Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of The Gabelli Equity Trust Inc.:
Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Equity
Trust Inc. (the “Fund”) as of December 31, 2021, the related statements of operations and cash flows for the year ended
December 31, 2021, the statement of changes in net assets attributable to common stockholders for each of the two years in the
period ended December 31, 2021, including the related notes, and the financial highlights for each of the five years in the period
ended December 31, 2021 (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Fund as of December 31, 2021, the results of its operations
and its cash flows for the year then ended, the changes in its net assets attributable to common stockholders for each of the
two years in the period ended December 31, 2021 and the financial highlights for each of the five years in the period ended December
31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our procedures included confirmation of securities owned as of December 31, 2021 by correspondence with the custodian and brokers;
when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable
basis for our opinion.
/s/PricewaterhouseCoopers
LLP
New
York, New York
February
28, 2022
We
have served as the auditor of one or more investment companies in the Gabelli/GAMCO Fund Complex since 1986.
The
Gabelli Equity Trust Inc.
Additional
Fund Information (Unaudited)
The
following includes information that is incorporated by reference in the Fund’s Registration Statement and is also a summary
of certain changes during the most recent fiscal year ended December 31, 2021. This information may not reflect all of the changes
that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Summary
of 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, 2020, for the fiscal year ended December 31, 2021. This information may
not reflect all of the changes that have occurred since you invested in the Fund.
Investment
Objectives and Strategies
There
have been no material changes to the Fund’s investment objectives or principal investment strategies since the Fund’s
last annual report to shareholders.
Investment
Objectives
The
Fund’s primary investment objective is to achieve long term growth of capital by investing primarily in a portfolio of equity
securities consisting of common stock, preferred stock, convertible or exchangeable securities, and warrants and rights to purchase
such securities selected by Gabelli Funds, LLC (the “Investment Adviser”). Income is a secondary investment objective.
The investment objectives of long term growth of capital and income are fundamental policies of the Fund. These fundamental policies
and the Fund’s fundamental investment restrictions described below under “Certain Investment Practices—Investment
Restrictions” cannot be changed without the approval of the holders of a majority of the Fund’s outstanding shares
of preferred stock, voting together as a separate class, and the approval of the holders of a majority of the Fund’s outstanding
voting securities, voting together as a single class. Such majority votes require, in each case, the lesser of (i) 67% of the
Fund’s applicable shares represented at a meeting at which more than 50% of the Fund’s applicable shares outstanding
are represented, whether in person or by proxy, or (ii) more than 50% of the outstanding shares of the applicable class.
Under
normal market conditions, the Fund will invest at least 80% of the value of its total assets in equity securities (the “80%
Policy”). The 80% Policy may be changed without stockholder approval. The Fund will provide stockholders with notice at
least 60 days prior to the implementation of any change in the 80% Policy.
The
Investment Adviser selects investments on the basis of fundamental value and, accordingly, the Fund typically invests in the securities
of companies that are believed by the Investment Adviser to be priced lower than justified in relation to their underlying assets.
Other important factors in the selection of investments include favorable price/earnings and debt/equity ratios and strong management.
The
Fund seeks to achieve its secondary investment objective of income, in part, by investing up to 10% of its total assets in fixed
income securities rated as low as C by Moody’s Investors Services, Inc. (“Moody’s”) or D by Standard &
Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. (“S&P”) or unrated securities considered
to be of equivalent quality. Securities that are rated C by Moody’s are the lowest rated
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class
and can be regarded as having extremely poor prospects of ever obtaining investment-grade standing. Debt rated D by S&P is
in default or is expected to default upon maturity of payment date. These debt securities, which are often referred to in the
financial press as “junk bonds,” are predominantly speculative and involve major risk exposure to adverse conditions.
The Fund may invest in fixed income securities of any maturity and any duration when it appears that the Fund will be better able
to achieve its investment objective through investments in such securities or when the Fund is temporarily in a defensive position.
The average duration and average maturity of the Fund’s investments in debt securities will vary from time to time depending
on the views of the Investment Adviser.
The
Fund invests in equity securities across all market capitalization ranges. The Fund may invest up to 35% of its total assets in
foreign securities. Among the foreign securities in which the Fund may invest are those issued by companies located in emerging
markets.
No
assurance can be given that the Fund’s investment objectives will be achieved.
Investment
Methodology of the Fund
In
selecting securities for the Fund, the Investment Adviser normally will consider 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
potential for capital appreciation of the securities; |
| ● | the
interest or dividend income generated by 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; |
| ● | 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 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. The Investment Adviser also
normally evaluates an issuer’s free cash flow and long term earnings trends. Finally, the Investment Adviser looks for
a catalyst, something indigenous to the company, its industry or country, that will surface additional value.
Certain
Investment Practices
Foreign
Securities. The Fund may invest up to 35% of its total assets in foreign securities including issuers in emerging markets,
which are countries in the initial stages of their industrialization cycles. Investing in the equity and debt markets of developing
countries involves exposure to economic structures that are generally less diverse and less mature, and to political systems that
may have less stability, than those of developed countries. The markets of developing countries historically have been more volatile
than the markets of the more mature economies of developed countries, but often have provided higher rates of return to investors.
The
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The
Fund may also invest in the debt securities of foreign governments. Although such investments are not a principal strategy of
the Fund, there is no independent limit on its ability to invest in the debt securities of foreign governments.
Temporary
Investments. Subject to the Fund’s investment restrictions, when a temporary defensive period is believed by the
Investment Adviser to be warranted (“temporary defensive periods”), the Fund may, without limitation, hold cash
or invest its assets in securities of United States government sponsored instrumentalities, including U.S. Treasury
securities, in repurchase agreements in respect of those instruments, and in certain high-grade commercial paper instruments.
During temporary defensive periods, the Fund may also invest in money market mutual funds that invest primarily in securities
of United States government sponsored instrumentalities and repurchase agreements in respect of those instruments.
Obligations of certain agencies and instrumentalities of the United States government, such as the Government National
Mortgage Association, are supported by the “full faith and credit” of the United States government; others, such
as those of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the United
States Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary
authority of the United States 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 United States government would provide financial support to United States government sponsored instrumentalities if it is
not obligated to do so by law. During temporary defensive periods, the Fund may be less likely to achieve its
secondary investment objective of income.
Non-Investment
Grade Securities. The Fund may invest up to 10% of its total assets in fixed income securities rated below investment grade
by recognized statistical rating agencies or unrated securities of comparable quality. These securities, which may be preferred
stock or debt, are predominantly speculative and involve major risk exposure to adverse conditions. Debt securities that are not
rated or that are rated lower than “BBB” by S&P or lower than “Baa” by Moody’s are referred
to in the financial press as “junk bonds.”
Generally,
such lower grade securities and unrated securities of comparable quality offer a higher current yield than is offered by higher
rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating
organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. In addition, such securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is significantly greater because such lower 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 securities in lower rated categories 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
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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 response to changes in the economy or the financial markets.
Lower grade securities 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 regular income streams.
As
part of its investment 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 under a plan pursuant to which the securities received by the Fund in exchange
for its defaulted securities will have a value in excess of the Fund’s investment. By investing in securities of issuers
in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy
protection or that the value of the securities will not otherwise appreciate. In addition to using recognized rating agencies
and other sources, the Investment Adviser also performs its own analysis of issues in seeking investments that it believes to
be underrated (and thus higher yielding) in light of the financial condition of the issuer. Its analysis of issuers may include,
among other things, current and anticipated cash flow and borrowing requirements, value of assets in relation to historical cost,
strength of management, responsiveness to business conditions, credit standing, and current anticipated results of operations.
In selecting investments for the Fund, the Investment Adviser may also consider general business conditions, anticipated changes
in interest rates, and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies may change their ratings of a particular issue to reflect subsequent events. 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.
The
market for lower grade and comparable unrated securities has experienced several periods of significantly adverse price and liquidity,
particularly at or around times of economic recessions. Past market recessions have adversely affected the value of such securities
as well as 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.
Futures
Contracts and Options on Futures. On behalf of the Fund, the Investment Adviser may, subject to the Fund’s investment
restrictions and guidelines of the Board, 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. These futures contracts
and related options may be written on
The
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Additional
Fund Information (Continued) (Unaudited)
debt
securities, financial indices, securities indices, United States government securities and foreign currencies. 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. A “sale” of a futures contract (or a “short” futures position) means the assumption of
a contractual obligation to deliver the assets 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 assets 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 assets 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 “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 a futures
contract, the Fund may close the position by taking an opposite position, which will operate to terminate its existing
position in the contract.
An
option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration of the option. Upon exercise of an option, the delivery
of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer’s futures margin account attributable to that contract, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call option, or is less than, in the case of a put option, the exercise
price of the option on the futures contract. The potential loss related to the purchase of an option on a futures contract is
limited to the premium paid for the option (plus transaction costs). Because the value of the option purchased is fixed at the
point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in the net assets of the Fund.
Futures
and options on futures entail certain risks, including but not limited to the following: no assurance that futures contracts or
options on futures can be offset at favorable prices, possible reduction of the yield of the Fund due to the use of hedging, possible
reduction in value of both the securities hedged and the hedging instrument, possible lack of liquidity due to daily limits on
price fluctuations, imperfect correlation between the contracts and the securities being hedged, 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, the Fund will segregate or “earmark” cash, U.S. government securities or other
liquid assets equal to the full notional value of the underlying security due in sold put options (less any margin on deposit).
The Fund also reserves the right to instead cover its obligation by either purchasing a put option on the same reference asset
with a strike price that equals or is higher than the strike price of the put option sold or selling short the instruments or
currency underlying the put option at the same or higher price than the strike price of the put option. In the event the Fund
enters into long futures contracts, the Fund will segregate or “earmark” cash, U.S. government securities or other
liquid assets in an amount equal to the full
The
Gabelli Equity Trust Inc.
Additional
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notional
value of the contract (less any margin on deposit). 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 or liquid securities
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 contract or call option or the market price at which the short positions were
established. 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. By August 19, 2022, the Fund will be required to implement and comply with new Rule 18f-4
under the Investment Company Act of 1940, as amended (the “1940 Act”), which, once implemented, will eliminate
the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act with respect to
derivatives, among other things.
The
Investment Adviser has claimed an exclusion, granted to operators of registered investment companies like the Fund, from
registration as a commodity pool operator (“CPO”) with respect to the Fund under the Commodity Exchange Act (the
“CEA”), and, therefore, is not subject to registration or regulation with respect to the Fund under the CEA. As a
result, the Fund is limited in its ability to use commodity futures (which include futures on broad-based securities indices
and interest rate futures) or options on commodity futures, engage in certain swaps transactions or make certain other
investments (whether directly or indirectly through investments in other investment vehicles) for purposes other than
“bona fide hedging,” as defined in the rules of the Commodity Futures Trading Commission. With respect to
transactions other than for bona fide hedging purposes, either: (1) the aggregate initial margin and premiums required to
establish the Fund’s positions in such investments may not exceed 5% of the liquidation value of its portfolio (after
accounting for unrealized profits and unrealized losses on any such investments); or (2) the aggregate net notional value of
such instruments, determined at the time the most recent position was established, may not exceed 100% of the liquidation
value of its portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In addition to
meeting one of the foregoing trading limitations, the Fund may not market itself as a commodity pool or otherwise as a
vehicle for trading in the futures, options or swaps markets. If the Investment Adviser were required to register as a CPO
with respect to the Fund, compliance with additional registration and regulatory requirements would increase Fund expenses.
Other potentially adverse regulatory initiatives could also develop.
Swap
Contracts. On behalf of the Fund, the Investment Adviser may, subject to the Fund’s investment restrictions and guidelines
established by the Board, enter into swap transactions. Swap contracts generally will be used by the Fund for the purpose of seeking
to increase the income of the Fund. The use of swaps is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio security transactions. In a typical swap transaction on an equity
security, a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be
based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based
on the performance of the shares of a stock. Depending on the general state of short term interest rates and the returns on the
Fund’s portfolio securities at the time an equity swap transaction reaches its scheduled termination date, there is a risk
that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable
as on the expiring transaction.
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Options.
On behalf of the Fund, the Investment Adviser may, subject to the guidelines of the Board and SEC or staff guidance and any
other applicable regulatory authority, 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 U.S. over-the-counter (“OTC”) markets as a means of achieving
additional return or of hedging the value of the Fund’s portfolio. The Fund may write covered call options on common stocks
that it owns or has an immediate right to acquire through conversion or exchange of other securities in an amount not to exceed
25% of total assets or invest up to 10% of its total assets in the purchase of put options on common stocks that the Fund owns
or may acquire through the conversion or exchange of other securities that it owns.
A
call option is a contract that gives the holder of the option the right to buy from the writer (seller) of the call option, in
return for a premium paid, the security 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 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 to sell to the writer (seller), in return for the premium,
the underlying security at a specified price during the term of the option. The writer of the put, who receives the premium, has
the obligation to buy the underlying security upon exercise, at the exercise price during the option period.
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. There can be no assurance that a closing purchase
transaction can be effected when the Fund so desires.
An
exchange-traded option may be closed out only on an exchange which provides a secondary market for an option of the same series.
Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange will exist for any particular option.
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 upon conversion or exchange of another
instrument held in its portfolio (or for additional cash consideration held in a segregated account by its custodian). 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 obligations 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, it will be unable to effect a closing purchase
transaction. Similarly, if the Fund is the holder of an option, it may liquidate its position by effecting a closing sale
transaction. This is accomplished by selling an option with the same terms as the option previously purchased. There can be
no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
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The
Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium it received from
writing the option or is more than the premium it paid to purchase the option; the Fund will realize a loss from a closing transaction
if the price of the transaction is more than the premium it received from writing the option or is less than the premium it paid
to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss
resulting from the repurchase of a call option may also 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 that provides a secondary market for an option with the same terms or in
a private transaction. Although the Fund will generally purchase or write 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.
In
addition to options on securities, the Fund may also purchase and sell call and put options on securities indices. A stock index
reflects in a single number the market value of many different stocks. Relative values are assigned to the stocks included in
an index and the index fluctuates with changes in the market values of the stocks. The options give the holder the right to receive
a cash settlement during the term of the option based on the difference between the exercise price and the value of the index.
By writing a put or call option on a securities index, the Fund is obligated, in return for the premium received, to make delivery
of this amount. The Fund may offset its position in the stock index options prior to expiration by entering into a closing transaction
on an exchange or it may let the option expire unexercised.
The
Fund may also buy or sell put and call options on foreign currencies. A put option on a foreign currency gives the purchaser of
the option the right to sell a foreign currency at the exercise price until the option expires. A call option on a foreign currency
gives the purchaser of the option the right to purchase the currency at the exercise price until the option expires. Currency
options traded on U.S. or other exchanges may be subject to position limits which may limit the ability of the Fund to reduce
foreign currency risk using such options. OTC options differ from exchange-traded options in that they are two-party contracts
with price and other terms negotiated between buyer and seller and generally do not have as much market liquidity as exchange-traded
options. OTC options are considered illiquid securities.
Use
of options on securities indices entails the risk that trading in the options may be interrupted if trading in certain securities
included in the index is interrupted. The Fund will not purchase these options unless the
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Investment
Adviser is satisfied with the development, depth and liquidity of the market and the Investment Adviser believes the options
can be closed out.
Price
movements in the portfolio of the Fund may not correlate precisely with the movements in the level of an index and, therefore,
the use of options on indices cannot serve as a complete hedge and will depend, in part, on the ability of the Investment Adviser
to predict correctly movements in the direction of the stock market generally or of a particular industry. Because options on
securities indices require settlement in cash, the Fund may be forced to liquidate portfolio securities to meet settlement obligations.
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.
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 its 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 it 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.
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 at a gain that will offset, to some extent,
currency exchange losses otherwise suffered by
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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.
Forward
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 future changes in the level of 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’s dealings in forward contracts
generally will be limited to hedging involving either specific transactions or portfolio positions. The Fund does not have an
independent limitation on its investments in foreign currency futures contracts and options on foreign currency futures contracts.
At
or before the maturity of a forward sale contract, the Fund may either sell a portfolio security and make delivery of the currency,
or retain the security and offset its contractual obligations to deliver the currency by purchasing a second contract pursuant
to which the Fund will obtain, on the same maturity date, the same amount of the currency which it is obligated to deliver. If
the Fund retains the portfolio security and engages in an offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has occurred in forward contract prices. Should forward prices
decline during the period between entering into a forward contract by the Fund for the sale of a currency and the date it enters
into an offsetting contract for the purchase of the currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to purchase is less than the price of the currency it has agreed to sell. Should forward prices increase, the Fund
will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. Closing out forward purchase contracts involves similar offsetting transactions.
The
cost to the Fund of engaging in currency transactions varies with factors such as the currency involved, the length of the contract
period and the market conditions then prevailing. Because forward transactions in currency exchange are usually conducted on a
principal basis, no fees or commissions are involved. The use of foreign currency contracts does not eliminate fluctuations in
the underlying prices of the securities, but it does establish a rate of exchange that can be achieved in the future. In addition,
although forward currency contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit
any potential gain that might result if the value of the currency increases.
If
a decline in any currency is generally anticipated by the Investment Adviser, the Fund may not be able to contract to sell the
currency at a price above the level to which the currency is anticipated to decline.
Repurchase
Agreements. The Fund may enter into repurchase agreements with banks and non-bank dealers of United States government securities
which are listed as reporting dealers of the Federal Reserve Bank and which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. In a repurchase agreement, the Fund purchases a debt security from a seller
who undertakes to repurchase the security at a specified resale price on an agreed future date. Repurchase agreements are generally
for one
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business
day and generally will not have a duration of longer than one week. The SEC has taken the position that, in economic
reality, a repurchase agreement is a loan by a fund to the other party to the transaction secured by securities transferred
to the fund. The resale price generally exceeds the purchase price by an amount which reflects an agreed upon market interest
rate for the term of the repurchase agreement. The Fund’s risk is primarily that, if the seller defaults, the proceeds
from the disposition of the underlying securities and other collateral for the seller’s obligation may be less than the
repurchase price. If the seller becomes insolvent, the Fund might be delayed in or prevented from selling the collateral. In
the event of a default or bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral. To the extent that
the proceeds from any sale of the collateral upon a default in the obligation to repurchase is less than the repurchase
price, the Fund will experience a loss. If the financial institution that is a party to the repurchase agreement petitions
for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is
unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund’s ability to sell the
collateral and the Fund could suffer a loss.
Loans
of Portfolio Securities. To increase income, the Fund may lend its portfolio securities to securities broker-dealers or
financial institutions if (i) the loan is collateralized in accordance with applicable regulatory requirements and (ii) no
loan will cause the value of all loaned securities to exceed 20% of the value of its total assets. 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 fail financially. While these loans of portfolio securities will be made in accordance
with guidelines approved by the Fund’s Board, 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 counterparty to the loan petitions for bankruptcy or becomes subject to
the United States Bankruptcy Code, the law regarding the Fund’s rights is unsettled. As a result, under these
circumstances, there may be a restriction on the Fund’s ability to sell the collateral and it would suffer a
loss.
Borrowing.
The Fund may borrow money in accordance with its investment restrictions, including as a temporary measure for extraordinary
or emergency purposes. It may not borrow for investment purposes.
Leverage.
As provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue senior
securities representing stock, such as preferred stock, so long as immediately following such issuance of stock, its total assets
exceed 200% of the amount of such stock. The use of leverage magnifies the impact of changes in net asset value. For example,
a fund that uses 33% leverage will show a 1.5% increase or decline in net asset value for each 1% increase or decline in the value
of its total assets. 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.
Additionally,
the Fund may enter into derivative transactions that have economic leverage embedded in them. Derivative transactions that the
Fund may enter into and the risks associated with them are described herein. 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 stock.
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Investment
Restrictions. The Fund has adopted certain investment restrictions as fundamental policies of the Fund. Under the 1940 Act,
a fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Fund (voting together as a single class). In addition, a majority, as defined in the 1940 Act, of the outstanding
preferred stock of the Fund (voting together as a separate class) is also required to change a fundamental policy, as defined
in the 1940 Act. The Fund’s fundamental investment restrictions prohibit the Fund from: (1) concentrating its investments
(i.e., investing more than 25% of the Fund’s total assets) in securities of issuers in any particular industry; (2) purchasing
securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, if
more than 10% of the market value of the total assets of the Fund would be invested in securities of other investment companies,
more than 5% of the market value of the total assets of the Fund would be invested in the securities of any one investment company
or the Fund would own more than 3% of any other investment company’s securities, provided that this restriction does not
apply to securities of any investment company organized by the Fund that are to be distributed pro rata as a dividend to its stockholders;
(3) purchasing or selling commodities or commodity contracts, except that the Fund may purchase or sell futures contracts and
related options thereon if certain conditions are met, and purchasing or selling sell real estate, provided that the Fund may
invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests
therein; (4) purchasing any securities on margin or making short sales, except that the Fund may obtain such short term credit
as may be necessary for the clearance of purchases and sales of portfolio securities; (5) making loans of money, except by the
purchase of a portion of private or publicly distributed debt obligations or the entering into of repurchase agreements, and the
Fund reserves the authority to make loans of its portfolio securities to financial intermediaries in an aggregate amount not exceeding
20% of its total assets; (6) borrowing money, except to the extent permitted by applicable law (i.e., the Fund generally may borrow
money in amounts of up to one-third of the Fund’s total assets for any purpose, subject to the requirement that the Fund
have asset coverage of at least 300% of the amount of its borrowings at the time the borrowing is incurred, and may borrow up
to 5% of the Fund’s total assets for temporary purposes (for up to 60 days) without maintaining such 300% asset coverage);
(7) issuing senior securities, except to the extent permitted by applicable law (i.e., the Fund may issue senior securities (which
may be stock, such as preferred shares, and/or securities representing debt, such as notes), subject to the requirement that the
Fund maintain asset coverage as required by the 1940 Act); (8) underwriting securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as amended, in selling portfolio securities; and (9) investing
more than 10% of its total assets in illiquid securities, such as repurchase agreements with maturities in excess of seven days,
or securities that at the time of purchase have legal or contractual restrictions on resale. See also “Leverage Risk —
Portfolio Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility.”
Portfolio
Turnover. The Fund does not engage in the trading of securities for the purpose of realizing short term profits, but
adjusts its portfolio as it deems advisable in view of prevailing or anticipated market conditions to accomplish its
investment objectives. A high rate of portfolio turnover involves correspondingly greater brokerage commission expenses than
a lower rate, and such expenses must be borne by the Fund and its stockholders. High portfolio turnover may also result in
the realization of substantial net short term capital gains and any distributions resulting from such gains will be taxable
at ordinary income rates for United States federal income tax purposes. The Fund’s portfolio turnover rates for the
fiscal years ended December 31, 2020 and 2021 were 13% and 12%, respectively. The portfolio turnover rate is calculated by
dividing the lesser of sales
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or
purchases of portfolio securities by the average monthly value of a fund’s portfolio securities. For purposes of this calculation,
portfolio securities exclude purchases and sales of debt securities having a maturity at the date of purchase of one year or less.
Principal
Risk Factors
Leverage
Risk
The
Fund currently uses, and intends to continue to use, leverage for investment purposes by issuing preferred stock. “Leverage”
for these purposes means the ratio by which the aggregate amount of senior securities representing indebtedness of the Fund plus
the aggregate involuntary liquidation preference of the Fund’s preferred stock bears to the Fund’s total assets. As
of December 31, 2021, the amount of leverage represented approximately 21% of the Fund’s net assets. All series of the Fund’s
preferred stock have the same seniority with respect to distributions and liquidation preference. Preferred stock has seniority
over common stock with respect to distributions and upon liquidation of the Fund.
The
Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having similar investment
objectives and policies. The Fund’s use of leverage, which can be described as exposure to changes in price at a ratio greater
than the amount of equity invested, either through the issuance of preferred stock, borrowing or other forms of market exposure,
magnifies both the favorable and unfavorable effects of price movements in the investments made by the Fund. The Fund’s
leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and
policies. The Fund cannot assure that the issuance of preferred stock will result in a higher yield or return to the holders of
the common stock. Also, as the Fund is utilizing leverage, a decline in net asset value could affect the ability of the Fund to
make common stock distributions and such a failure to pay dividends or make distributions could result in the Fund ceasing to
qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”).
Any
decline in the net asset value of the Fund’s investments would be borne entirely by the holders of common stock. 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 stock 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 stock. The Fund might be in danger of failing to maintain the required asset
coverage of the preferred stock or of losing its ratings on the preferred stock or, in an extreme case, the Fund’s current
investment income might not be sufficient to meet the dividend requirements on the preferred stock. 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 stock.
In
addition, the Fund would pay (and the holders of common stock will bear) all costs and expenses relating to the issuance and ongoing
maintenance of the preferred stock, including the advisory fees on the incremental assets attributable to such shares.
Holders
of preferred stock may have different interests than holders of common stock and may at times have disproportionate influence
over the Fund’s affairs. Holders of preferred stock, voting together as a separate class, will have the right to elect two
members of the Board at all times and in the event dividends become two
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full
years in arrears will have the right to elect a majority of the Directors until such arrearage is completely eliminated. In addition,
preferred stockholders 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.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common stock and
preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to
maintain its qualification as a regulated investment company for federal income tax purposes. While the Fund intends to redeem
its preferred stock to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification
as a regulated investment company under the Code, there can be no assurance that such actions can be effected in time to meet
the Code requirements.
| ● | Special
Risks to Holders of Fixed Rate Preferred Stock |
Market
Price Fluctuation. Shares of Fixed Rate Preferred Stock that are listed on a national securities exchange may trade at a premium
to or discount from liquidation value for various reasons, including changes in interest rates.
Common
Stock Repurchases. Repurchases of common stock by the Fund may reduce the net asset coverage of the preferred stock, which
could adversely affect their liquidity or market prices, if such preferred shares are listed on a national securities exchange.
Common
Stock Distribution Policy. In the event the Fund does not generate a total return from dividends and interest received and
net realized capital gains in an amount at least equal to its distributions for a given year, the Fund may return capital as part
of its distribution. This would decrease the asset coverage per share with respect to the Fund’s preferred stock, which
could adversely affect its liquidity or market prices, if such preferred shares are listed on a national securities exchange.
See “Risk Factors and Special Considerations —Common Stock Distribution Policy Risk.
Credit
Quality Ratings. The Fund may obtain credit quality ratings for its preferred stock, if desired; however, it is not required
to do so and may issue shares of preferred stock without any rating. If rated, the Fund does not impose any minimum rating necessary
to issue such shares. In order to obtain and maintain attractive credit quality ratings for preferred stock 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 within the meaning of such rating agencies’ over-collateralization tests. 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 preferred stock, a rating by a ratings agency does not eliminate or necessarily mitigate the risks of investing
in our preferred stock, 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 preferred stock, which may make such securities less liquid in the secondary market. If a rating
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agency
downgrades the rating assigned to our preferred stock, we may alter our portfolio or redeem all or a portion of the preferred
stock that are then redeemable under certain circumstances.
| ● | Portfolio
Guidelines of Rating Agencies for Preferred Stock and/or Credit Facility. In order to obtain and maintain attractive credit
quality ratings for preferred stock, if desired, the Fund must comply with investment quality, diversification and other guidelines
established by the relevant rating agencies. These tests tend to require over-collateralization and may be 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 within the meaning of such rating agencies’ collateralization tests. 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
stock is lowered or withdrawn by the relevant rating agency, the Fund may also be required to redeem all or part of its outstanding
preferred stock, and the common stock of the Fund will lose the potential benefits associated with a leveraged capital structure. |
| ● | Impact
on Common Stock. Assuming that leverage will (1) be equal in amount to approximately 21% of the Fund’s total net assets,
and (2) charge interest or involve dividend payments at a projected blended annual average leverage dividend or interest rate
of 4.12%, then the annual return generated by the Fund’s portfolio (net of estimated expenses) must exceed approximately
0.89% of the Fund’s total net assets in order to cover such interest or dividend payments and other expenses specifically
related to leverage. These numbers are merely estimates, used for illustration. Actual dividend rates, interest or payment rates
may vary frequently and may be significantly higher or lower than the rate estimated above. The following table is furnished in
response to requirements of the SEC. It is designed to illustrate the effect of leverage on common stock total return, assuming
investment portfolio total returns (comprised of net investment income of the Fund, realized gains or losses of the Fund and changes
in the value of the securities held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio
returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected
to be experienced by the Fund. See “Risks.” The table further reflects leverage representing 21% of the Fund’s
net assets, the Fund’s current projected blended annual average leverage dividend or interest rate of 4.12%, a management
fee at an annual rate of 1.00% of the liquidation preference of any outstanding preferred stock and estimated annual incremental
expenses attributable to any outstanding preferred stock of .01% of the Fund’s net assets attributable to shares of common
stock. |
Assumed Portfolio
Total Return (Net of Expenses) |
(10.00)% |
(5.00)% |
0.00% |
5.00% |
10.00% |
Common Stock Total Return |
(14.20)% |
(7.83)% |
(1.46)% |
4.90% |
11.27% |
Common
stock 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 stock) 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.
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Special
Risks for Holders of Subscription Rights
There
is a risk that changes in yield or changes in the credit quality of the Fund may result in the underlying preferred stock or common
stock purchasable upon exercise of the subscription rights being less attractive to investors at the conclusion of the subscription
period. This may reduce or eliminate the value of the subscription rights. Investors who receive subscription rights may find
that there is no market to sell rights they do not wish to exercise. If investors exercise only a portion of the rights, the number
of shares of preferred stock or common stock issued may be reduced, and the preferred stock or common stock may trade at less
favorable prices than larger offerings for similar securities.
Common
Stock Distribution Policy Risk
The
Fund has adopted a policy, which may be changed at any time by the Board, of paying a minimum annual distribution of 10% of the
average net asset value of the Fund to common stockholders. In the event the Fund does not generate a total return from dividends
and interest received and net realized capital gains in an amount equal to or in excess of its stated distribution in a given
year, the Fund may return capital as part of such distribution, which may have the effect of decreasing the asset coverage per
share with respect to the Fund’s preferred stock. Any return of capital should not be considered by investors as yield or
total return on their investment in the Fund. For the fiscal year ended December 31, 2021, the Fund made distributions of $0.63
per share of common stock, of which $0.17 per share was deemed return of capital. The Fund has made quarterly distributions with
respect to its common stock since 1987. A portion of the distributions to common stockholders during twenty-two of the thirty-three
fiscal years that distributions were paid since the Fund’s inception has constituted a return of capital. The composition
of each distribution is estimated based on the earnings of the Fund as of the record date for each distribution. The actual composition
of each of the current year’s distributions will be based on the Fund’s investment activity through the end of the
calendar year.
Value
Investing Risk
The
Fund invests in dividend-paying common and preferred stocks that the Investment Adviser believes are undervalued or inexpensive
relative to other investments. These types of securities may present risks in addition to the general risks associated with investing
in common and preferred stocks. These securities generally are selected on the basis of an issuer’s fundamentals relative
to current market price. Such securities are subject to the risk of mis-estimation of certain fundamental factors. In addition,
during certain time periods market dynamics may strongly favor “growth” stocks of issuers that do not display strong
fundamentals relative to market price based upon positive price momentum and other factors. Disciplined adherence to a “value”
investment mandate during such periods can result in significant underperformance relative to overall market indices and other
managed investment vehicles that pursue growth style investments and/or flexible equity style mandates.
Non-Diversified
Status
The
Fund is classified as a “non-diversified” investment company under the 1940 Act, which means it is not limited
by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. As a
non-diversified investment company, the Fund may invest in the securities of individual issuers to a greater degree than a
diversified investment company. As a result, the Fund may be more vulnerable to events affecting a single issuer and
therefore subject to greater volatility than a fund that is more broadly diversified. Accordingly,
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an
investment in the Fund may present greater risk to an investor than an investment in a diversified company. To qualify as a “regulated
investment company,” or “RIC,” for purposes of the Code, the Fund has in the past conducted and intends to conduct
its operations in a manner that will relieve it of any liability for federal income tax to the extent its earnings are distributed
to stockholders. To so qualify as a “regulated investment company,” among other requirements, the Fund will limit
its investments so that, at the close of each quarter of the taxable year:
| ● | not
more than 25% of the market value of its total assets will be invested in the securities (other than United States government
securities or the securities of other RICs) of a single issuer, any two or more issuers in which the Fund owns 20% or more of
the voting securities and which are determined to be engaged in the same, similar or related trades or businesses or in the securities
of one or more qualified publicly traded partnerships (as defined in the Code); and |
| ● | at
least 50% of the market value of the Fund’s assets will be represented by cash, securities of other regulated investment
companies, United States government securities and other securities, with such other securities limited in respect of any one
issuer to an amount not greater than 5% of the value of its assets and not more than 10% of the outstanding voting securities
of such issuer. |
Market
Value and Net Asset Value
The
Fund is a non-diversified, closed-end management investment company. Shares of closed-end funds are bought and sold in the securities
markets and may trade at either a premium to or discount from net asset value. Listed shares of closed-end investment companies
often trade at discounts from net asset value. This characteristic of shares of a closed-end fund is a risk separate and distinct
from the risk that its net asset value may decrease. The Fund cannot predict whether its listed stock will trade at, below or
above net asset value. Since inception, the Fund’s shares of common stock have traded at both premiums to and discounts
from net asset value. As of December 31, 2021, the market price of the Fund closed at an approximate 12.2% premium to its net
asset value. Stockholders desiring liquidity may, subject to applicable securities laws, trade their Fund shares on the NYSE or
other markets on which such shares may trade at the then-current market value, which may differ from the then-current net asset
value. Stockholders will incur brokerage or other transaction costs to sell stock.
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 stockholder invested in the Fund, even after taking into account any reinvestment of distributions.
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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.
Special
Risks Related to Fund Investments in Preferred Securities
There
are special risks associated with the Fund’s investing in preferred securities, including:
| ● | Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion, to defer dividends or distributions
for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its
dividends or distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. |
| ● | 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 stockholder. 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 federal
income tax or securities laws. A redemption by the issuer may negatively impact the return of the security held by the Fund. |
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| ● | Phantom
Income. Some preferred securities are classified as debt for U.S. federal income tax purposes. If a debt instrument is issued
with original issue discount, the Fund could recognize taxable income in advance of the receipt of cash on the investment. This
“phantom income” may require the Fund to liquidate other investments (including when it is not advantageous to do
so) to meet its distribution requirements or otherwise qualify for treatment as a RIC. |
Market
Disruption and Geopolitical Risk
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing epidemics and
pandemics of infectious diseases and other global health events, natural/environmental disasters, terrorist attacks in the
United States and around the world, social and political discord, debt crises, sovereign debt downgrades, increasingly
strained relations between the United States and a number of foreign countries, new and continued political unrest in various
countries, the exit or potential exit of one or more countries from the EU or the EMU, continued 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.
China
and the United States have each recently imposed tariffs on the other country’s products. These actions may trigger a significant
reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible
failure of individual companies and/or large segments of China’s export industry, which could have a negative impact on
the Fund’s performance. U.S. companies that source material and goods from China and those that make large amounts of sales
in China would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions
and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen
and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may
be imposed or other escalating actions may be taken in the future.
The
decision made in the British referendum of June 23, 2016 to leave the EU, an event widely referred to as “Brexit,”
has led to volatility in the financial markets of the United Kingdom (“UK”) and more broadly across Europe and may
also lead to weakening in consumer, corporate and financial confidence in such markets. Pursuant to an agreement between the UK
and the EU, the UK left the EU on January 31, 2020. The UK and EU have reached an agreement effective January 1, 2021 on the terms
of their future trading relationship relating principally to the trading of goods; however, negotiations are ongoing for matters
not covered by the agreement, such as the trade of financial services. The longer term economic, legal, political and social framework
to be put in place between the UK and the EU remains unclear at this stage and ongoing political and economic uncertainty and
periods of exacerbated volatility in both the UK and in wider European markets may continue for some time. In particular, the
decision made in the British referendum may lead to a call for similar referendums in other European jurisdictions which may cause
increased economic volatility in the European and global markets. This uncertainty may have an adverse effect on the economy generally
and on the ability of the Fund and its investments to execute their 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, if the Fund elects to execute currency hedges. Potential decline in the value
of the British Pound and/or the Euro against other currencies, along with the
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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.
Cybersecurity
incidents affecting particular companies or industries may adversely affect the economies of particular countries, regions or
parts of the work in which the Fund invests.
An
outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and has developed into
a global pandemic. This pandemic has resulted in closing borders, enhanced health screenings, healthcare service preparation and
delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general concern and uncertainty.
Disruptions in markets can adversely impact the Fund and its investments. Further, certain local markets have been or may be subject
to closures, and there can be no certainty regarding whether trading will continue in any local markets in which the Fund may
invest, when any resumption of trading will occur or, once such markets resume trading, whether they will face further closures.
Any suspension of trading in markets in which the Fund invests will have an impact on the Fund and its investments and will impact
the Fund’s ability to purchase or sell securities in such market. The outbreak could also impair the information technology
and other operational systems upon which the Fund’s service providers, including the Investment Adviser, rely, and could
otherwise disrupt the ability of employees of the Fund’s service providers to perform critical tasks relating to the Fund.
The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact
individual issuers and capital markets in ways that cannot be foreseen. In the past, governmental and quasi-governmental authorities
and regulators through the world have at times responded to major economic disruptions with a variety of fiscal and monetary policy
changes, including direct capital infusions into companies and other issuers, new monetary policy tools, and lower interest rates.
An unexpected or sudden reversal of these policies, or the ineffectiveness of such policies, is likely to increase market volatility,
which could adversely affect the Fund’s investments. Public health crises caused by the outbreak may exacerbate other preexisting
political, social and economic risks in certain countries or globally. Other infectious illness outbreaks that may arise in the
future could have similar or other unforeseen effects.
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 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
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in
sudden and significant valuation increases or declines in the Fund’s holdings. If there is a significant decline in the
value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic
recovery, the financial condition of financial institutions and our business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending,
personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the
extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors,
our business, financial condition and results of operations could be significantly and adversely affected. Downgrades to the
credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect the broader
economy. Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely affect the
value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/ or
a return to unfavorable economic conditions could impair the Fund’s ability to achieve its investment
objective.
Regulation
and Government Intervention Risk
The
U.S. Government and the Federal Reserve, as well as certain foreign governments, recently have taken unprecedented actions designed
to support certain financial institutions and segments of the financial markets that experienced extreme volatility, such as implementing
stimulus packages, providing liquidity in fixed-income, commercial paper and other markets and providing tax breaks, among other
actions. Such actions may have unintended and adverse consequences, such as causing or contributing to an increased risk of inflation.
The reduction or withdrawal of Federal Reserve or other U.S. or non-U.S. governmental support could negatively affect financial
markets generally and reduce the value and liquidity of certain securities. Additionally, with the cessation of certain market
support activities, the Fund may face a heightened level of interest rate risk as a result of a rise or increased volatility in
interest rates.
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 in ways that are unforeseeable. 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
SEC and its staff are engaged in various rulemaking initiatives. 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
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Fund
and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of retail
investors.
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.
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 therefore may decline. In
addition, during any periods of rising inflation, dividend rates of any debt securities issued by the Fund would likely increase,
which would tend to further reduce returns to the Fund’s common stockholders.
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.
Interest
Rate Transactions
The
Fund may enter into interest rate swap or cap transactions. The use of interest rate swaps and caps is a highly specialized activity
that involves certain risks to the Fund including, among others, counterparty risk and early termination risk.
Foreign
Securities
The
Fund may invest up to 35% of its total assets in securities of foreign issuers, including emerging market issuers, determined
at the time of purchase. 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 in
the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial standards, and requirements
comparable to those applicable to United States 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. Also, 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
that the Fund receives from foreign securities may not be eligible for the special tax treatment applicable to qualified dividend
income. Moreover, certain equity investments in foreign issuers classified as passive foreign investment companies may be subject
to additional taxation risk.
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There
may be less publicly available information about a foreign company than a United States company. Foreign securities markets may
have substantially less volume than United States securities markets and some foreign company securities are less liquid than
securities of otherwise comparable United States 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-United States securities markets and the increased costs of maintaining the custody of foreign securities.
The
Fund also may purchase sponsored American Depositary Receipts (“ADRs”) or United States dollar denominated securities
of foreign issuers, including emerging market issuers. ADRs are receipts issued by United States banks or trust companies in respect
of securities of foreign issuers held on deposit for use in the United States 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 stockholder communications to the holders of such receipts,
or to pass through to them any voting rights with respect to the deposited securities.
Emerging
Markets
The
Fund may invest up to 35% of its total assets in foreign securities, including securities of issuers whose primary operations
or principal trading market is in an “emerging market.” An “emerging market” country is any country that
is considered to be an emerging or developing country by the International Bank for Reconstruction and Development (the “World
Bank”). 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. 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 value 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; potential for sanctions; less developed legal systems, and
deficiencies in regulatory oversight, market infrastructure, shareholder protections; differences in regulatory, accounting, auditing
and financial reporting and recordkeeping standards; and less reliable securities custodial services and settlement practices.
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Smaller
Companies
The
Fund may invest in smaller companies that may benefit from the development of new products and services. These smaller
companies may present greater opportunities for capital appreciation, and may also involve greater investment risk than
larger, more established companies. For example, smaller companies may have more limited product lines, market or financial
resources and their securities may trade less frequently and in lower volume than the securities of larger, more established
companies. As a result, the prices of the securities of such smaller companies may fluctuate to a greater degree than the
prices of securities of other issuers.
Investment
Companies
The
Fund may invest in the securities of other investment companies to the extent permitted by law. To the extent the Fund invests
in the common equity of investment companies, the Fund will bear its ratable share of any such investment company’s expenses,
including management fees. The Fund will also remain obligated to pay management fees to the Investment Adviser with respect to
the assets invested in the securities of other investment companies. In these circumstances holders of the Fund’s common
stock will be subject to duplicative investment expenses.
Fixed
Income Securities
Fixed
income securities in which the Fund may invest are generally subject to the following risks:
| ● | Interest
Rate Risk. The market value of bonds and other fixed-income or dividend paying securities changes in response to interest
rate changes and other factors. Interest rate risk is the risk that prices of bonds and other income or dividend paying securities
will increase as interest rates fall and decrease as interest rates rise. The Fund may be subject to a greater risk of rising
interest rates due to the current period of historically low interest rates. |
| ● | 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. |
| ● | 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 re- |
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invest
in lower yielding securities, resulting in a possible decline in the Fund’s income and distributions to shareholders.
| ● | 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 may incur costs in seeking to adjust the portfolio average duration or maturity. In comparison
to maturity (which is the date on which the issuer of a debt instrument is obligated to repay the principal amount), duration
is a measure of the price volatility of a debt instrument as a result in changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Specifically, duration measures the anticipated
percentage change in net asset value that is expected for every percentage point change in interest rates. The two have an inverse
relationship. 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. 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. |
| ● | Liquidity
Risk. Certain fixed income securities in which the Fund invests may be or become illiquid. |
LIBOR
Risk
The
Fund may be exposed to financial instruments that are tied to the London Interbank Offered Rate (“LIBOR”) to determine
payment obligations, financing terms, hedging strategies or investment value. The Fund may also obtain financing at floating rates
based on LIBOR. Derivative instruments utilized by the Fund may also reference LIBOR.
The
United Kingdom’s Financial Conduct Authority announced a phase out of LIBOR such that after June 30, 2023, the overnight,
1-month, 3-month, 6-month and 12-month U.S. dollar LIBOR settings will cease to be published or will no longer be representative.
All other LIBOR settings and certain other interbank offered rates,
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such
as the Euro Overnight Index Average (“EONIA”), ceased to be published or representative after December 31, 2021.
The Fund may have investments linked to other interbank offered rates that may also cease to be published in the future.
Various financial industry groups have been planning for the transition away from LIBOR, but there remain challenges to
converting certain securities and transactions to a new reference rate (e.g., the Secured Overnight Financing Rate
(“SOFR”), which is intended to replace the U.S. dollar LIBOR).
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 lead to significant short-term and long-term uncertainty and market instability.
The
market transition away from LIBOR and other current reference rates to alternative reference rates is complex and could have a
range of adverse impacts on the Fund’s investment program, financial condition and results of operations. Among other negative
consequences, this transition could:
| ● | Adversely
impact the pricing, liquidity, value of, return on and trading for a broad array of financial products, including any LIBOR-linked
securities, loans and derivatives in which the Fund may invest; |
| ● | Require
extensive negotiations of and/or amendments to agreements and other documentation governing LIBOR-linked investments products; |
| ● | Lead
to disputes, litigation or other actions with counterparties or portfolio companies regarding the interpretation and enforceability
of “fall back” provisions that provide for an alternative reference rate in the event of LIBOR’s unavailability;
and |
| ● | Cause
the Fund to incur additional costs in relation to any of the above factors. |
The
risks associated with the above factors are heightened with respect to investments in LIBOR-based products that do not include
a fall back provision that addresses how interest rates will be determined if LIBOR stops being published. There remains uncertainty
regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain existing instruments. Global
regulators have advised market participants to cease entering into new contracts using LIBOR as a reference rate, and it is possible
that investments in LIBOR-based instruments could invite regulatory scrutiny. Other important factors include the pace of the
transition, the specific terms of alternative reference rates accepted in the market, the depth of the market for investments
based on alternative reference rates, and the Investment Adviser’s ability to develop appropriate investment and compliance
systems capable of addressing alternative reference rates.
Non-Investment
Grade Securities
The
Fund may invest up to 10% of its total assets in fixed income securities rated below investment grade by recognized statistical
rating agencies or unrated securities of comparable quality. These securities, which may be preferred stock or debt, are predominantly
speculative and involve major risk exposure to adverse conditions. Debt securities that are not rated or that are rated lower
than “BBB” by S&P or lower than “Baa” by Moody’s are
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referred
to in the financial press as “junk bonds.” Such securities are subject to greater risks than investment grade securities,
which reflect their speculative character, including the following:
| ● | 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. |
Fixed
income securities purchased by the Fund may be rated as low as C by Moody’s or D by S&P or may be unrated securities
considered to be of equivalent quality. Securities that are rated C by Moody’s are the lowest rated class and can be regarded
as having extremely poor prospects of ever obtaining investment-grade standing. Debt rated D by S&P is in default or is expected
to default upon maturity of payment date.
The
market value of lower rated securities may be more volatile than the market value of higher rated 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 more highly rated securities, which primarily reflect fluctuations in general levels of interest rates. Generally,
such non-investment grade securities and unrated securities of comparable quality offer a higher current yield than is offered
by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. In addition, such 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.
Non-investment
grade securities 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 regular income streams.
Ratings
are relative and subjective, and are 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.
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As
part of its investment in lower 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 under a plan pursuant to which the securities received by the Fund in exchange
for its defaulted securities will have a value in excess of the Fund’s investment. 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.
Special
Risks of Derivative Transactions
The
Fund may participate in derivative transactions. Such transactions entail certain execution, market, liquidity, hedging and tax
risks. Participation in the options, futures or swaps markets and in currency exchange 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 and interest rate markets are inaccurate, the consequences
to the Fund may leave it in a worse position than if such strategies were not used. Risks inherent in the use of options, foreign
currency, swaps contracts, futures contracts and options on futures contracts, swaps contracts, securities indices and foreign
currencies include:
| ● | dependence
on the Investment Adviser’s ability to predict correctly movements in the direction of interest rates, securities prices
and currency markets; |
| ● | imperfect
correlation between the price of options and futures contracts and options thereon and movements in the prices of the securities
or currencies being hedged; |
| ● | 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 at a time that otherwise would be favorable for it to do so, or
the possible need for the Fund to sell a security 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 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.
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In
October 2020, the Securities and Exchange Commission adopted new regulations governing the use of derivatives by registered investment
companies (“Rule 18f-4”). The Fund will be required to implement and comply with new Rule 18f-4 by August 19, 2022.
Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation
framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities so that a
failure to comply with the limits would result in a statutory violation and require funds whose use of derivatives is more than
a limited specified exposure to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives
risk manager.
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. 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.
Futures
Transactions
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 or price fluctuations; |
| ● | imperfect
correlation between the contracts and the securities being hedged; and |
| ● | losses
from investing in futures transactions that are potentially unlimited and the segregation requirements for such transactions. |
The
Fund’s ability to establish and close out positions in futures contracts and options thereon will be subject to the development
and maintenance of liquid markets. Although the Fund generally will purchase or sell only those futures contracts and options
thereon for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will exist for
any particular futures contract or option thereon at any particular time.
In
the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position,
it will not be possible to effect a closing transaction in that contract or to do so at a satisfactory price
The
Gabelli Equity Trust Inc.
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Fund Information (Continued) (Unaudited)
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 that reflect the rising market. The Fund may have to sell securities at a time
when it is disadvantageous to do so.
Swap
Agreements
The
Fund may enter into total rate of return, credit default, interest rate or other types of swaps and related derivatives for various
purposes, including to gain economic exposure to an asset or group of assets that may be difficult or impractical to acquire or
for hedging and risk management. Swap agreements involve the risk that the party with whom the Fund has entered into the swap
will default on its obligation to pay the Fund and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
Forward
Currency Exchange Contracts
The
use of forward currency exchange contracts may involve certain risks, including the failure of the counterparty to perform its
obligations under the contract and that the use of forward contracts may not serve as a complete hedge because of an imperfect
correlation between movements in the prices of the contracts and the prices of the currencies hedged or used for cover.
Counterparty
Risk
The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties,
the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization
proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
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 certain notice provisions) and are at all times secured by cash or cash equivalents, which are maintained in a segregated account
pursuant to applicable regulations and that are at
The
Gabelli Equity Trust Inc.
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least
equal to 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 liquid obligations. The Fund will not lend its portfolio securities if such loans are not
permitted by the laws or regulations of any state in which its shares are qualified for sale. The Fund’s loans of portfolio
securities will be collateralized in accordance with applicable regulatory requirements, which means that “cash equivalents”
accepted as collateral will be limited to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities
or irrevocable letters of credit issued by a bank (other than the Fund’s bank lending agent, if any, or a borrower of the
Fund’s portfolio securities or any affiliate of such bank or borrower) which qualifies as a custodian bank for an investment
company under the 1940 Act.
For
a further description of such loans of portfolio securities, see “Investment Objectives and Policies — Certain Investment
Practices — Loans of Portfolio Securities.”
Management
Risk
The
Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser applies 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
Mario
J. Gabelli serves as a portfolio manager of the Fund. 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.
Legislation
Risk
At
any time after the date of this report, legislation may be enacted that could negatively affect the assets of the Fund.
Legislation or regulation may change the way in which the Fund itself is regulated. The Investment Adviser cannot predict the
effects of any new governmental regulation that may be implemented and there can be no assurance that any new governmental
regulation will not adversely affect the Fund’s ability to achieve its investment objective.
Reliance
on Service Providers Risk
The
Fund must rely upon the performance of service providers to perform certain functions, which may include functions that are integral
to the Fund’s operations and financial performance. Failure by any service provider to carry out its obligations to the
Fund in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Fund
at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance
and returns to shareholders. The termination of the Fund’s relationship with any service provider, or any delay in appointing
a replacement for such service
The
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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.
Anti-Takeover
Provisions of the Fund’s Governing Documents
The
Fund’s Governing Documents include provisions that could limit the ability of other entities or persons to acquire control
of the Fund or convert the Fund to an open-end fund.
Status
as a Regulated Investment Company
The
Fund has qualified, and intends to remain qualified, for federal income tax purposes as a regulated investment company under Subchapter
M of the Code. Qualification requires, among other things, compliance by the Fund with certain distribution requirements. Statutory
limitations on distributions on the common stock if the Fund fails to satisfy the 1940 Act’s asset coverage requirements
could jeopardize the Fund’s ability to meet
The
Gabelli Equity Trust Inc.
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such
distribution requirements. The Fund presently intends, however, to purchase or redeem preferred stock to the extent necessary
in order to maintain compliance with such asset coverage requirements.
Temporary
Investments
During
temporary defensive periods and during inopportune periods to be fully invested, the Fund may invest in U.S. government
securities, including U.S. Treasury securities, and in money market mutual funds that invest in those 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 United States, are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the
Federal National Mortgage Association, are supported by the discretionary authority of the U.S. government to purchase the
agency’s obligations; and still others, such as those of the Student Loan Marketing Association, are supported only by
the credit of the instrumentality. No assurance can be given that the U.S. government would provide financial support to U.S.
government-sponsored instrumentalities if it is not obligated to do so by law.
SUMMARY
OF FUND EXPENSES
The
following table shows the Fund’s expenses, which are borne directly or indirectly by holders of the Fund’s common
shares, including preferred shares offering expenses, as a percentage of net assets attributable to common shares. The table is
based on the capital structure of the Fund as of September 30, 2021. The purpose of the table and example below is to help you
understand all fees and expenses that you, as a holder of common shares, would bear directly or indirectly.
Annual Expenses | |
Percentages of Net
Assets Attributable to Common Shares |
Management Fees | |
1.23 | %(a) |
Interest Expense | |
0.16 | %(b) |
Other Expenses | |
0.11 | %(c) |
Total Annual Expenses | |
1.50 | % |
Dividends on Preferred Shares | |
0.76 | %(d) |
Total Annual Expenses and Dividends on Preferred | |
2.26 | % |
| (a) | The
Investment Adviser’s fee is 1.00% annually of the Fund’s average weekly net assets. The Fund’s average weekly
net assets will be deemed to be the average weekly value of the Fund’s total assets minus the sum of the Fund’s liabilities
(such liabilities exclude (i) the aggregate liquidation preference of outstanding shares of preferred stock and accumulated dividends,
if any, on those shares and (ii) the liabilities for any money borrowed). Consequently, because the Fund has preferred stock outstanding,
the investment management fees and other expenses as a percentage of net assets attributable to common stock will be higher than
if the Fund did not utilize a leveraged capital structure. |
| (b) | The
Series M Preferred Shares have a mandatory redemption date of March 26, 2032. Therefore, for financial reporting purposes only,
the dividends paid on the Series J Preferred Shares are included as a component of “Interest Expense.” |
The Gabelli
Equity Trust Inc.
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| (c) | “Other Expenses” are based on the amounts
for the year ended December 31, 2021. |
| (d) | Dividends on Preferred Stock represent the estimated
annual distributions on the existing preferred stock outstanding. The following example illustrates the expenses you would pay
on a $1,000 investment in common stock, assuming a 5% annual portfolio total return.* |
| |
1
Year | |
3
Year | |
5
Year | |
10
Year |
Total Expenses Incurred | |
$23 | |
$70 | |
$121 | |
$259 |
* | The example should not be considered a representation
of future expenses. The example is based on Total Annual Expenses and Dividends on Preferred Stock shown in the table above and
assumes that the amounts set forth in the table do not change and that all distributions are reinvested at net asset value. Actual
expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than
the hypothetical 5% return shown in the example. The above example includes Dividends on Preferred Stock. If Dividends on Preferred
Stock were not included in the example calculation, the expenses would be as follows (based on the same assumptions as above). |
| |
1
Year | |
3
Year | |
5
Year | |
10
Year |
Total Expenses Incurred | |
$14 | |
$43 | |
$73 | |
$161 |
Share Price Data
The following table
sets forth for the quarters indicated, the high and low sale prices on the NYSE American per share of our common shares and the
net asset value and the premium or discount from net asset value per share at which the common shares were trading, expressed as
a percentage of net asset value, at each of the high and low sale prices provided.
| |
Common Share
Market Price | |
Corresponding
Net Asset Value (“NAV”) Per Share | |
Corresponding
Premium or Discount as a % of NAV(a) |
Quarter Ended | |
High | |
Low | |
High | |
Low | |
High | |
Low |
March 31, 2020 | |
$6.23 | |
$3.21 | |
$6.03 | |
$3.10 | |
3.31% | |
3.54% |
June 30, 2020 | |
$5.84 | |
$3.84 | |
$5.28 | |
$3.63 | |
10.60% | |
5.78% |
September 30, 2020 | |
$5.57 | |
$4.90 | |
$5.27 | |
$4.74 | |
5.69% | |
3.37% |
December 31, 2020 | |
$6.74 | |
$5.06 | |
$5.88 | |
$5.02 | |
14.62% | |
0.79% |
March 31, 2021 | |
$6.89 | |
$5.93 | |
$6.51 | |
$5.64 | |
5.69% | |
5.01% |
June 30, 2021 | |
$7.37 | |
$6.67 | |
$6.67 | |
$6.48 | |
10.39% | |
2.93% |
September 30, 2021 | |
$7.07 | |
$6.52 | |
$6.62 | |
$6.26 | |
6.79% | |
4.15% |
December 31, 2021 | |
$7.37 | |
$6.64 | |
$6.46 | |
$6.28 | |
14.08% | |
5.73% |
| (a) | Premium
and discount information is shown for the days when the Fund experienced its high and
low closing market prices, respectively, per share during the respective quarter. |
The Gabelli
Equity Trust Inc.
Additional
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Portfolio Managers
Effective August 1, 2021, Macrae (Mac) Sykes
was added to the portfolio management team.
Macrae (Mac) Sykes became
a portfolio manager of the Fund in August 2021. Mac covers the global financial services sector and joined the firm as an analyst
in 2008. He has nearly 25 years of industry experience and began his career at Donaldson, Lufkin & Jenrette. Mac was ranked
#1 investment services analyst by the Wall Street Journal in 2010, was a runner-up in the annual StarMine analyst awards for stock
picking in 2014 and 2018, received several honorable mentions for brokers and asset managers from Institutional Investor and was
a contributing author to The Warren Buffett Shareholder: Stories from inside the Berkshire Hathaway Annual Meeting by Lawrence
Cunningham and Stephanie Cuba. Mac holds a BA in economics from Hamilton College and an MBA in finance from Columbia Business
School.
Unresolved SEC Staff Comments
The Fund does not believe
that there are any material unresolved written comments, received 180 days or more before December 31, 2021 from the Staff of the
SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act or the Investment Company Act,
or its registration statement.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY
CASH PURCHASE PLAN
Under the Fund’s Automatic
Dividend Reinvestment Plan and Voluntary Cash Purchase Plan (the “Plan”), a stockholder 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 stockholder 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
stockholder 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.
The Gabelli
Equity Trust Inc.
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Enrollment in the Plan
It is the policy of the
Fund to automatically reinvest dividends payable to common shareholders. As a “registered” stockholder, you automatically
become a participant in the Fund’s Plan. The Plan authorizes the Fund to credit shares of common stock 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 stockholders 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 stock certificates to Computershare to
be held in their dividend reinvestment account. Registered stockholders wishing to receive their distribution in cash may submit
this request through the Internet, by telephone or in writing to:
The Gabelli
Equity Trust Inc.
c/o Computershare
P.O. Box
505000
Louisville,
KY 40233-5000
Telephone:
(800) 336-6983
Website:
www.computershare.com/investor
Stockholders requesting
this cash election must include the stockholder’s name and address as they appear on the share certificate. Stockholders
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 dividends will be automatically reinvested. Certain brokers
participate in the Plan. Stockholders holding shares in “street name” at participating institutions will have dividends
automatically reinvested. Stockholders wishing a cash dividend at such institution must contact their broker to make this change.
The number of shares of common stock 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 stock 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 stock 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 stock. The valuation date is the dividend or distribution
payment date or, if that date is not a NYSE trading day, the next trading day. If the net asset value of the common stock at the
time of valuation exceeds the market price of the common stock, 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 common
stock 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 stock 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 U.S. federal income tax
The Gabelli
Equity Trust Inc.
Additional
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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 stockholders to increase their investment in the Fund. In order to participate
in the Voluntary Cash Purchase Plan, stockholders 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. Stockholders 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 stockholder 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 before the 1st
and 15th of the month. Funds not received at least two business 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. Stockholders 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. For more
information regarding the Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan, brochures are 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.
The Gabelli
Equity Trust Inc.
Additional
Fund Information (Continued) (Unaudited)