Net Asset Value per share may be obtained each day by calling (914) 921-5070 or visiting www.gabelli.com.
The NASDAQ symbol for the Net Asset Value is “XGDVX.”
| Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may from time to time purchase its common shares in the open market when the Fund’s shares are trading at a discount of 7.5% or more from the net asset value of the shares. The Fund may also from time to time purchase its preferred shares in the open market when the preferred shares are trading at a discount to the liquidation value. |
THE GABELLI DIVIDEND & INCOME TRUST
One Corporate Center
Rye, NY 10580-1422
t 800-GABELLI (800-422-3554)
f 914-921-5118
e info@gabelli.com
GABELLI.COM
| TRUSTEES | Salvatore J. Zizza |
| Chairman, | |
| Mario J. Gabelli, CFA | Zizza & Associates Corp. |
| Chairman and | |
| Chief Executive Officer, | OFFICERS |
| GAMCO Investors, Inc. | |
| Executive Chairman, | Bruce N. Alpert |
| Associated Capital Group, Inc. | President |
| Anthony J. Colavita | John C. Ball |
| President, | Treasurer |
| Anthony J. Colavita, P.C. | |
| Peter Goldstein | |
| James P. Conn | Secretary & |
| Former Managing Director & | Vice President |
| Chief Investment Officer, | |
| Financial Security Assurance | Richard J. Walz |
| Holdings Ltd. | Chief Compliance Officer |
| Frank J. Fahrenkopf, Jr. | Carter W. Austin |
| Former President & | Vice President & Ombudsman |
| Chief Executive Officer, | |
| American Gaming Association | Laurissa M. Martire |
| Vice President & Ombudsman | |
| Michael J. Melarkey | |
| Of Counsel, | David I. Schachter |
| McDonald Carano Wilson LLP | Vice President |
| Kuni Nakamura | INVESTMENT ADVISER |
| President, | |
| Advanced Polymer, Inc. | Gabelli Funds, LLC |
| One Corporate Center | |
| Salvatore M. Salibello | Rye, New York 10580-1422 |
| Senior Partner, | |
| Bright Side Consulting | CUSTODIAN |
| Edward T. Tokar | State Street Bank and Trust |
| Former Chief Executive Officer of Allied | Company |
| Capital Management, LLC, & | |
| Vice President of Honeywell International, | COUNSEL |
| Inc. | |
| Skadden, Arps, Slate, Meagher & | |
| Anthonie C. van Ekris | Flom LLP |
| Chairman, | |
| BALMAC International, Inc. | TRANSFER AGENT AND |
| REGISTRAR | |
| Susan V. Watson | |
| Former President, | Computershare Trust Company, N.A. |
| Investor Relations Association |
GDV Q4/2020
| (b) | Not applicable. |
Item 2. Code of Ethics.
| (a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s Board of Trustees has determined that Salvatore M. Salibello is qualified to serve as an audit committee financial expert serving on its audit committee and that he is “independent,” as defined by Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Audit Fees
| (a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $49,012 for 2019 and $49,992 for 2020. |
Audit-Related Fees
| (b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item are $0 for 2019 and $0 for 2020. |
Tax Fees
| (c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $4,920 for 2019 and $5,020 for 2020. Tax fees represent tax compliance services provided in connection with the review of the Registrant's tax returns. |
All Other Fees
| (d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $32,500 for 2019 and $0 for 2020. All other fees represent services provided in review of registration statement. |
| (e)(1) | Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
Pre-Approval Policies and Procedures. The Audit Committee ("Committee") of the registrant is responsible for pre-approving (i) all audit and permissible non-audit services to be provided by the independent registered public accounting firm to the registrant and (ii) all permissible non-audit services to be provided by the independent registered public accounting firm to the Adviser, Gabelli Funds, LLC, and any affiliate of Gabelli Funds, LLC ("Gabelli") that provides services to the registrant (a "Covered Services Provider") if the independent registered public accounting firm's engagement related directly to the operations and financial reporting of the registrant. The Committee may delegate its responsibility to pre-approve any such audit and permissible non-audit services to the Chairperson of the Committee, and the Chairperson must report to the Committee, at its next regularly scheduled meeting after the Chairperson's pre-approval of such services, his or her decision(s). The Committee may also establish detailed pre-approval policies and procedures for pre-approval of such services in accordance with applicable laws, including the delegation of some or all of the Committee's pre-approval responsibilities to the other persons (other than Gabelli or the registrant's officers). Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the permissible non-audit services were not recognized by the registrant at the time of the engagement to be non-audit services; and (ii) such services are promptly brought to the attention of the Committee and approved by the Committee or Chairperson prior to the completion of the audit.
| (e)(2) | The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: |
(b) N/A
(c) 0%
(d) 0%
| (f) | The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. |
| (g) | The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $32,500 for 2019 and $0 for 2020. |
| (h) | The registrant's audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. |
Item 5. Audit Committee of Listed Registrants.
| (a) | The registrant has a separately designated audit committee consisting of the following members: Anthony J. Colavita, Frank J. Fahrenkopf, Jr., Salvatore M. Salibello, and Salvatore J. Zizza. |
| (b) | Not applicable. |
Item 6. Investments.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1(a) of this form. |
| (b) | Not applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Proxy Voting Policies are attached herewith.
SECTION HH
The Voting of Proxies on Behalf of Clients
(This section pertains to all affiliated SEC registered investment advisers)
Rule 206(4)-6 under the Investment Advisers Act of 1940 and Rule 30b1-4 under the Investment Company Act of 1940 require investment advisers to adopt written policies and procedures governing the voting of proxies on behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli Funds, LLC, Gabelli & Company Investment Advisers, Inc., and Teton Advisors, Inc. (collectively, the “Advisers”) to determine how to vote proxies relating to portfolio securities held by their clients, including the procedures that the Advisers use when a vote presents a conflict between the interests of the shareholders of an investment company managed by one of the Advisers, on the one hand, and those of the Advisers; the principal underwriter; or any affiliated person of the investment company, the Advisers, or the principal underwriter. These procedures will not apply where the Advisers do not have voting discretion or where the Advisers have agreed to with a client to vote the client’s proxies in accordance with specific guidelines or procedures supplied by the client (to the extent permitted by ERISA).
I. Proxy Voting Committee
The Proxy Voting Committee was originally formed in April 1989 for the purpose of formulating guidelines and reviewing proxy statements within the parameters set by the substantive proxy voting guidelines originally published in 1988 and updated periodically, a copy of which are appended as Exhibit A. The Committee will include representatives of Research, Administration, Legal, and the Advisers. Additional or replacement members of the Committee will be nominated by the Chairman and voted upon by the entire Committee.
Meetings are held on an as needed basis to form views on the manner in which the Advisers should vote proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy Guidelines, and the analysts of GAMCO Investors, Inc. (“GBL”), will determine how to vote on each issue. For non-controversial matters, the Director of Proxy Voting Services may vote the proxy if the vote is: (1) consistent with the recommendations of the issuer's Board of Directors and not contrary to the Proxy Guidelines; (2) consistent with the recommendations of the issuer's Board of Directors and is a non-controversial issue not covered by the Proxy Guidelines; or (3) the vote is contrary to the recommendations of the Board of Directors but is consistent with the Proxy Guidelines. In those instances, the Director of Proxy Voting Services or the Chairman of the Committee may sign and date the proxy statement indicating how each issue will be voted.
All matters identified by the Chairman of the Committee, the Director of Proxy Voting Services or the Legal Department as controversial, taking into account the recommendations of the analysts of GBL, will be presented to the Proxy Voting Committee. If the Chairman of the Committee, the Director of Proxy Voting Services or the Legal Department has identified the matter as one that (1) is controversial; (2) would benefit from deliberation by the Proxy Voting Committee; or (3) may give rise to a conflict of interest between the Advisers and their clients, the Chairman of the Committee will initially determine what vote to recommend that the Advisers should cast and the matter will go before the Committee.
| A. | Conflicts of Interest. |
The Advisers have implemented these proxy voting procedures in order to prevent conflicts of interest from influencing their proxy voting decisions. By following the Proxy Guidelines and the analysts of GBL, the Advisers are able to avoid, wherever possible, the influence of potential conflicts of interest. Nevertheless, circumstances may arise in which one or more of the Advisers are faced with a conflict of interest or the appearance of a conflict of interest in connection with its vote. In general, a conflict of interest may arise when an Adviser knowingly does business with an issuer, and may appear to have a material conflict between its own interests and the interests of the shareholders of an investment company managed by one of the Advisers regarding how the proxy is to be voted. A conflict also may exist when an Adviser has actual knowledge of a material business arrangement between an issuer and an affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for example, when a proxy is voted for a company that is a client of one of the Advisers, such as GAMCO Asset Management Inc. A conflict also may arise when a client of one of the Advisers has made a shareholder proposal in a proxy to be voted upon by one or more of the Advisers. The Director of Proxy Voting Services, together with the Legal Department, will scrutinize all proxies for these or other situations that may give rise to a conflict of interest with respect to the voting of proxies.
| B. | Operation of Proxy Voting Committee |
For matters submitted to the Committee, each member of the Committee will receive, prior to the meeting, a copy of the proxy statement, a summary of any views provided by the Chief Investment Officer and any recommendations by GBL analysts. The Chief Investment Officer or the GBL analysts may be invited to present their viewpoints. If the Director of Proxy Voting Services or the Legal Department believe that the matter before the committee is one with respect to which a conflict of interest may exist between the Advisers and their clients, counsel may provide an
opinion to the Committee concerning the conflict. If the matter is one in which the interests of the clients of one or more of the Advisers may diverge, counsel may so advise and the Committee may make different recommendations as to different clients. For any matters where the recommendation may trigger appraisal rights, counsel may provide an opinion concerning the likely risks and merits of such an appraisal action.
Each matter submitted to the Committee will be determined by the vote of a majority of the members present at the meeting. Should the vote concerning one or more recommendations be tied in a vote of the Committee, the Chairman of the Committee will cast the deciding vote. The Committee will notify the proxy department of its decisions and the proxies will be voted accordingly.
Although the Proxy Guidelines express the normal preferences for the voting of any shares not covered by a contrary investment guideline provided by the client, the Committee is not bound by the preferences set forth in the Proxy Guidelines and will review each matter on its own merits. The Advisers subscribe to Institutional Shareholder Services Inc (“ISS”) and Glass Lewis & Co., LLC (“Glass Lewis”), which supply current information on companies, matters being voted on, regulations, trends in proxy voting and information on corporate governance issues. The information provided by ISS and GL is for informational purposes only.
If the vote cast either by the analyst or as a result of the deliberations of the Proxy Voting Committee runs contrary to the recommendation of the Board of Directors of the issuer, the matter may be referred to legal counsel to determine whether an amendment to the most recently filed Schedule 13D is appropriate.
II. Social Issues and Other Client Guidelines
If a client has provided and the Advisers have accepted special instructions relating to the voting of proxies, they should be noted in the client’s account file and forwarded to the proxy department. This is the responsibility of the investment professional or sales assistant for the client. In accordance with Department of Labor guidelines, the Advisers’ policy is to vote on behalf of ERISA accounts in the best interest of the plan participants with regard to social issues that carry an economic impact. Where an account is not governed by ERISA, the Advisers will vote shares held on behalf of the client in a manner consistent with any individual investment/voting guidelines provided by the client. Otherwise the Advisers may abstain with respect to those shares.
Specific to the Gabelli ESG Fund, the Proxy Voting Committee will rely on the advice of the portfolio managers of the Gabelli ESG Fund to provide voting recommendations on the securities held in the portfolio.
III. Client Retention of Voting Rights
If a client chooses to retain the right to vote proxies or if there is any change in voting authority, the following should be notified by the investment professional or sales assistant for the client.
- Operations
- Proxy Department
- Investment professional assigned to the account
In the event that the Board of Directors (or a Committee thereof) of one or more of the investment companies managed by one of the Advisers has retained direct voting control over any security, the Proxy Voting Department will provide each Board Member (or Committee member) with a copy of the proxy statement together with any other relevant information.
| IV. | Proxies of Certain Non-U.S. Issuers |
Proxy voting in certain countries requires “share-blocking.” Shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting with a designated depository. During the period in which the shares are held with a depository, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients’ custodian. Absent a compelling reason to the contrary, the Advisers believe that the benefit to the client of exercising the vote is outweighed by the cost of voting and therefore, the Advisers will not typically vote the securities of non-U.S. issuers that require share-blocking.
In addition, voting proxies of issuers in non-U.S. markets may also give rise to a number of administrative issues or give rise to circumstances under which voting would impose a cost (real or implied) on its client which may cause the Advisers to abstain from voting such proxies. For example, the Advisers may receive the notices for shareholder meetings without adequate time to consider the proposals in the proxy or after the cut-off date for voting. Other markets require the Advisers to provide local agents with power of attorney prior to implementing their respective voting instructions on the proxy. Other markets may require disclosure of certain ownership information in excess of what is required to vote in the U.S. market. Although it is the Advisers’ policies to vote the proxies for its clients for which they have proxy voting authority, in the case of issuers in non-U.S. markets, we vote client proxies on a best efforts basis.
V. Voting Records
The Proxy Voting Department will retain a record of matters voted upon by the Advisers for their clients. The Advisers will supply information on how they voted a client’s proxy upon request from the client.
The complete voting records for each registered investment company (the “Fund”) that is managed by the Advisers will be filed on Form N-PX for the twelve months ended June 30th, no later than August 31st of each year. A description of the
Fund’s proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI (800-422-3554); (ii) writing to Gabelli Funds, LLC at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC’s website at www.sec.gov.
The Advisers’ proxy voting records will be retained in compliance with Rule 204-2 under the Investment Advisers Act.
VI. Voting Procedures
1. Custodian banks, outside brokerage firms and clearing firms are responsible for forwarding proxies directly to the Advisers.
Proxies are received in one of two forms:
| • | Shareholder Vote Instruction Forms (“VIFs”) - Issued by Broadridge Financial Solutions, Inc. (“Broadridge”). Broadridge is an outside service contracted by the various institutions to issue proxy materials. |
| • | Proxy cards which may be voted directly. |
2. Upon receipt of the proxy, the number of shares each form represents is logged into the proxy system, electronically or manually, according to security.
3. Upon receipt of instructions from the proxy committee, the votes are cast and recorded for each account.
Records have been maintained on the ProxyEdge system.
ProxyEdge records include:
Security Name and CUSIP Number
Date and Type of Meeting (Annual, Special, Contest)
Directors’ Recommendation (if any)
How the Adviser voted for the client on item
4. VIFs are kept alphabetically by security. Records for the current proxy season are located in the Proxy Voting Department office. In preparation for the upcoming season, files are transferred to an offsite storage facility during January/February.
5. If a proxy card or VIF is received too late to be voted in the conventional matter, every attempt is made to vote including:
| • | When a solicitor has been retained, the solicitor is called. At the solicitor’s direction, the proxy is faxed or sent electronically. |
| • | In some circumstances VIFs can be faxed or sent electronically to Broadridge up until the time of the meeting. |
6. In the case of a proxy contest, records are maintained for each opposing entity.
7. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a “legal proxy” is obtained in the following manner:
| • | Banks and brokerage firms using the services at Broadridge: |
Broadridge is notified that we wish to vote in person. Broadridge issues individual legal proxies and sends them back via email or overnight (or the Adviser can pay messenger charges). A lead-time of at least two weeks prior to the meeting is needed to do this. Alternatively, the procedures detailed below for banks not using Broadridge may be implemented.
| • | Banks and brokerage firms issuing proxies directly: |
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
“Representative of [Adviser name] with full power of substitution.”
b) The legal proxies are given to the person attending the meeting along with the limited power of attorney.
Appendix A
Proxy Guidelines
PROXY VOTING GUIDELINES
General Policy Statement
It is the policy of GAMCO Investors, Inc, and its affiliated advisers (collectively “the Advisers”) to vote in the best economic interests of our clients. As we state in our Magna Carta of Shareholders Rights, established in May 1988, we are neither for nor against management. We are for shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy statement should be evaluated on its own merits within the framework first established by our Magna Carta of Shareholders Rights. The attached guidelines serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our research on the company, its directors, and their short and long-term goals for the company. In cases where issues that we generally do not approve of are combined with other issues, the negative aspects of the issues will be factored into the evaluation of the overall proposals but will not necessitate a vote in opposition to the overall proposals.
Board of Directors
We do not consider the election of the Board of Directors a routine issue. Each slate of directors is evaluated on a case-by-case basis.
Factors taken into consideration include:
| • | Historical responsiveness to shareholders |
This may include such areas as:
-Paying greenmail
-Failure to adopt shareholder resolutions receiving a majority of shareholder votes
| • | Qualifications |
| • | Nominating committee in place |
| • | Number of outside directors on the board |
| • | Attendance at meetings |
| • | Overall performance |
Selection of Auditors
In general, we support the Board of Directors’ recommendation for auditors.
Blank Check Preferred Stock
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish dividends, voting rights, etc. without further shareholder approval.
Classified Board
A classified board is one where the directors are divided into classes with overlapping terms. A different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long range planning, we feel directors should be accountable to shareholders on an annual basis. We will look at this proposal on a case-by-case basis taking into consideration the board’s historical responsiveness to the rights of shareholders.
Where a classified board is in place we will generally not support attempts to change to an annually elected board.
When an annually elected board is in place, we generally will not support attempts to classify the board.
Increase Authorized Common Stock
The request to increase the amount of outstanding shares is considered on a case-by-case basis.
Factors taken into consideration include:
| • | Future use of additional shares |
-Stock split
-Stock option or other executive compensation plan
-Finance growth of company/strengthen balance sheet
-Aid in restructuring
-Improve credit rating
-Implement a poison pill or other takeover defense
| • | Amount of stock currently authorized but not yet issued or reserved for stock option plans |
| • | Amount of additional stock to be authorized and its dilutive effect |
We will support this proposal if a detailed and verifiable plan for the use of the additional shares is contained in the proxy statement.
Confidential Ballot
We support the idea that a shareholder’s identity and vote should be treated with confidentiality.
However, we look at this issue on a case-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of independent Inspectors of Election.
Cumulative Voting
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of directors being elected by the number of shares held on record date and cast the total number for one candidate or allocate the voting among two or more candidates.
Where cumulative voting is in place, we will vote against any proposal to rescind this shareholder right.
Cumulative voting may result in a minority block of stock gaining representation on the board. When a proposal is made to institute cumulative voting, the proposal will be reviewed on a case-by-case basis. While we feel that each board member should represent all shareholders, cumulative voting provides minority shareholders an opportunity to have their views represented.
Director Liability and Indemnification
We support efforts to attract the best possible directors by limiting the liability and increasing the indemnification of directors, except in the case of insider dealing.
Equal Access to the Proxy
The SEC’s rules provide for shareholder resolutions. However, the resolutions are limited in scope and there is a 500 word limit on proponents’ written arguments. Management has no such limitations. While we support equal access to the proxy, we would look at such variables as length of time required to respond, percentage of ownership, etc.
Fair Price Provisions
Charter provisions requiring a bidder to pay all shareholders a fair price are intended to prevent two-tier tender offers that may be abusive. Typically, these provisions do not apply to board-approved transactions.
We support fair price provisions because we feel all shareholders should be entitled to receive the same benefits.
Reviewed on a case-by-case basis.
Golden Parachutes
Golden parachutes are severance payments to top executives who are terminated or demoted after a takeover.
We support any proposal that would assure management of its own welfare so that they may continue to make decisions in the best interest of the company and shareholders even if the decision results in them losing their job. We do not, however, support excessive golden parachutes. Therefore, each proposal will be decided on a case-by- case basis.
Anti-Greenmail Proposals
We do not support greenmail. An offer extended to one shareholder should be extended to all shareholders equally across the board.
Limit Shareholders’ Rights to Call Special Meetings
We support the right of shareholders to call a special meeting.
Reviewed on a case-by-case basis.
Consideration of Nonfinancial Effects of a Merger
This proposal releases the directors from only looking at the financial effects of a merger and allows them the opportunity to consider the merger’s effects on employees, the community, and consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our clients. In general, this proposal does not allow us to do that. Therefore, we generally cannot support this proposal.
Reviewed on a case-by-case basis.
Mergers, Buyouts, Spin-Offs, Restructurings
Each of the above is considered on a case-by-case basis. According to the Department of Labor, we are not required to vote for a proposal simply because the offering price is at a premium to the current market price. We may take into consideration the long term interests of the shareholders.
Military Issues
Shareholder proposals regarding military production must be evaluated on a purely economic set of criteria for our ERISA clients. As such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to the client’s direction when applicable. Where no direction has been given, we will vote in the best economic interests of our clients. It is not our duty to impose our social judgment on others.
Northern Ireland
Shareholder proposals requesting the signing of the MacBride principles for the purpose of countering the discrimination of Catholics in hiring practices must be evaluated on a purely economic set of criteria for our ERISA clients. As such, decisions will be made on a case-by-case basis.
In voting on this proposal for our non-ERISA clients, we will vote according to client direction when applicable. Where no direction has been given, we will vote in the best economic interests of our clients. It is not our duty to impose our social judgment on others.
Opt Out of State Anti-Takeover Law
This shareholder proposal requests that a company opt out of the coverage of the state’s takeover statutes. Example: Delaware law requires that a buyer must acquire at least 85% of the company’s stock before the buyer can exercise control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the following:
| • | State of Incorporation |
| • | Management history of responsiveness to shareholders |
| • | Other mitigating factors |
Poison Pill
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs of shareholders and the stock is very liquid, we will reconsider this position.
Reincorporation
Generally, we support reincorporation for well-defined business reasons. We oppose reincorporation if proposed solely for the purpose of reincorporating in a state with more stringent anti-takeover statutes that may negatively impact the value of the stock.
Stock Incentive Plans
Director and Employee Stock incentive plans are an excellent way to attract, hold and motivate directors and employees. However, each incentive plan must be evaluated on its own merits, taking into consideration the following:
| • | Dilution of voting power or earnings per share by more than 10%. |
| • | Kind of stock to be awarded, to whom, when and how much. |
| • | Method of payment. |
| • | Amount of stock already authorized but not yet issued under existing stock plans. |
| • | The successful steps taken by management to maximize shareholder value. |
Supermajority Vote Requirements
Supermajority vote requirements in a company’s charter or bylaws require a level of voting approval in excess of a simple majority of the outstanding shares. In general, we oppose supermajority-voting requirements. Supermajority requirements often exceed the average level of shareholder participation. We support proposals’ approvals by a simple majority of the shares voting.
Reviewed on a case-by-case basis.
Limit Shareholders Right to Act by Written Consent
Written consent allows shareholders to initiate and carry on a shareholder action without having to wait until the next annual meeting or to call a special meeting. It permits action to be taken by the written consent of the same percentage of the shares that would be required to effect proposed action at a shareholder meeting.
Reviewed on a case-by-case basis.
“Say-on-Pay” / “Say-When-on-Pay” / “Say-on-Golden-Parachutes”
Required under the Dodd-Frank Act; these proposals are non-binding advisory votes on executive compensation. We will generally vote with the Board of Directors’ recommendation(s) on advisory votes on executive compensation (“Say-on-Pay”), advisory votes on the frequency of voting on executive compensation (“Say-When-on-Pay”) and advisory votes relating to extraordinary transaction executive compensation (“Say-on-Golden-Parachutes”). In those instances when we believe that it is in our clients’ best interest, we may abstain or vote against executive compensation and/or the frequency of votes on executive compensation and/or extraordinary transaction executive compensation advisory votes.
Proxy Access
Proxy access is a tool used to attempt to promote board accountability by requiring that a company’s proxy materials contain not only the names of management nominees, but also any candidates nominated by long-term shareholders holding at least a certain stake in the company. We will review proposals regarding proxy access on a case-by-case basis taking into account the provisions of the proposal, the company’s current governance structure, the successful steps taken by management to maximize shareholder value, as well as other applicable factors.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
PORTFOLIO MANAGERS
Mr. Mario J. Gabelli, CFA, Mr. Robert D. Leininger, CFA, Mr. Kevin V. Dreyer, Mr. Jeffrey J. Jonas, CFA, Mr. Christopher J. Marangi, Ms. Regina M. Pitaro, Ms. Sarah Donnelly, Mr. Brian C. Sponheimer, Mr. Howard F. Ward, Mr. Hendi Susanto, and Mr. Gordon Grender serve as Portfolio Managers of The Gabelli Dividend & Income Trust.
Portfolio Management
Mario J. Gabelli, CFA, is Chairman, Chief Executive Officer, and Chief Investment Officer – Value Portfolios of GAMCO Investors, Inc. that he founded in 1977, and Chief Investment Officer – Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive Chairman of the Board of Directors of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School, and Honorary Doctorates from Fordham University and Roger Williams University.
Robert D. Leininger, CFA, joined GAMCO Investors, Inc. in 1993 as an equity analyst. Subsequently, he was a partner and portfolio manager at Rorer Asset Management before rejoining GAMCO in 2010 where he currently serves as a portfolio manager of Gabelli Funds, LLC. Mr. Leininger is a magna cum laude graduate of Amherst College with a degree in Economics and holds an MBA from the Wharton School at the University of Pennsylvania.
Kevin V. Dreyer joined Gabelli in 2005 as a research analyst covering companies within the consumer sector. He currently serves as Co-Chief Investment Officer of GAMCO Investors, Inc.’s Value team and a portfolio manager of Gabelli Funds, LLC. He manages several funds within the Gabelli/GAMCO Fund Complex. Mr. Dreyer received a BSE from the University of Pennsylvania and an MBA from Columbia Business School.
Jeffrey J. Jonas, CFA, joined Gabelli in 2003 as a research analyst focusing on companies across the healthcare industry. In 2006, he began serving as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Fund Complex. Mr. Jonas was a Presidential Scholar at Boston College, where he received a BS in Finance and Management Information Systems.
Christopher J. Marangi joined Gabelli in 2003 as a research analyst. He currently serves as Co-Chief Investment Officer of GAMCO Investors, Inc.’s Value team and a portfolio manager of Gabelli Funds, LLC. He manages several funds within the Gabelli/GAMCO Fund Complex. Mr. Marangi graduated magna cum laude and Phi Beta Kappa with a BA in Political Economy from Williams College and holds an MBA with honors from Columbia Business School.
Sarah Donnelly joined Gabelli in 1999 as a junior research analyst working with the consumer staples and media analysts. Currently she is a Portfolio Manager of Gabelli Funds, LLC, a Senior Vice President and the Food, Household and Personal Care products research analyst for Gabelli & Company. In 2013, she was named the Health &Wellness research platform leader. Ms. Donnelly received a BS in Business Administration with a concentration in Finance and minor in History from Fordham University.
Brian C. Sponheimer is a portfolio manager and research analyst, responsible for coverage of automotive, trucking, and machinery stocks. In 2010, 2011, and 2016, Brian was recognized by various financial publications, including the Wall Street Journal and the Financial Times, as a “Best on the Street” analyst. He began his business career in institutional equities at CIBC World Markets in New York and Boston. Brian graduated cum laude from Harvard University with a B.A. in Government and received an M.B.A in Finance and Economics from Columbia Business School.
Regina M. Pitaro is a Managing Director and Head of Institutional Marketing at GAMCO Investors, Inc. Ms. Pitaro joined the firm in 1984 and coordinates the organization’s focus with consultants and plan sponsors. She also serves as a Managing Director and Director of GAMCO Asset Management, Inc., and also serves as a portfolio manager for Gabelli Funds, LLC. Ms. Pitaro holds an MBA in Finance from the Columbia University Graduate School of Business, a Master’s degree in Anthropology from Loyola University of Chicago, and a Bachelor’s degree from Fordham University.
Howard F. Ward, CFA, joined Gabelli Funds in 1995 and currently serves as GAMCO’s Chief Investment Officer of Growth Equities as well as a Gabelli Funds, LLC portfolio manager for several funds within the Gabelli/GAMCO Fund Complex. Prior to joining Gabelli, Mr. Ward served as Managing Director and Lead Portfolio Manager for several Scudder mutual funds. He also was an Investment Officer in the Institutional Investment Department with Brown Brothers, Harriman & Co. Mr. Ward received his BA in Economics from Northwestern University.
Hendi Susanto joined Gabelli in 2007 as the lead technology research analyst. He spent his early career in supply chain management consulting and operations in the technology industry. He currently is a portfolio manager of Gabelli Funds, LLC and a Vice President of Associated Capital Group Inc. Mr. Susanto received a BS degree summa cum laude from the University of Minnesota, an MS from M.I.T., and an MBA from the Wharton School of Business.
Gordon D. Grender, an investment professional of an affiliate, GAMCO Asset Management (UK) Limited (“GAMCO”). Mr. Grender recently joined GAMCO, having previously served, since 1983, as the portfolio manager for a U.S. equity fund at GAM International Ltd., a Swiss based global asset management firm. In keeping with applicable regulatory guidance, GAMCO entered into a Memorandum of Understanding with the Adviser pursuant to which GAMCO is considered a “Participating Affiliate” of the Adviser as that term is used in relief granted by the staff of the Securities and Exchange Commission allowing U.S. registered investment advisers to use portfolio management and trading resources of advisory affiliates subject to the supervision of a registered adviser.
MANAGEMENT OF OTHER ACCOUNTS
The table below shows the number of other accounts managed by the Portfolio Managers and the total assets in each of the following categories: registered investment companies, other paid investment vehicles and other accounts as of December 31, 2020. For each category, the table also shows the number of accounts and the total assets in the accounts with respect to which the advisory fee is based on account performance.
|
Name of Portfolio Manager |
Type of Accounts |
Total No. of Accounts Managed |
Total Assets | No. of Accounts where Advisory Fee is Based on Performance | Total Assets in Accounts where Advisory Fee is Based on Performance |
| Mario J. Gabelli, CFA | Registered Investment Companies: |
23
|
$15.5 billion |
4 |
$2.8 billion |
| Other Pooled Investment Vehicles: |
11
|
$1.1 billion |
8 |
$849.6 million |
|
| Other Accounts: |
938
|
$6.9 billion |
0 |
$0 |
|
| Robert D. Leininger | Registered Investment Companies: |
3
|
$2.0 billion |
1 |
$2.0 billion |
| Other Pooled Investment Vehicles: |
0
|
$0 |
0 |
$0 |
|
|
Other Accounts:
|
131 |
$225.4 million
|
0 |
$0 |
|
| Kevin V. Dreyer | Registered Investment Companies: |
5
|
$4.6 billion |
1 |
$2.0 billion |
| Other Pooled Investment Vehicles: |
1
|
$14.6 million |
0 |
$0 |
|
|
Other Accounts:
|
295
|
$1.7 billion |
0 |
$0 |
|
| Jeffrey J. Jonas, CFA | Registered Investment Companies: |
3
|
$2.5 billion |
0 |
$0 |
| Other Pooled Investment Vehicles: |
1
|
$0.0 million |
1 |
$0.0 million |
|
|
Other Accounts:
|
62
|
$71.1 million |
0 |
$0 |
|
| Christopher J. Marangi | Registered Investment Companies: |
7
|
$4.9 billion |
2 |
$2.3 billion |
| Other Pooled Investment Vehicles: |
1
|
$14.6 million |
0 |
$0 |
|
|
Other Accounts:
|
302
|
$1.7 billion |
0 |
$0 |
|
| Sarah Donnelly | Registered Investment Companies: |
4
|
$2.8 billion |
0 |
$0 |
| Other Pooled Investment Vehicles: |
0
|
$0 |
0 |
$0 |
|
|
Other Accounts:
|
12
|
$11.7 million |
0 |
$0 |
|
| Brian C. Sponheimer | Registered Investment Companies: |
1
|
$2.1 million |
0 |
$0 |
| Other Pooled Investment Vehicles: |
1
|
$0.0 million |
1 |
$0.0 million |
|
|
Other Accounts:
|
8
|
$1.3 million |
0 |
$0 |
|
| Regina M. Pitaro | Registered Investment Companies: |
0
|
$0 |
0 |
$0 |
| Other Pooled Investment Vehicles: |
0
|
$0 |
0 |
$0 |
|
|
Other Accounts:
|
45
|
$190.8 million |
0 |
$0 |
|
| Howard F. Ward | Registered Investment Companies: |
3
|
$3.2 billion |
1 |
$2.0 billion |
| Other Pooled Investment Vehicles: |
0
|
$0 |
0 |
$0 |
|
|
Other Accounts:
|
46
|
$293.0 million |
0 |
$0 |
|
POTENTIAL CONFLICTS OF INTEREST
As reflected above, the Portfolio Managers manage accounts in addition to the Trust. Actual or apparent conflicts of interest may arise when a Portfolio Manager also has day to day management responsibilities with respect to one or more other accounts. These potential conflicts include:
ALLOCATION OF LIMITED TIME AND ATTENTION. As indicated above, the Portfolio Managers manage multiple accounts. As a result, he/she will not be able to devote all of their time to the management of the Trust. The Portfolio Managers, therefore, may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he/she were to devote all of their attention to the management of only the Trust.
ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. As indicated above, the Portfolio Managers manage managed accounts with investment strategies and/or policies that are similar to the Trust. In these cases, if the Portfolio Manager identifies an investment opportunity that may be suitable for multiple accounts, a fund may not be able to take full advantage of that opportunity because the opportunity may be allocated among all or many of these accounts or other accounts managed primarily by other Portfolio Managers of the Adviser, and their affiliates. In addition, in the event a Portfolio Manager determines to purchase a security for more than one account in an aggregate amount that may influence the market price of the security, accounts that purchased or sold the security first may receive a more favorable price than accounts that made subsequent transactions.
SELECTION OF BROKER/DEALERS. Because of Mr. Gabelli's indirect majority ownership interest in G.research, LLC, he may have an incentive to use G.research to execute portfolio transactions for a fund.
PURSUIT OF DIFFERING STRATEGIES. At times, the Portfolio Managers may determine that an investment opportunity may be appropriate for only some of the accounts for which he/she exercises investment responsibility, or may decide that certain of the funds or accounts should take differing positions with respect to a particular security. In these cases, the Portfolio Manager may execute differing or opposite transactions for one or more accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment of one or more other accounts.
VARIATION IN COMPENSATION. A conflict of interest may arise where the financial or other benefits available to the Portfolio Manager differs among the accounts that they manage. If the structure of the Adviser's management fee or the Portfolio Manager's compensation differs among accounts (such as where certain accounts pay higher management fees or performance-based management fees), the portfolio managers may be motivated to favor certain accounts over others. The portfolio managers also may be motivated to favor accounts in which they have an investment interest, or in which the Adviser, or their affiliates have investment interests. Similarly, the desire to maintain assets under management or to enhance a Portfolio Manager's performance record or to derive other rewards, financial or otherwise, could influence the Portfolio Manager in affording preferential treatment to those accounts that could most significantly benefit the Portfolio Manager. For example, as reflected above, if the Portfolio Manager manages accounts which have performance fee arrangements, certain portions of his/her compensation will depend on the achievement of performance milestones on those accounts. The Portfolio Manager could be incented to afford preferential treatment to those accounts and thereby be subject to a potential conflict of interest.
The Adviser, and the Funds have adopted compliance policies and procedures that are designed to address the various conflicts of interest that may arise for the Adviser and their staff members. However, there is no guarantee that such policies and procedures will be able to detect and prevent every situation in which an actual or potential conflict may arise.
COMPENSATION STRUCTURE FOR MARIO J. GABELLI
Mr. Gabelli receives incentive-based variable compensation based on a percentage of net revenues received by the Adviser for managing the Trust. Net revenues are determined by deducting from gross investment management fees the firm's expenses (other than Mr. Gabelli's compensation) allocable to this Trust. Four closed-end registered investment companies (including this Trust) managed by Mr. Gabelli have arrangements whereby the Adviser will only receive its investment advisory fee attributable to the liquidation value of outstanding preferred stock (and Mr. Gabelli would only receive his percentage of such advisory fee) if certain performance levels are met. Additionally, he receives similar incentive based variable compensation for managing other accounts within the firm and its affiliates. This method of compensation is based on the premise that superior long-term performance in managing a portfolio should be rewarded with higher compensation as a result of growth of assets through appreciation and net investment activity. The level of compensation is not determined with specific reference to the performance of any account against any specific benchmark. One of the other closed-end registered investment companies managed by Mr. Gabelli has a performance (fulcrum) fee arrangement for which his compensation is adjusted up or down based on the performance of the investment company relative to an index. Mr. Gabelli manages other accounts with performance fees. Compensation for managing these accounts has two components. One component is based on a percentage of net revenues to the investment adviser for managing the account. The second component is based on absolute performance of the account, with respect to which a percentage of such performance fee is paid to Mr. Gabelli. As an executive officer of the Adviser's parent company, GBL, Mr. Gabelli also receives ten percent of the net operating profits of the parent company. He receives no base salary, no annual bonus, and no stock options. Mr. Gabelli may also enter into and has entered into agreements to defer or waive his compensation.
COMPENSATION STRUCTURE FOR THE PORTFOLIO MANAGERS OTHER THAN MR. GABELLI
The compensation for the Portfolio Managers other than Mr. Gabelli for the Trust is structured to enable the Adviser to attract and retain highly qualified professionals in a competitive environment. The Portfolio Managers other than Mr. Gabelli receive a compensation package that includes a minimum draw or base salary, equity-based incentive compensation via awards of restricted stock, and incentive based variable compensation based on a percentage of net revenue received by the Adviser for managing the Trust to the extent that the amount exceeds a minimum level of compensation. Net revenues are determined by deducting from gross investment management fees certain of the firm's expenses (other than the Portfolio Managers’ compensation) allocable to the Trust (the incentive-based variable compensation for managing other accounts is also based on a percentage of net revenues to the investment adviser for managing the account). This method of compensation is based on the premise that superior long-term performance in managing a portfolio should be rewarded with higher compensation as a result of growth of assets through appreciation and net investment activity. The level of equity-based incentive and incentive-based variable compensation is based on an evaluation by the Adviser's parent, GBL, of quantitative and qualitative performance evaluation criteria. This evaluation takes into account, in a broad sense, the performance of the accounts managed by the Portfolio Managers, but the level of compensation is not determined with specific reference to the performance of any account against any specific benchmark. Generally, greater consideration is given to the performance of larger accounts and to longer term performance over smaller accounts and short-term performance.
OWNERSHIP OF SHARES IN THE FUND
Mario J. Gabelli, Robert D Leininger, Kevin V. Dreyer, Jeffrey J. Jonas, Christopher J. Marangi, Sarah Donnelly, Brian Sponheimer, Regina Pitaro, Howard F. Ward, Hendi Susanto, and Gordon Grender each owned over $1 million, $100,001-$500,000, $10,001-$50,000, $100,001-$500,000, $10,001-$50,000 , $0, $0, $0, $0, $0, and $0, respectively, of shares of the Trust as of December 31, 2020.
(b) Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
REGISTRANT PURCHASES OF EQUITY SECURITIES
Footnote columns (c) and (d) of the table, by disclosing the following information in the aggregate for all plans or programs publicly announced:
| a. | The date each plan or program was announced – The notice of the potential repurchase of common and preferred shares occurs semiannually in the Fund’s shareholder reports in accordance with Section 23(c) of the Investment Company Act of 1940, as amended. |
| b. | The dollar amount (or share or unit amount) approved – Any or all common shares outstanding may be repurchased when the Fund’s common shares are trading at a discount of 7.5% or more from the net asset value of the shares. Any or all preferred Series G or Series H shares outstanding may be repurchased when the respective preferred shares are trading at a discount to the liquidation values. |
| c. | The expiration date (if any) of each plan or program – The Fund’s repurchase plans are ongoing. |
| d. | Each plan or program that has expired during the period covered by the table – The Fund’s repurchase plans are ongoing. |
| e. | Each plan or program the registrant has determined to terminate prior to expiration, or under which the registrant does not intend to make further purchases. – The Fund’s repurchase plans are ongoing. |
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s Board of Trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
| (a) | If the registrant is a closed-end management investment company, provide the following dollar amounts of income and fees/compensation related to the securities lending activities of the registrant during its most recent fiscal year: |
(1) Gross income from securities lending activities; $0
(2) All fees and/or compensation for each of the following securities lending activities and related services: any share of revenue generated by the securities lending program paid to the securities lending agent(s) (“revenue split”); fees paid for cash collateral management services (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split; administrative fees that are not included in the revenue split; fees for indemnification that are not included in the revenue split; rebates paid to borrowers; and any other fees relating to the securities lending program that are not included in the revenue split, including a description of those other fees; $0
(3) The aggregate fees/compensation disclosed pursuant to paragraph (2); $0 and
(4) Net income from securities lending activities (i.e., the dollar amount in paragraph (1) minus the dollar amount in paragraph (3)). $0
| (b) | If the registrant is a closed-end management investment company, describe the services provided to the registrant by the securities lending agent in the registrant’s most recent fiscal year. N/A |
Item 13. Exhibits.
| (a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(3) | Not applicable. |
| (a)(4) | Not applicable. |
| (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | The Gabelli Dividend & Income Trust |
| By (Signature and Title)* | /s/ Bruce N. Alpert |
| Bruce N. Alpert, Principal Executive Officer |
| Date | March 8, 2021 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ Bruce N. Alpert |
| Bruce N. Alpert, Principal Executive Officer |
| Date | March 8, 2021 |
| By (Signature and Title)* | /s/ John C. Ball |
| John C. Ball, Principal Financial Officer and Treasurer |
| Date | March 8, 2021 |
* Print the name and title of each signing officer under his or her signature.