Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Healthcare &
WellnessRx Trust (the “Fund”) as of December 31, 2022, the related statements of operations and cash flows
for the year ended December 31, 2022, the statement of changes in net assets attributable to common shareholders for each of the
two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the five
years in the period ended December 31, 2022 (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022,
the results of its operations and its cash flows for the year then ended, the changes in its net assets attributable to common
shareholders for each of the two years in the period ended December 31, 2022, and the financial highlights for each of the five
years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of
America.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers;
when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable
basis for our opinion.
/s/PricewaterhouseCoopers
LLP
New
York, New York
March 1, 2023
We
have served as the auditor of one or more investment companies in the Gabelli Fund Complex since 1986.
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Summary
of Updated Information Regarding the Fund
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, 2022. This information may not reflect all of the changes
that have occurred since you purchased shares of the Fund.
Investment
Objective and Strategies
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Investment
Objective
The
Fund’s investment objective is long term growth of capital. Under normal market conditions, the Fund will invest at least
80% of its net assets (plus borrowings made for investment purposes) in equity securities (such as common stock and preferred
stock) and income producing securities (such as fixed income debt securities and securities convertible into common stock) of
domestic and foreign companies in the healthcare and wellness industries. Companies in the healthcare and wellness industries
are defined as those companies which are primarily engaged in providing products, services and/or equipment related to healthcare,
medical, or lifestyle needs (i.e., nutrition, weight management, and food and beverage companies primarily engaged in healthcare
and wellness). “Primarily engaged,” as defined in this registration statement, means a company that derives at least
50% of its revenues or earnings from, or devotes at least 50% of its assets to, the indicated business. The above 80% policy includes
investments in derivatives that have similar economic characteristics to the securities included in the 80% policy. The Fund values
derivatives at market value for purposes of the 80% policy. Specific sector investments for the Fund will include, but are not
limited to, dental, orthopedics, cardiology, hearing aid, life science, in-vitro diagnostics, medical supplies and products, aesthetics
and plastic surgery, veterinary, pharmacy benefits management, healthcare distribution, healthcare imaging, pharmaceuticals, biotechnology,
healthcare plans, healthcare services, and healthcare equipment, as well as food, beverages, nutrition and weight management.
The Fund will focus on companies that are growing globally due to favorable demographic trends and may invest without limitation
in securities of foreign issuers, including issuers in emerging markets. The Fund’s investment objective is “fundamental”
and therefore may not be changed without the approval of the holders of a majority of the Fund’s outstanding voting securities,
as defined in the Investment Company Act of 1940, as amended (the “1940 Act”). Except as expressly stated herein,
none of the Fund’s policies are fundamental and may be modified by the Board without shareholder approval.
The
Fund will invest primarily in equity securities of companies in the healthcare and wellness industries. However, the Fund may
also invest in debt securities of any quality, any maturity and any duration of such companies 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 remaining 20% of the Fund’s assets may be invested in other securities, including stocks, debt obligations
(such as U.S. Treasury securities) and money market instruments, as well as certain derivative instruments. Moreover, should extraordinary
conditions affecting such sectors or securities markets as a whole warrant, the Fund may temporarily be primarily invested in
money market instruments. These factors may change rapidly. The Fund emphasizes quality in selecting healthcare and wellness investments,
and looks for companies that have sound financial structures and
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identifiable
growth prospects. Believing that demographic trends will affect global market opportunities, the Fund intends to position itself
to take advantage of these trends.
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 Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc., or lower
than “Baa” by Moody’s Investors Services, Inc. are referred to in the financial press as “junk bonds.”
The
Fund may invest without limitation in securities of foreign issuers, which generally are denominated in foreign currencies, and
may include issuers in emerging markets. Foreign investments may involve certain risk and opportunity considerations not typically
associated with investing in domestic issuers and could cause the Fund to be affected favorably or unfavorably by changes in currency
exchange rates and revaluations of currencies.
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. Duration is a mathematical calculation of the average life of a bond that serves as a
measure of its price risk. Each year of duration represents an expected 1% change in the value of a debt security for every 1%
immediate change in interest rates. See “Risk Factors and Special Considerations — Fixed Income Securities —
Duration and Maturity Risk.”
No
assurance can be given that the Fund’s investment objective 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.
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The
Fund’s investment objective of long term growth of capital is a fundamental policy of the Fund. The Fund’s policy
of concentration in companies in the healthcare and wellness industries is also a fundamental policy 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).
Certain
Investment Practices
Special
Situations. Although the Fund typically invests in the securities of companies on the basis of fundamental value, the Fund
from time to time may, as a non-principal investment strategy, invest in companies that are determined by the Investment Adviser
to possess “special situation” characteristics. In general, a special situation company is a company whose securities
are expected to increase in value solely by reason of a development particularly or uniquely applicable to the company. Developments
that may create special situations include, among others, a liquidation, reorganization, recapitalization or merger, material
litigation, technological breakthrough or new management or management policies. The principal risk associated with investments
in special situation companies is that the anticipated development thought to create the special situation may not occur and the
investment therefore may not appreciate in value or may decline in value.
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 not achieve its investment objective.
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 its 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.
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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 or currency underlying the option at a specified exercise price at any time during the
term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security
or currency upon payment of the exercise price during the option period.
A
put option is the reverse of a call option, giving the holder the right, in return for a premium, to sell the underlying security
or currency to the writer, at a specified price, and obligating the writer to purchase the underlying security or currency from
the holder at that price. The writer of the put, who receives the premium, has the obligation to buy the underlying security or
currency 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 (as defined below under “Investment Restrictions”)
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.
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
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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 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
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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.
Futures
Contracts and Options on Futures. 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 and losses from investing in futures
transactions that are potentially unlimited.
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
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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.
Interest
Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage
of, or to protect against, fluctuations in interest rates affecting the value of debt securities which the Fund holds or intends
to acquire. For example, if interest rates are expected to increase, the Fund might sell futures contracts on debt securities,
the values of which historically have a high degree of positive correlation to the values of the Fund’s portfolio securities.
Such a sale would have an effect similar to selling an equivalent value of the Fund’s portfolio securities. If interest
rates increase, the value of the Fund’s portfolio securities will decline, but the value of the futures contracts to the
Fund will increase at approximately an equivalent rate, thereby keeping the net asset value (“NAV”) of the Fund from
declining as much as it otherwise would have. The Fund could accomplish similar results by selling debt securities with longer
maturities and investing in debt securities with shorter maturities when interest rates are expected to increase. However, since
the futures market may be more liquid than the cash market, the use of futures contracts as a risk management technique allows
the Fund to maintain a defensive position without having to sell its portfolio securities.
Similarly,
the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest
rates) which the Fund intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate
that of the debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash
market and concurrently liquidate its futures position.
The
purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying
debt securities. As with the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option
on a futures contract to hedge against a market advance due to declining interest rates.
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The
purchase of a put option on a futures contract is similar to the purchase of protective put options on portfolio securities. The
Fund will purchase a put option on a futures contract to hedge the Fund’s portfolio against the risk of rising interest
rates and a consequent reduction in the value of portfolio securities.
The
writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities that are
deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price,
the Fund will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred
in the Fund’s portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities that are deliverable upon exercise of the futures contract. If the futures price at expiration
of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of debt securities that the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its
futures positions, losses of the Fund from options on futures it has written may to some extent be reduced or increased by changes
in the value of its portfolio securities.
Swaps.
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. These transactions generally provide for the transfer from one counterparty to
another of certain risks inherent in the ownership of a financial asset such as a common stock or debt instrument. Such risks
include, among other things, the risk of default and insolvency of the obligor of such asset, the risk that the credit of the
obligor or the underlying collateral will decline or the risk that the underlying collateral will decline. The transfer of risk
pursuant to a derivative of this type may be complete or partial, and may be for the life of the related asset or for a shorter
period. These derivatives may be used as a risk management tool for a pool of financial assets, providing the Fund with the opportunity
to gain or reduce exposure to one or more reference securities or other financial assets (each, a “Reference Asset”)
without actually owning or selling such assets in order, for example, to increase or reduce a concentration risk or to diversify
a portfolio. Conversely, these derivatives may be used by the Fund to reduce exposure to an owned asset without selling it.
Because
the Fund would not own the Reference Assets, the Fund may not have any voting rights with respect to the Reference Assets, and
in such cases will not be able to vote on matters related to the obligors or issuers of the Reference Assets, including whether
to exercise certain remedies.
Total
rate of return swaps and similar derivatives are subject to many risks, including the possibility that the market will move in
a manner or direction that would have resulted in gain for the Fund had the swap or other derivative not been utilized (in which
case it would have been better had the Fund not engaged in the transactions), nearly unlimited exposure to changes in the value
of the Reference Assets, total loss to the Fund of the entire notional amount of the swap, the risk of imperfect correlation between
the risk sought to be hedged and the derivative transactions utilized, the possible inability of the counterparty to fulfill its
obligations under the swap and potential illiquidity of the instrument utilized, which may make it difficult for the Fund to close
out or unwind one or more transactions.
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Total
rate of return swaps and related derivatives are a relatively recent development in the financial markets. Consequently, there
are certain legal, tax and market uncertainties that present risks in entering into such an arrangement. There is currently little
or no case law or litigation characterizing total rate of return swaps or related derivatives, interpreting their provisions,
or characterizing their tax treatment. In addition, additional regulations and laws may apply to these types of derivatives that
have not previously been applied. There can be no assurance that future decisions constructing similar provisions to those in
any swap agreement or other related documents or additional regulations and laws will not have an adverse effect on the Fund that
utilizes these instruments. The Fund will monitor these risks and seek to utilize these instruments in a manner that does not
lead to undue risk regarding the tax or other structural elements of the Fund. The Fund will not invest in these types of instruments
if the Reference Assets are commodities except for bona fide hedging or risk management 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 the Fund. If exchange rates move in a way the Fund did not anticipate, however, the Fund will have incurred the expense of
the option without obtaining the expected benefit; any such movement in exchange rates may also thereby reduce, rather than enhance,
the Fund’s profits on its underlying securities transactions.
Securities
Index Futures Contracts and Options Thereon. Purchases or sales of securities index futures contracts are used for hedging
purposes to attempt to protect the Fund’s current or intended investments from broad fluctuations in stock or bond prices.
For example, the Fund may sell securities index futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of 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
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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.
Forward
Currency Exchange Contracts. The Fund may engage in currency transactions other than on futures exchanges to protect against
future changes in the level of future currency exchange rates. The Fund will conduct such currency exchange transactions either
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
forward contracts to purchase or sell currency. A forward contract on foreign currency involves 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. Dealing in forward currency exchange by the Fund will be limited to hedging involving
either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of forward currency with respect
to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities
and accruals of interest receivable and fund expenses. Position hedging is the forward sale of currency with respect to portfolio
security positions denominated or quoted in that currency or in a currency bearing a high degree of positive correlation to the
value of that currency.
The
Fund may not position hedge with respect to a particular currency for an amount greater than the aggregate market value (determined
at the time of making any sale of forward currency) of the securities held in its portfolio denominated or quoted in, or currently
convertible into, such currency.
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.
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When
Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase
or sale of securities, including on a “when issued” or “delayed delivery” basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence
of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a
when, as and if issued security. When such transactions are negotiated, the price is fixed at the time of the commitment, with
payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only
enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable.
Securities
purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior
to the settlement date.
Restricted
and Illiquid Securities. The Fund may invest without limit in illiquid securities. Illiquid securities include securities
the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires
more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the OTC markets. Restricted securities may sell at a price lower than
similar securities that are not subject to restrictions on resale. Unseasoned issuers are companies (including predecessors) that
have operated less than three years. The continued liquidity of such securities may not be as well assured as that of publicly
traded securities, and accordingly the Board will monitor their liquidity. The Board will review pertinent factors such as trading
activity, reliability of price information and trading patterns of comparable securities in determining whether to treat any such
security as liquid. To the extent the Board treats such securities as liquid, temporary impairments to trading patterns of such
securities may adversely affect the liquidity of the Fund.
The
Board has adopted guidelines and delegated to the Investment Adviser, subject to the supervision of the Board, the function of
determining and monitoring the liquidity of particular Rule 144A securities under the Securities Act of 1933 Act, as amended (the
“Securities Act” The Board has adopted guidelines and delegated to the Investment Adviser, subject to the supervision
of the Board, the function of determining and monitoring the liquidity of particular Rule 144A securities under the Securities
Act of 1933 Act, as amended (the “Securities Act”).
Leverage.
As provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue senior
securities representing (i) shares, such as preferred shares, so long as immediately following such issuance of stock, its total
assets exceed 200% of the amount of such shares and (ii) indebtedness, such as notes, so long as immediately following such issuance
of indebtedness, its total assets exceed 300% of the amount of such indebtedness. The use of leverage magnifies the impact of
changes in NAV. For example, a fund that uses 33% leverage will show a 1.5% increase or decline in NAV 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.
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The
Fund cannot assure you that investments in derivative transactions that have economic leverage embedded in them will result in
a higher return on its common shares. Under Rule 18f-4 under the 1940 Act, among other things, the Fund must either use derivatives
in a limited manner or comply with an outer limit on fund leverage risk based on value-at-risk. See “Risk Factors and Special
Considerations—Special Risks of Derivatives Transactions—Derivatives Transactions Subject to Rule 18f-4 Under the
1940 Act.”
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). 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 industry other than the healthcare and wellness industries; (2) 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; (3) 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; (4) 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); (5)
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); and (6) 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. See also
“Leverage Risk — Portfolio Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility.”
Portfolio
Turnover. The Fund will buy and sell securities to accomplish its investment objective. The investment policies of the Fund
may lead to frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange rates.
The portfolio turnover may be higher than that of other investment companies.
Portfolio
turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the
lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the
year (excluding securities whose maturities at acquisition were one year or less). 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, 2021 and 2022 were 29% and 14%, respectively.
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Borrowing.
The Fund may borrow money in accordance with its investment restrictions, including as a temporary measure for extraordinary
or emergency purposes.
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors
should consider the following risk factors and special considerations associated with investing in the Fund:
Industry
Concentration Risks
The
Fund is concentrated in the healthcare and wellness industries. Under normal market conditions, the Fund will invest at least
80% of its net assets (plus borrowings made for investment purposes) in equity securities (such as common stock and preferred
stock) and income producing securities (such as fixed income debt securities and securities convertible into common stock) of
domestic and foreign companies in the healthcare and wellness industries. As a result of investing a significant portion of its
assets in companies in the healthcare and wellness industries, the value of the Fund’s shares will be more susceptible to
factors affecting those particular types of companies, which may include, among others, governmental regulation, changes in government
subsidy and reimbursement levels, the governmental approval process, rapid obsolescence of products and services and patent expirations.
The Investment Adviser believes that certain healthcare and wellness related companies could experience growth as a result of
demographic changes and the Fund intends to focus on companies that will benefit from these demographic trends. However, certain
of these companies may be less able to anticipate demographic trends and investments in these companies would not be likely to
perform as well as investments in those that do.
Long
Term Objective
The
Fund seeks long term growth of capital. The Fund is not meant to provide a vehicle for those who wish to exploit short term swings
in the stock market. An investment in shares of the Fund should not be considered a complete investment program. Each shareholder
should take into account the shareholder’s investment objectives when considering an investment in the Fund.
Tax
Status
To
qualify as a “regulated investment company,” or “RIC,” for purposes of the Internal Revenue Code of 1986,
as amended (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 shareholders. 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 RICs, United States government securities and other securities, with
such other securities limited in re- |
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spect
of any one issuer to an amount not greater than 5% of the value of the Fund’s total assets and not more than 10% of the
outstanding voting securities of such issuer.
Market
Value and Net Asset Value
The
Fund is a 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 NAV. Listed shares of closed-end investment companies often trade
at discounts from NAV. This characteristic of shares of a closed-end fund is a risk separate and distinct from the risk that its
NAV may decrease. The Fund cannot predict whether its listed shares will trade at, below or above NAV. The risk of holding shares
of a closed-end fund that might trade at a discount is more pronounced for shareholders who wish to sell their shares in a relatively
short period of time after acquiring them because, for those investors, realization of a gain or loss on their investments is
likely to be more dependent upon the existence of a premium or discount than upon portfolio performance. The Fund’s shares
are not subject to redemption. Shareholders 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
NAV. Shareholders will incur brokerage or other transaction costs to sell shares.
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 NAV of the Fund may at any point in time be worth less than the amount at the time the shareholder
invested in the Fund, even after taking into account any reinvestment of distributions.
Foreign
Securities
There
is no limitation on the amount of foreign securities, including emerging market securities, in which the Fund may invest. 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. In addition,
with respect to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability, or
diplomatic developments that could affect assets of the Fund held in foreign countries. Dividend income 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 Untied 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 shareholder 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 in 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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Value
Investing Risk
The
Fund focuses its investments on the securities of companies that the Investment Adviser believes to be undervalued or inexpensive
relative to other investments. These types of securities may present risks in addition to the general risks associated with investing
in common and preferred stocks. These securities generally are selected on the basis of an issuer’s fundamentals relative
to current market price. Such securities are subject to the risk of mis-estimation of certain fundamental factors. In addition,
during certain time periods market dynamics may strongly favor “growth” stocks of issuers that do not display strong
fundamentals relative to market price based upon positive price momentum and other factors. Disciplined adherence to a “value”
investment mandate during such periods can result in significant underperformance relative to overall market indices and other
managed investment vehicles that pursue growth style investments and/or flexible equity style mandates.
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.
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 recent period of historically low
interest rates. The Federal Reserve has recently begun to raise the federal funds rate
as part of its efforts to address rising inflation. There is a risk that interest rates
will continue to rise, which will likely drive down prices of bonds and other fixed-income
securities. The magnitude of these price reductions in the market price of bonds and
other fixed-income securities is generally greater for those securities with longer maturities.
Fluctuations in the market price of the Fund’s investments will not affect interest
income derived from instruments already owned by the Fund, but will be reflected in the
Fund’s NAV. The Fund may lose money if short-term or long-term interest rates rise
sharply in a manner not anticipated by the Investment Adviser. |
| ● | 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 |
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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 reinvest 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 NAV 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. See “Certain Investment Practices – Restricted and Illiquid Securities.” |
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Lower
Grade Securities
Generally,
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 lower securities is more volatile than that of higher quality securities, and the markets in which
such lower grade or unrated securities are traded are more limited than those in which higher rated securities are traded. The
existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing
its portfolio and calculating its NAV. 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. See “—Fixed
Income Securities—Interest Rate Risk” above.
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.
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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 securities 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 issuer 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 issuer 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.
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 the Fund 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, swap 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; and |
| ● | the
creditworthiness of counterparties. |
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Options,
futures contracts, swaps contracts and options thereon and forward contracts on securities and currencies may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States, may not involve
a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii)
delays in the ability of the Fund to act upon economic events occurring in the foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the
United States and (v) less trading volume. Exchanges on which options, futures, swaps and options on futures or swaps are traded
may impose limits on the positions that the Fund may take in certain circumstances.
Many
OTC derivatives are valued on the basis of dealers’ pricing of these instruments. However, the price at which dealers value
a particular derivative and the price which the same dealers would actually be willing to pay for such derivative should the Fund
wish or be forced to sell such position may be materially different. Such differences can result in an overstatement of the Fund’s
NAV 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.
Under
Rule 18f-4 under the 1940 Act, among other things, the Fund must either use derivatives in a limited manner or comply with an
outer limit on fund leverage risk based on value-at-risk. See “—Derivatives Transactions Subject to Rule18f-4 Under
the 1940 Act” below.
Special
Risk Considerations Relating to Futures and Options Thereon. The Fund’s ability to establish and close out positions
in futures contracts and options thereon will be subject to the development and maintenance of liquid markets. Although the Fund
generally will purchase or sell only those futures contracts and options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will exist for any particular futures contract or option thereon at
any particular time.
In
the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position,
it may not be possible to effect a closing transaction in that contract or to do so at a satisfactory price and the Fund may 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
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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.
Additional
Risks of Foreign Options, Futures Contracts, Swaps Contracts, Options on Futures Contracts and Forward Contracts. 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.
See
“Risk Factors and Special Considerations – Futures Transactions.”
Derivatives
Transactions Subject to Rule 18f-4 Under the 1940 Act. Rule 18f-4 under the 1940 Act governs the Fund’s use of derivative
instruments and certain other transactions that create future payment and/or delivery obligations by the Fund. Rule 18f-4 permits
the Fund to enter into Derivatives Transactions (as defined below) and certain other transactions notwithstanding the restrictions
on the issuance of “senior securities” under Section 18 of the 1940 Act. Section 18 of the Investment Company Act,
among other things, prohibits closed-end funds, including the Trust, from issuing or selling any “senior security”
representing indebtedness (unless the fund maintains 300% “asset coverage”) or any senior security representing stock
(unless the fund maintains 200% “asset coverage”). In connection with the adoption of Rule 18f-4, the SEC eliminated
the asset segregation framework arising from prior SEC guidance for covering Derivatives Transactions and certain financial instruments.
Under
Rule 18f-4, “Derivatives Transactions” include the following: (i) any swap, security-based swap (including a contract
for differences), futures contract, forward contract, option (excluding purchased options), any combination of the foregoing,
or any similar instrument, under which the Fund is or may be required to make any payment or delivery of cash or other assets
during the life of the instrument or at maturity or early termination,
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whether
as margin or settlement payment or otherwise; (ii) any short sale borrowing; (iii) reverse repurchase agreements and similar financing
transactions, if the Fund elects to treat these transactions as Derivatives Transactions under Rule 18f-4; and (iv) when-issued
or forward-settling securities (e.g., firm and standby commitments, including to-be-announced (“TBA”) commitments,
and dollar rolls) and non-standard settlement cycle securities, unless the Fund intends to physically settle the transaction and
the transaction will settle within 35 days of its trade date.
Unless
the Fund is relying on the Limited Derivatives User Exception (as defined below), the Fund must comply with Rule 18f-4 with respect
to its Derivatives Transactions. Rule 18f-4, among other things, requires the Fund to (i) appoint a Derivatives Risk Manager,
(ii) maintain a Derivatives Risk Management Program designed to identify, assess, and reasonably manage the risks associated with
Derivatives Transactions; (iii) comply with certain value-at-risk (VaR)-based leverage limits (VaR is an estimate of an instrument’s
or portfolio’s potential losses over a given time horizon and at a specified confidence level); and (iv) comply with certain
Board reporting and recordkeeping requirements.
Rule
18f-4 provides an exception from the requirements to appoint a Derivatives Risk Manager, adopt a Derivatives Risk Management Program,
comply with certain VaR-based leverage limits, and comply with certain Board oversight and reporting requirements if the Fund’s
“derivatives exposure” (as defined in Rule 18f-4) is limited to 10% of its net assets (as calculated in accordance
with Rule 18f-4) and the Fund adopts and implements written policies and procedures reasonably designed to manage its derivatives
risks (the “Limited Derivatives User Exception”).
Pursuant
to Rule 18f-4, if the Fund enters into reverse repurchase agreements or similar financing transactions, the Fund will (i) aggregate
the amount of indebtedness associated with all of its reverse repurchase agreements or similar financing transactions with the
amount of any other “senior securities” representing indebtedness (e.g., bank borrowings, if applicable) when calculating
the Fund’s asset coverage ratio or (ii) treat all such transactions as Derivatives Transactions.
The
requirements of Rule 18f-4 may limit the Fund’s ability to engage in Derivatives Transactions as part of its investment
strategies. These requirements may also increase the cost of the Fund’s investments and cost of doing business, which could
adversely affect the value of the Fund’s investments and/or the performance of the Fund.
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Futures
Transactions
The
Fund may make investments in futures and options on futures. Risks include, but are 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. |
Swap
Agreements
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. Whether
the Fund’s use of swap agreements will be successful in furthering its investment objective will depend on the Investment
Adviser’s ability to correctly predict whether certain types of investments are likely to produce greater returns than other
investments. Because they are two party contracts and because they may have terms of greater than seven days, some swap agreements
may be considered by the Fund to be illiquid. Restrictions imposed by the tax rules applicable to regulated investment companies
may limit the Fund’s ability to use swap agreements. The swap market currently is largely unregulated. It is possible that
developments in the swap market, including potential significant government regulation as a result of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) or otherwise, could adversely affect the Fund’s
ability to enter into or terminate swap agreements or to realize amounts to be received under these agreements. Swap transactions
may involve substantial leverage.
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.
Risks
of Currency Transactions. Currency transactions are also subject to risks different from those of other portfolio transactions.
Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions
on repatriation of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action
can result in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and
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could
also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction
costs.
Interest
Rate Transactions
The
Fund may enter into an interest rate swap or cap transaction. 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.
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.
Dodd-Frank
Act Risk
Title
VII of the Dodd-Frank Act (the “Derivatives Title”) imposed a substantially new regulatory structure on derivatives
markets, with particular emphasis on swaps (which are subject to oversight by the CFTC) and security-based swaps (which are subject
to oversight by the SEC). The regulatory framework covers a broad range of swap market participants, including banks, non-banks,
credit unions, insurance companies, broker-dealers and investment advisers. Prudential regulators were granted authority to regulate
margining of swaps and security-based swaps of banks and bank-related entities.
Current
regulations for swaps require the mandatory central clearing and mandatory exchange trading of particular types of interest rate
swaps and index credit default swaps (together, “Covered Swaps”). The Fund is required to clear its Covered Swaps
through a clearing broker, which requires, among other things, posting initial margin and variation margin to the Fund’s
clearing broker in order to enter into and maintain positions in Covered Swaps. Covered Swaps generally are required to be executed
through a swap execution facility (“SEF”), which can involve additional transaction fees.
Additionally,
under the Dodd-Frank Act, with respect to uncleared swaps (both uncleared swaps and uncleared security-based swaps entered into
with banks), swap dealers are required to collect from the Fund both initial and variation margin (comprised of specified liquid
instruments and subject to a required haircut). Shares of investment companies (other than certain money market funds) may not
be posted as collateral under applicable regulations. As capital and margin requirements for swap dealers and capital and margin
requirements for security-based swaps are implemented, such requirements may make certain types of trades and/or trading strategies
more costly. There may be market dislocations due to uncertainty during the implementation period of any new regulation and the
Investment Adviser cannot know how the derivatives market will adjust to such new regulations.
In
addition, regulations adopted by global prudential regulators that are now in effect require certain bank-regulated counterparties
and certain of their affiliates to include in “qualified financial contracts,” including many derivatives contracts
as well as repurchase agreements and securities lending agreements, terms that delay or
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restrict
the rights of counterparties to terminate such contracts, foreclose upon collateral, exercise other default rights or restrict
transfers of affiliate credit enhancements (such as guarantees) in the event that the bank-regulated counterparty and/or its affiliates
are subject to certain types of resolution or insolvency proceedings.
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 shareholders. Should an issuer of a non-cumulative preferred
security held by the Fund determine not to pay dividends or distributions on such security,
the Fund’s return from that security may be adversely affected. There is no assurance
that dividends or distributions on non-cumulative preferred securities in which the Fund
invests will be declared or otherwise made payable. |
| ● | Subordination.
Preferred securities are subordinated to bonds and other debt instruments in
an issuer’s capital structure in terms of priority to corporate income and liquidation
payments, and therefore will be subject to greater credit risk than more senior debt
security instruments. |
| ● | Liquidity.
Preferred securities may be substantially less liquid than many other securities,
such as common stocks or U.S. government securities. |
| ● | Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have
no voting rights with respect to the issuing company unless preferred dividends have
been in arrears for a specified number of periods, at which time the preferred security
holders may be entitled to elect a number of directors to the issuer’s board. Generally,
once all the arrearages have been paid, the preferred security holders no longer have
voting rights. |
| ● | Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities
may redeem the securities prior to a specified date. For instance, for certain types
of preferred securities, a redemption may be triggered by a change in federal income
tax or securities laws. A redemption by the issuer may negatively impact the return of
the security held by the Fund. |
| ● | 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. |
Special
Risks for Holders of Subscription Rights
The
issuance of subscription rights to purchase our common shares may substantially dilute the aggregate NAV of the common shares
owned by shareholders who do not fully exercise their rights in the offering. Shareholders who do not exercise their rights to
purchase common stock will own a smaller proportional interest in the Fund
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than
they did before the offering. In the case of subscription rights for preferred shares, there is a risk that changes in yield or
changes in the credit quality of the Fund may result in the underlying preferred shares purchasable upon exercise of the subscription
rights being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value
of the subscription rights for the preferred shares. 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 preferred shares
or common shares issued may be reduced, and the preferred shares or common shares may trade at less favorable prices than larger
offerings for similar 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.
Portfolio
Turnover
The
Fund may have a high turnover ratio which may result in higher expenses and lower after-tax return to shareholders than if the
Fund had a lower turnover ratio.
Dependence
on Key Personnel
The
Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect to the
Fund’s investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the Fund
could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli in the event
of his death, resignation, retirement or inability to act on behalf of the Investment Adviser
Coronavirus
(“COVID-19”) and Global Health Event Risk
As
of the date of this annual report, there is an outbreak of a highly contagious form of a novel coronavirus known as “COVID
19.” COVID 19 has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health
and Human Services Secretary has declared a public health emergency in the United States. COVID 19 had a devastating impact on
the global economy, including the U.S. economy, and resulted in a global economic recession. Many states issued orders requiring
the closure of non essential businesses and/or requiring residents to stay at home. The COVID 19 pandemic and preventative measures
taken to contain or mitigate its spread have caused, and are continuing to cause, business shutdowns, cancellations of events
and travel, significant reductions in demand for certain goods and services, reductions in business activity and financial transactions,
supply chain interruptions and overall economic and financial market instability both globally and in the United States. Such
effects will likely continue for the duration of the pandemic, which is uncertain, and for some period thereafter. While several
countries, as well as certain states, counties, and cities in the United States, began to relax the early public health restrictions
with a view to partially or fully reopening their economies, many cities, both globally and in the United States, continue to
experience, from time to time, surges in the reported number of cases and hospitalizations related to the COVID 19 pandemic. Recurring
COVID 19 outbreaks, newly discovered variant and sub variant strains of the virus and increases in cases can, and has, led to
the re introduction of restrictions and business shutdowns in certain states, counties, and cities
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in
the United States and globally, and could continue to lead to the re introduction of such restrictions elsewhere. Even after the
COVID 19 pandemic subsides, the U.S. economy and most other major global economies may continue to experience a substantial economic
downturn or recession, and our business and operations, as well as the business and operations of our portfolio companies, could
be materially adversely affected by a prolonged economic downturn or recession in the United States and other major markets.
The
current economic situation and the unprecedented measures taken by state, local and national governments around the world to combat
the spread of COVID 19, as well as various social, political and psychological tensions in the United States and around the world,
may continue to contribute to severe market disruptions and volatility and reduced economic activity, may have long-term negative
effects on the U.S. and worldwide financial markets and economy and may cause further economic uncertainties in the United States
and worldwide. The prolonged continuation or further deterioration of the current U.S. and global economic downturn could adversely
impact the Fund’s portfolio. It is difficult to predict how long the financial markets and economic activity will continue
to be impacted by these events and the Fund cannot predict the effects of these or similar events in the future on the U.S. economy
and securities markets.
Despite
actions of the U.S. federal government and foreign governments, the uncertainty surrounding the COVID 19 pandemic and other factors
has contributed to significant volatility in the global public equity markets and global debt capital markets, including the NAV
of the Fund’s shares. These events could have, and/or have had, a significant impact on the Fund’s performance, NAV,
income, operating results and ability to pay distributions, as well as the performance, income, operating results and viability
of issuers in which it invests.
It
is virtually impossible to determine the ultimate impact of COVID 19 at this time. Further, the extent and strength of any economic
recovery after the COVID 19 pandemic abates, including following any intensifying of the pandemic, is uncertain and subject to
various factors and conditions. Accordingly, an investment in the Fund is subject to an elevated degree of risk as compared to
other market environments.
Market
Disruption and Geopolitical Risk
The
consequences of the conflict between Russia and Ukraine, including international sanctions, further impact on inflation and increased
disruption to supply chains may impact our portfolio companies, result in an economic downturn or recession either globally or
locally in the U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the form of traditional
military action, reignited “cold” wars or in the form of virtual warfare such as cyberattacks) with similar and perhaps
wider ranging impacts and consequences and have an adverse impact on the Fund’s returns and NAV.
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as
COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, natural/environmental disasters, terrorist
attacks in the United States and around the world, social and political discord, debt crises sovereign debt downgrades, increasingly
strained relations between the United States and a number of foreign countries, new and continued political unrest in various
countries, the exit or potential exit of one or more countries from the European Union (“EU”) or the Economic and
Monetary Union, 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. The
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current
contentious domestic political environment, as well as political and diplomatic events within the United States and abroad, such
as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, may in the future
result in government shutdowns, which could have a material adverse effect on the Fund’s investments and operations. In
addition, the Fund’s ability to raise additional capital in the future through the sale of securities could be materially
affected by a government shutdown. Additional and/or prolonged U.S. government shutdowns may affect investor and consumer confidence
and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. In particular,
the escalation of the conflict between Russia and Ukraine, including international sanctions, further impact on inflation and
increased disruption to supply chains may impact our portfolio companies. Such unfavorable economic conditions also may also be
expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend
credit to us. The current political climate has intensified concerns about a potential trade war between China and the United
States, as each country has 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
our performance. U.S. companies that source material and goods from China and those that make large amounts of sales in China
would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions and
the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese yen and
the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further tariffs may be
imposed or other escalating actions may be taken in the future. Any of these effects could have a material adverse effect on our
business, financial condition and results of operations.
On
January 31, 2020, the United Kingdom (“UK”) officially withdrew from the EU (commonly known as “Brexit”).
The UK and EU reached a preliminary trade agreement, which became effective on January 1, 2021, regarding 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. Due to uncertainty of the current political environment, it is not possible
to foresee the form or nature of the future trading relationship between the UK and the EU. The longer term economic, legal, political
and social framework to be put in place between the UK and the EU remains unclear and the 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,
Brexit may lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility
in the European and global markets and may destabilize some or all of the other EU member countries. 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,
to receive attractive returns and/or to exit certain investments at an advantageous time or price. 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 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.
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While
the extreme volatility and disruption that U.S. and global markets experienced for an extended period of time beginning in 2007
and 2008 had, until the recent coronavirus (COVID-19) outbreak, generally subsided, uncertainty and periods of volatility still
remain, and risks to a robust resumption of growth persist. Federal Reserve policy, including with respect to certain interest
rates, may adversely affect the value, volatility and liquidity of dividend and interest paying securities. Market volatility,
dramatic changes to interest rates and/or a return to unfavorable economic conditions may lower the Fund’s performance or
impair the Fund’s ability to achieve its investment objective.
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.
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 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
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.
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In
light of popular, political and judicial focus on finance related consumer protection. Financial institution practices are also
subject to greater scrutiny and criticism generally. In the case of transactions between financial institutions and the general
public, there may be a greater tendency toward strict interpretation of terms and legal rights in favor of the consuming public,
particularly where there is a real or perceived disparity in risk allocation and/or where consumers are perceived as not having
had an opportunity to exercise informed consent to the transaction. In the event of conflicting interests between retail investors
holding common shares of a closed-end investment company such as the Fund and a large financial institution, a court may similarly
seek to strictly interpret terms and legal rights in favor of retail investors.
The
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. Inflation rates may change frequently and drastically as a result of various factors, including unexpected shifts
in the domestic or global economy. As inflation increases, the real value of the Fund’s shares and distributions therefore
may decline. In addition, during any periods of rising inflation, dividend rates of any debt securities issued by the Fund would
likely increase, which would tend to further reduce returns to common shareholders.
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.
Leverage
Risk
The
Fund currently uses, and intends to continue to use, leverage for investment purposes by issuing preferred shares. “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 shares bears to the Fund’s total assets.
As of December 31, 2022, the amount of leverage represented approximately 16% of the Fund’s total assets. All series of
the Fund’s preferred shares have the same seniority with respect to distributions and liquidation preference. Preferred
shares have seniority over common shares 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 shares, 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 shares will result in a higher yield or return to the holders
of the common
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shares.
Also, as the Fund is utilizing leverage, a decline in NAV could affect the ability of the Fund to make common share 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 Code.
| ● | Preferred
Share Risk. The issuance of preferred shares causes the NAV and market value of the
common shares to become more volatile. If the dividend rate on the preferred shares approaches
the net rate of return on the Fund’s investment portfolio, the benefit of leverage
to the holders of the common shares would be reduced. If the dividend rate on the preferred
shares plus the management fee annual rate of 1.00% (as applicable) exceeds the net rate
of return on the Fund’s portfolio, the leverage will result in a lower rate of
return to the holders of common shares than if the Fund had not issued preferred shares. |
Any
decline in the NAV of the Fund’s investments would be borne entirely by the holders of common shares. Therefore, if the
market value of the Fund’s portfolio declines, the leverage will result in a greater decrease in NAV to the holders of common
shares than if the Fund were not leveraged. This greater NAV decrease will also tend to cause a greater decline in the market
price for the common shares. In such a case, the Fund might be in danger of failing to maintain the required asset coverage of
the preferred shares or of losing its ratings (if any) on the preferred shares or, in an extreme case, the Fund’s current
investment income might not be sufficient to meet the dividend requirements on the preferred shares. In order to counteract such
an event, the Fund might need to liquidate investments in order to fund a redemption of some or all of the preferred shares.
In
addition, the Fund would pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and
ongoing maintenance of the preferred shares, including the advisory fees on the incremental assets attributable to such shares.
Holders
of preferred shares may have different interests than holders of common shares and may at times have disproportionate influence
over the Fund’s affairs. Holders of preferred shares, voting separately as a single class, have the right to elect two members
of the Board at all times and in the event dividends become two full years in arrears have the right to elect a majority of the
Trustees until such arrearage is completely eliminated. In addition, preferred shareholders have class voting rights on certain
matters, including changes in fundamental investment restrictions and conversion of the Fund to open-end status, and accordingly
can veto any such changes.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and
preferred shares, both by the 1940 Act and by requirements imposed by any 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 shares 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 Shares |
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Illiquidity.
Prior to the offering, there will be no public market for any additional series of Fixed Rate Preferred Shares. In the event any
additional series of Fixed Rate Preferred Shares are issued, prior application may have been, but is not required to be, made
to list such shares on a national securities exchange, which would be expected to be the NYSE. If no such application is made,
there can be no assurances that any additional series of Fixed Rate Preferred Shares would be liquid at any time. If any additional
series of Fixed Rate Preferred Shares are to be listed, during an initial period prior to listing, which would not be expected
to exceed 30 days after the date of initial issuance, such shares may not be listed on any securities exchange. During such period,
the underwriters may make a market in such shares, though, they will have no obligation to do so. Consequently, an investment
in such shares may be illiquid during such period.
Market
Price Fluctuation. Fixed Rate Preferred Shares 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.
| ● | Special
Risks to Holders of Notes. There may not be an established market for our notes.
To the extent that our notes trade, they may trade at a price either higher or lower
than their principal amount depending on interest rates, the rating (if any) on such
notes and other factors. |
| ● | Special
Risks to Holders of Notes and Preferred Shares |
Common
Share Repurchases. Repurchases of common shares by the Fund may reduce the net asset coverage of the notes and preferred shares,
which could adversely affect their liquidity or market prices, if such noted or preferred shares are listed on a national securities
exchange.
Common
Share Distribution Policy. In the event the Fund does not generate a total return from dividends and interest received and
net realized capital gains in an amount at least equal to its distributions for a given year, the Fund may return capital as part
of its distribution. This would decrease the asset coverage per share with respect to the Fund’s notes or preferred shares,
which could adversely affect their liquidity or market prices, if such notes or preferred shares are listed on a national securities
exchange. See “Risk Factors and Special Considerations — Common Share Distribution Policy Risk.”
Credit
Quality Ratings. The Fund may obtain credit quality ratings for its preferred shares or notes, if desired; however, it is
not required to do so and may issue preferred shares or notes without any rating. If rated, the Fund does not impose any minimum
rating necessary to issue such preferred shares or notes. In order to obtain and maintain attractive credit quality ratings for
preferred shares or borrowings, if desired, the Fund’s portfolio must satisfy over-collateralization tests established by
the relevant rating agencies. These tests are more difficult to satisfy to the extent the Fund’s portfolio securities are
of lower credit quality, longer maturity or not diversified by issuer and industry 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 notes or preferred shares, a rating by a ratings agency does not eliminate
or necessarily mitigate the risks of investing in
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our
preferred shares or notes, and a rating may not fully or accurately reflect all of the securities’ credit risks. A rating
does not address the liquidity or any other market risks of the securities being rated. A rating agency could downgrade the rating
of our notes or preferred shares, which may make such securities less liquid in the secondary market. If a rating agency downgrades
the rating assigned to our preferred shares or notes, we may alter our portfolio or redeem all or a portion of the preferred shares
or notes that are then redeemable under certain circumstances.
| ● | Special
Risks of Notes to Holders of Common Shares. If the interest rate on the notes approaches
the net rate of return on the Fund’s investment portfolio, the benefit of leverage
to the holders of the common shares would be reduced. Any decline in the NAV of the Fund’s
investments would be borne entirely by the holders of common shares. Therefore, if the
market value of the Fund’s portfolio declines, the leverage will result in a greater
decrease in NAV to the holders of common shares than if the Fund were not leveraged.
This greater NAV decrease will also tend to cause a greater decline in the market price
for the common shares. The Fund might be in danger of failing to maintain the required
asset coverage of the notes. Holders of notes may have different interests than holders
of common shares and at times may have disproportionate influence over the Fund’s
affairs. In the event the Fund fails to maintain the specified level of asset coverage
of any notes outstanding, the holders of the notes will have the right to elect a majority
of the Fund’s trustees. |
| ● | Portfolio
Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility. In order
to obtain and maintain attractive credit quality ratings for preferred shares or borrowings,
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 shares or notes is
lowered or withdrawn by the relevant rating agency, the Fund may also be required to
redeem all or part of its outstanding preferred shares or notes, and the common shares
of the Fund will lose the potential benefits associated with a leveraged capital structure. |
| ● | Impact
on Common Shares. Assuming that leverage will (1) be equal in amount to approximately
23% 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
4.10%, then the annual return generated by the Fund’s portfolio (net of estimated
expenses) must exceed approximately 1.03% 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
share total return, assuming investment portfolio total returns |
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(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 23% of the Fund’s total assets, the Fund’s
current projected blended annual average leverage dividend or interest rate of 4.41%, a management fee at an annual rate of 1.00%
of the liquidation preference of any outstanding preferred shares and estimated annual incremental expenses attributable to any
outstanding preferred shares of 0.02% of the Fund’s net assets attributable to common shares.
| Assumed
Return on Portfolio (Net of Expenses) |
(10)% |
(5)% |
0% |
5% |
10% |
| Common
Shares Total Returnr |
(14.60)% |
(8.11)% |
(1.62)% |
4.87% |
11.36% |
Common
share total return is composed of two elements — the common share distributions paid by the Fund (the amount of which is
largely determined by the taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or
dividends on any preferred shares) and unrealized gains or losses on the value of the securities the Fund owns. As required by
SEC rules, the table assumes that the Fund is more likely to suffer capital losses than to enjoy total return. For example, to
assume a total return of 0% the Fund must assume that the income it receives on its investments is entirely offset by expenses
and losses in the value of those investments. The Fund’s shares are leveraged and the risks and special considerations related
to leverage described in this prospectus apply. Such leveraging of the shares cannot be fully achieved until the proceeds resulting
from the use of leverage have been invested in accordance with the Fund’s investment objectives and policies.
Potential
Dilution in Rights Offerings
To
the extent that the Fund engages in a rights offering, shareholders who do not exercise their subscription rights may, at the
completion of such an offering, own a smaller proportional interest in the Fund than if they exercised their subscription rights.
As a result of such an offering, a shareholder also may experience dilution in NAV per share if the subscription price per share
is below the NAV per share on the expiration date. Specifically, if the subscription price per share is below the NAV per share
of the Fund’s shares on the expiration date of the rights offering, a shareholder will experience an immediate dilution
of the aggregate NAV of their shares if the shareholder does not participate in the offering and the shareholder will experience
a reduction in the NAV per share of their shares whether or not the shareholder participates in the offering. The Fund cannot
state precisely the extent of this dilution (if any) if the shareholder does not exercise his or her subscription rights because
the Fund does not know what the NAV per share will be when a rights offering expires or what proportion of the rights will be
exercised.
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There
is also a risk that the Fund’s largest shareholders, record date shareholders of more than 5% of the outstanding common
shares of the Fund, may increase their percentage ownership of the Fund through the exercise of the primary subscription and any
over-subscription privilege.
Common
Share Distribution Policy Risk
The
Fund has adopted a policy, which may be changed at any time by the Board, of paying distributions on its common shares of $0.15
per share per quarter. 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
shares. Any return of capital should not be considered by investors as yield or total return on their investment in the Fund.
Shareholders should not assume that a distribution from the Fund is comprised exclusively of net profits. For the fiscal year
ended December 31, 2022, the Fund made distributions of $0.60 per common share, approximately $0.0068 of which was deemed a return
of capital. The Fund has made quarterly distributions with respect to its common shares since June 2012. A portion of the distributions
to holders of common shares during four of the sixteen fiscal years 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.
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 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
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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 shareholders, potentially resulting
in, among other things, financial losses; the inability of Fund shareholders 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 shares if the Fund fails to satisfy the 1940 Act’s asset coverage requirements
could jeopardize the Fund’s ability to meet such distribution requirements. The Fund presently intends, however, to purchase
or redeem preferred shares 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
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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.
Investment
Restrictions
The
Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio diversification. These
limitations are fundamental and may not be changed without the approval of the holders of a majority, as defined in the 1940 Act,
of the outstanding common shares and preferred shares voting together as a single class. The Fund may become subject to guidelines
that are more limiting than the investment restrictions set forth above in order to obtain and maintain ratings from a credit
rating agency on its preferred shares. See “Leverage Risk — Portfolio Guidelines of Rating Agencies for Preferred
Shares and/or Credit Facility.”
INVESTMENT
RESTRICTIONS
The
Fund operates under the following restrictions that constitute fundamental policies that, except as otherwise noted, cannot be
changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund voting together
as a single class. In the event the Fund were to issue any preferred shares, the approval of a majority of such shares voting
as a separate class would also be required. Such majority vote requires the lesser of (i) 67% of the Fund’s applicable shares
represented at a meeting at which more than 50% of the applicable shares outstanding are represented, whether in person or by
proxy, or (ii) more than 50% of the Fund’s applicable shares outstanding.
1.
The Fund may not invest 25% or more of its total assets, taken at market value at the time of each investment, in the securities
of issuers in any particular industry except that the Fund will invest 25% or more of its total assets in the healthcare and wellness
industries. This restriction does not apply to investments in direct obligations of the United States or its agencies or instrumentalities
that are entitled to the full faith and credit of the United States and that, other than U.S. Treasury Bills, provide for the
periodic payment of interest and the full payment of principal at maturity or call for redemption (“U.S. Government Obligations”).
2.
The Fund may not purchase or sell commodities or commodity contracts except that the Fund may purchase or sell futures contracts
and related options thereon if immediately thereafter (i) no more than 5% of its total assets are invested in initial margins
and premiums and (ii) the aggregate market value of its outstanding futures contracts and market value of the currencies and futures
contracts subject to outstanding options written by the Fund do not exceed 50% of the market value of its total assets. The Fund
may not purchase or sell real
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estate,
provided that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest
in real estate or interests therein.
3.
The Fund may not make loans of money, except by the purchase of a portion of privately or publicly distributed debt obligations,
and enter into repurchase agreements with respect to those obligations, consistent with its investment objectives and policies.
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. Any such loans may only be made upon approval of, and subject to any conditions imposed by,
the Board. Because these loans would at all times be fully collateralized, the risk of loss in the event of default of the borrower
should be slight.
4.
The Fund may borrow money to the extent permitted by applicable law and may pledge assets to secure such borrowings or other issuances
of senior securities. The 1940 Act currently requires that the Fund have 300% asset coverage with respect to all borrowings other
than temporary borrowings of up to 5% of the value of its total assets.
5.
The Fund may not issue senior securities, except to the extent permitted by applicable law.
6.
The Fund may not underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the 1933
Act in selling portfolio securities; provided, however, this restriction shall not apply to securities of any investment company
organized by the Fund that are to be distributed pro rata as a dividend to its shareholders.
With
respect to (2) above, because most swaps are now considered commodity interests under the Commodity Exchange Act and its rules,
this restriction is being interpreted to permit the Fund to engage in transactions in swaps and options on swaps related to financial
instruments, such as securities, securities indices, currencies and other financial instruments, but not to engage in transactions
in swaps related to physical commodities, such as oil or metals.
With
respect to (4) above, the 1940 Act permits the Fund to borrow money in amounts of up to one-third of the Fund’s total assets
for any purpose, and to borrow up to 5% of the Fund’s total assets for temporary purposes. The Fund’s total assets
include the amounts being borrowed. To limit the risks attendant to borrowing, the 1940 Act requires the Fund to have an “asset
coverage” of at least 300% of the amount of its borrowings at the time the borrowing is incurred. Asset coverage means the
ratio that the value of the Fund’s total assets (including amounts borrowed), minus liabilities other than borrowings, bears
to the aggregate amount of all borrowings. Borrowing money to increase portfolio holdings is known as “leveraging.”
Certain trading practices and investments, such as derivatives, may be considered to be borrowings or involve leverage and thus
are subject to the 1940 Act restrictions. In accordance with Rule 18f-4 under the 1940 Act, when the Fund engages in reverse repurchase
agreements and similar financing transactions, the Trust may either (i) maintain asset coverage of at least 300% with respect
to such transactions and any other borrowings in the aggregate, or (ii) treat such transactions as Derivatives Transactions (as
defined above) and comply with Rule 18f-4 with respect to such transactions. See “Risk Factors and Special Considerations—Special
Risks of Derivatives Transactions—Derivatives Transactions Subject to Rule 18f-4 Under the 1940 Act.”
With
respect to (5) above, under the 1940 Act, the Fund may issue senior securities (which may be stock, such as preferred shares,
and/or securities representing debt, such as notes) only if immediately after such issuance
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the
value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding
and exceeds 200% of the amount of preferred shares (measured by liquidation value) and debt outstanding, which is referred to
as the “asset coverage” required by the 1940 Act. At any time the Fund has debt securities or preferred stock outstanding
the Fund may be restricted from declaring cash distributions on, or repurchasing, common or preferred shares.
Senior
Securities / leverage
As
of December 31, 2022, the Fund uses leverage through the issuance of preferred shares.
Effects
of Leverage
The
following information is furnished in response to requirements of the SEC. It is designed to, among other things, illustrate the
effects of leverage through the use of senior securities, as that term is defined under Section 18 of the 1940 Act, on Common
Share total return, assuming investment portfolio total returns (consisting of income and changes in the value of investments
held in a Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table below reflects the Fund’s continued use of preferred
shares, as of December 31, 2022 as a percentage of total managed assets (including assets attributable to such leverage), the
estimated annual effective preferred shares dividend rate and interest expense rate payable by the Fund on such instruments (based
on market conditions as of December 31, 2022), and the annual return that the Fund’s portfolio must experience (net of expenses)
in order to cover such costs. The information below does not reflect the Fund’s use of certain other forms of economic leverage
achieved through the use of other instruments or transactions not considered to be senior securities under the 1940 Act, such
as derivative instruments.
The
assumed investment portfolio returns in the table below are hypothetical figures and are not necessarily indicative of the investment
portfolio returns experienced or expected to be experienced by the Fund. Your actual returns may be greater or less than those
appearing below.
| Preferred
Shares as a Percentage of Total Managed Assets (Including Assets Attributable to Preferred Shares) |
23% |
| Estimated
Annual Effective Preferred Share Dividend Rate |
4.41% |
| Annual
Return Fund Portfolio Must Experience (net of expenses) to Cover Estimated Annual Effective Preferred Share Dividend Rate |
1.03% |
| Common
Share Total Return for (10.00)% Assumed Portfolio Total Return |
|
| Common
Share Total Return for (5.00)% Assumed Portfolio Total Return |
(8.11)% |
| Common
Share Total Return for 0.00% Assumed Portfolio Total Return |
(1.62)% |
| Common
Share Total Return for 5.00% Assumed Portfolio Total Return |
4.87% |
| Common
Share Total Return for 10.00% Assumed Portfolio Total Return |
11.36% |
Common
shares total return is composed of two elements — the distributions paid by a Fund to holders of common shares (the amount
of which is largely determined by the net investment income of the Fund after paying dividend payments on any preferred shares
issued by the Fund and expenses on any forms of leverage outstanding) and gains or losses on the value of the securities and other
instruments the Fund owns. As
The
Gabelli Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
required
by SEC rules, the table assumes that a Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example,
to assume a total return of 0%, a Fund must assume that the income it receives on its investments is entirely offset by losses
in the value of those investments. This table reflects hypothetical performance of the Fund’s portfolio and not the actual
performance of the Fund’s common shares, the value of which is determined by market forces and other factors. Should the
Fund elect to add additional leverage to its portfolio, any benefits of such additional leverage cannot be fully achieved until
the proceeds resulting from the use of such leverage have been received by the Fund and invested in accordance with the Fund’s
investment objectives and policies. As noted above, the Fund’s willingness to use additional leverage, and the extent to
which leverage is used at any time, will depend on many factors, including, among other things, the Fund’s assessment of
the yield curve environment, interest rate trends, market conditions and other factors.
SUMMARY
OF FUND EXPENSES
The
following table is intended to assist you in understanding the various costs and expenses directly or indirectly associated with
investing in shares of common shares, as a percentage of net assets attributable to common shares. All expenses of the Fund will
be borne, directly or indirectly, by the common shareholders. Amounts are for the current fiscal year.
| |
Percentages
of Net Assets |
| Annual
Expenses |
Attributable
to Common Shares |
| Management Fees(a) |
1.30% |
| Interest Expense(b) |
1.32% |
| Other Expenses(c) |
0.36% |
| Total Annual Expenses |
2.98% |
| Total
Annual Expenses and Dividends on Preferred Shares(d) |
2.98% |
| (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 E Preferred Shares have a mandatory redemption date of December 26, 2025 and the
Series G Preferred Shares have a mandatory redemption date of June 26, 2025. Therefore,
for financial reporting purposes only, the dividends paid on the Series E Preferred Shares
and Series G Preferred Shares are included as a component of “Interest Expense.” |
| (c) | “Other
Expenses” are based on amounts for the year ended December 31, 2022. |
| (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 shares, assuming a 5% annual portfolio
total return.*
The
Gabelli Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
| |
1
Year |
3
Year |
5
Year |
10
Year |
| Total
Expenses Incurred |
$30 |
$92 |
$156 |
$329 |
| * | The
example should not be considered a representation of future expenses. The example is
based on Total Annual Expenses and Dividends on Preferred Shares shown in the table above
and assumes that the amounts set forth in the table do not change and that all distributions
are reinvested at NAV. 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 Shares. If Dividends on Preferred Shares 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 |
$17 |
$52 |
$90 |
$196 |
Share
Price Data
The
following table sets forth for the quarters indicated, the high and low closing prices on the NYSE per share of the Fund’s
common shares and the net asset value and the premium or discount from net asset value at which the common shares was trading,
expressed as a percentage of net asset value, at each of the high and low NYSE closing prices provided.
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Corresponding |
|
|
|
|
| |
|
|
|
|
Net
Asset |
|
Corresponding |
| |
|
|
|
|
Value |
|
Premium
or |
| |
Common
Share |
|
(“NAV”)
Per |
|
Discount
as a % |
| |
Market
Price |
|
Share |
|
of
NAV |
| Quarter
Ended |
High |
|
Low |
|
High |
|
Low |
|
High |
|
Low |
| March
31, 2021 |
$12.69 |
$11.80 |
$14.60 |
$13.82 |
(13.08)% |
(14.61)% |
| June
30, 2021 |
$13.57 |
$12.46 |
$15.23 |
$14.37 |
(10.90)% |
(13.29)% |
| September
30, 2021 |
$14.07 |
$13.11 |
$15.93 |
$14.91 |
(11.67)% |
(12.07)% |
| December
31, 2021 |
$13.70 |
$12.60 |
$15.67 |
$15.67 |
(12.57)% |
(12.19)% |
| March
31, 2022 |
$13.68 |
$12.00 |
$15.34 |
$13.96 |
(10.82)% |
(14.04)% |
| June
30, 2022 |
$13.19 |
$9.84 |
$14.94 |
$11.56 |
(11.71)% |
(14.88)% |
| September
30, 2022 |
$12.27 |
$9.50 |
$13.38 |
$10.99 |
(8.30)% |
(13.56)% |
| December
31, 2022 |
$10.65 |
$9.50 |
$12.53 |
$11.00 |
(15.00)% |
(13.64)% |
| |
|
|
|
|
|
|
|
|
|
|
|
The
Gabelli Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
Portfolio
Managers
During
the year ended December 31, 2022, there were no changes to the management team of the Fund.
Unresolved
Staff Comments
The
Fund does not believe that there are any material unresolved written comments, received 180 days or more before December 31, 2022
from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act 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 shareholder
whose shares of common stock are registered in his or her own name will have all distributions reinvested automatically by Computershare
Trust Company, N.A. (“Computershare”), which is an agent under the Plan, unless the shareholder elects to receive
cash. Distributions with respect to shares registered in the name of a broker-dealer or other nominee (that is, in “street
name”) will be reinvested by the broker or nominee in additional shares under the Plan, unless the service is not provided
by the broker or nominee or the shareholder elects to receive distributions in cash. Investors who own shares of common stock
registered in street name should consult their broker-dealers for details regarding reinvestment. All distributions to investors
who do not participate in the Plan will be paid by check mailed directly to the record holder by Computershare as dividend-disbursing
agent.
Enrollment
in the Plan
It
is the policy of The Gabelli Healthcare & WellnessRx Trust (the “Fund”) to automatically reinvest dividends. As
a “registered” shareholder you automatically become a participant in the Fund’s Automatic Dividend Reinvestment
Plan (the “Plan”). The Plan authorizes the Fund to credit common shares to participants upon an income dividend or
a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value. All distributions
to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to the Plan in additional
shares of the Fund. Plan participants may send their shares certificates to Computershare Trust Company, N.A. (“Computershare”)
to be held in their dividend reinvestment account. Registered shareholders wishing to receive their distribution in cash may submit
this request through the Internet, by telephone or in writing to:
The
Gabelli Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
The Gabelli Healthcare & WellnessRx
Trust
c/o Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Telephone: (800)
336-6983
Website: www.computershare.com/investor
Shareholders requesting this cash election
must include the shareholder’s name and address as they appear on the share certificate. Shareholders with additional questions
regarding the Plan 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. Shareholders holding shares in “street
name” at participating institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at
such institution must contact their broker to make this change.
The number of common shares distributed
to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market
price of the Fund’s common shares is equal to or exceeds net asset value at the time shares are valued for purposes of determining
the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued common shares valued
at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Fund’s
common shares. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange
(“NYSE”) trading day, the next trading day. If the net asset value of the common shares at the time of valuation exceeds
the market price of the common shares, participants will receive shares from the Fund valued at market price. If the Fund should
declare a dividend or capital gains distribution payable only in cash, Computershare will buy common shares in the open market,
or on the NYSE or elsewhere, for the participants’ accounts, except that Computershare will endeavor to terminate purchases
in the open market and cause the Fund to issue shares at net asset value if, following the commencement of such purchases, the
market value of the common shares exceeds the then current net asset value.
The automatic reinvestment of dividends
and capital gains distributions will not relieve participants of any income tax which may be payable on such distributions. A participant
in the Plan will be treated for federal income tax purposes as having received, on a dividend payment date, a dividend or distribution
in an amount equal to the cash the participant could have received instead of shares.
The
Gabelli Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
Voluntary Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet
another vehicle for our shareholders to increase their investment in the Fund. In order to participate in the Voluntary Cash Purchase
Plan, shareholders must have their shares registered in their own name.
Participants in the Voluntary Cash Purchase
Plan have the option of making additional cash payments to Computershare for investments in the Fund’s shares at the then
current market price. Shareholders may send an amount from $250 to $10,000. Computershare will use these funds to purchase shares
in the open market on or about the 1st and 15th of each month. Computershare will charge each shareholder who participates $0.75,
plus a per share fee (currently $0.02 per share). Per share fees include any applicable brokerage commissions Computershare is
required to pay and fees for such purchases are expected to be less than the usual fees for such transactions. It is suggested
that any voluntary cash payments be sent to Computershare, P.O. Box 6006, Carol Stream, IL 60197-6006 such that Computershare receives
such payments approximately two business days before the 1st and 15th of the month. Funds not received at least two business days
before the investment date shall be held for investment until the next purchase date. A payment may be withdrawn without charge
if notice is received by Computershare at least two business days before such payment is to be invested.
Shareholders wishing to liquidate shares
held at Computershare may do so through the Internet, in writing or by telephone to the above-mentioned website, address or telephone
number. Include in your request your name, address, and account number. Computershare will sell such shares through a broker-dealer
selected by Computershare within 5 business days of receipt of the request. The sale price will equal the weighted average price
of all shares sold through the Plan on the day of the sale, less applicable fees. Participants should note that Computershare is
unable to accept instructions to sell on a specific date or at a specific price. The cost to liquidate shares is $2.50 per transaction
as well as the per share fee (currently $0.10 per share) Per share fees include any applicable brokerage commissions Computershare
is required to pay and are expected to be less than the usual fees for such transactions.
For more information regarding the 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 Plans 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
Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
Selected data for a common share of beneficial
interest outstanding throughout each year:
| | |
Year Ended December 31, | |
| | |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| Operating
Performance: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
asset value, beginning of year | |
$ | 10.86 | | |
$ | 11.79 | | |
$ | 11.76 | | |
$ | 11.33 | | |
$ | 9.55 | |
| Net
investment income/(loss) | |
| (0.01 | ) | |
| (0.02 | ) | |
| (0.03 | ) | |
| 0.01 | | |
| 0.04 | |
| Net
realized and unrealized gain/(loss) on investments, and foreign currency transactions | |
| 1.61 | | |
| (0.21 | ) | |
| 0.75 | | |
| 2.04 | | |
| 3.53 | |
| Total
from investment operations | |
| 1.60 | | |
| (0.23 | ) | |
| 0.72 | | |
| 2.05 | | |
| 3.57 | |
| Distributions
to Preferred Shareholders:(a) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
investment income | |
| (0.01 | ) | |
| — | | |
| — | | |
| — | | |
| (0.01 | ) |
| Net
realized short term/long term gain | |
| (0.19 | ) | |
| (0.19 | ) | |
| (0.19 | ) | |
| (0.13 | ) | |
| (0.12 | ) |
| Total
distributions to preferred shareholders | |
| (0.20 | ) | |
| (0.19 | ) | |
| (0.19 | ) | |
| (0.13 | ) | |
| (0.13 | ) |
| Net
Increase in Net Assets Attributable to Common Shareholders Resulting | |
| | | |
| | | |
| | | |
| | | |
| | |
| from
Operations | |
| 1.40 | | |
| (0.42 | ) | |
| 0.53 | | |
| 1.92 | | |
| 3.44 | |
| Distributions
to Common Shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
investment income | |
| (0.00 | )(b) | |
| — | | |
| — | | |
| — | | |
| (0.01 | ) |
| Net
realized short term/long term gain | |
| (0.51 | ) | |
| (0.52 | ) | |
| (0.51 | ) | |
| (0.62 | ) | |
| (0.90 | ) |
| Return of capital | |
| (0.01 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Total
distributions to common shareholders | |
| (0.52 | ) | |
| (0.52 | ) | |
| (0.51 | ) | |
| (0.62 | ) | |
| (0.91 | ) |
| Fund
Share Transactions: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Increase
in net asset value for repurchase of common shares | |
| 0.00 | (b) | |
| — | | |
| 0.01 | | |
| — | | |
| — | |
| Decrease
in net asset value from common shares issued in rights offering | |
| — | | |
| — | | |
| — | | |
| (0.77 | ) | |
| (0.72 | ) |
| Offering
costs for preferred shares charged to paid-in capital | |
| — | | |
| — | | |
| — | | |
| (0.08 | ) | |
| — | |
| Offering
costs for common shares charged to paid-in capital | |
| — | | |
| — | | |
| (0.00 | )(b) | |
| (0.02 | ) | |
| (0.03 | ) |
| Increase
in net asset value from offering of preferred shares | |
| — | | |
| 0.01 | | |
| — | | |
| — | | |
| — | |
| Total Fund share transactions | |
| 0.00 | (b) | |
| 0.01 | | |
| 0.01 | | |
| (0.87 | ) | |
| (0.75 | ) |
| Net
Asset Value Attributable to Common Shareholders, End of Year | |
$ | 11.74 | | |
$ | 10.86 | | |
$ | 11.79 | | |
$ | 11.76 | | |
$ | 11.33 | |
| NAV
total return † | |
| 13.02 | % | |
| (3.63 | )% | |
| 4.55 | % | |
| 16.98 | % | |
| 36.86 | % |
| Market
value, end of year | |
$ | 10.33 | | |
$ | 9.43 | | |
$ | 10.25 | | |
$ | 10.42 | | |
$ | 10.38 | |
| Investment
total return †† | |
| 15.17 | % | |
| (3.15 | )% | |
| 3.14 | % | |
| 10.39 | % | |
| 35.99 | % |
The
Gabelli Healthcare & WellnessRx Trust
Additional
Fund Information (Continued) (Unaudited)
Selected data for a common share
of beneficial interest outstanding throughout each year:
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
Year Ended December 31, | |
| | |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| Ratios to Average Net Assets and Supplemental Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net assets including liquidation value of preferred shares, end of year (in 000’s) | |
$ | 299,680 | | |
$ | 282,611 | | |
$ | 299,097 | | |
$ | 299,595 | | |
$ | 199,503 | |
| Net assets attributable to common shares, end of year (in 000’s) | |
$ | 232,644 | | |
$ | 215,575 | | |
$ | 234,097 | | |
$ | 234,595 | | |
$ | 169,503 | |
| Ratio of net investment income/(loss) to average net assets attributable to common shares before preferred share distributions | |
| (0.07 | )% | |
| (0.20 | )% | |
| (0.22 | )% | |
| (0.27 | )% | |
| 0.02 | % |
| Ratio of operating expenses to average net assets attributable to common shares | |
| 1.65 | %(c) | |
| 1.62 | %(c) | |
| 1.60 | %(c) | |
| 1.63 | % | |
| 1.71 | % |
| Ratio of operating expenses to average net assets including liquidation value of preferred shares | |
| 1.27 | %(c) | |
| 1.26 | %(c) | |
| 1.26 | %(c) | |
| 1.36 | % | |
| 1.41 | % |
| Portfolio turnover rate | |
| 34.3 | % | |
| 31.7 | % | |
| 52.4 | % | |
| 43.5 | % | |
| 52.1 | % |
| Cumulative Preferred Shares: | |
| | | |
| | | |
| | | |
| | | |
| | |
| 5.760% Series A Preferred | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year (in 000’s) | |
$ | 30,000 | | |
$ | 30,000 | | |
$ | 30,000 | | |
$ | 30,000 | | |
$ | 30,000 | |
| Total shares outstanding (in 000’s) | |
| 1,200 | | |
| 1,200 | | |
| 1,200 | | |
| 1,200 | | |
| 1,200 | |
| Liquidation preference per share. | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | |
| Average market value (d) | |
$ | 25.89 | | |
$ | 26.12 | | |
$ | 25.96 | | |
$ | 25.85 | | |
$ | 26.47 | |
| Asset coverage per share(e) | |
$ | 111.76 | | |
$ | 105.40 | | |
$ | 115.04 | | |
$ | 115.23 | | |
$ | 166.25 | |
| 5.875% Series B Preferred | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of year (in 000’s) | |
$ | 37,036 | | |
$ | 37,036 | | |
$ | 35,000 | | |
$ | 35,000 | | |
| — | |
| Total shares outstanding (in 000’s) | |
| 1,481 | | |
| 1,481 | | |
| 1,400 | | |
| 1,400 | | |
| — | |
| Liquidation preference per share. | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
$ | 25.00 | | |
| — | |
| Average market value (d) | |
$ | 26.67 | | |
$ | 26.76 | | |
$ | 26.09 | | |
$ | 25.37 | | |
| — | |
| Asset coverage per share(e) | |
$ | 111.76 | | |
$ | 105.40 | | |
$ | 115.04 | | |
$ | 115.23 | | |
| — | |
| Asset Coverage(f) | |
| 447 | % | |
| 422 | % | |
| 460 | % | |
| 461 | % | |
| 665 | % |
| † | Based
on net asset value per share at commencement of operations of $8.00 per share, adjusted
for reinvestment of distributions at the net asset value per share on ex-dividend dates
including the effect of shares issued pursuant to the rights offerings, assuming full
subscription by shareholders. |
| †† | Based
on market value per share at initial public offering of $8.00 per share, adjusted for
reinvestment of distributions at prices determined under the Fund’s dividend reinvestment
plan including the effect of shares issued pursuant to the rights offerings, assuming
full subscription by shareholders. |
| (a) | Calculated
based on average common shares outstanding on the record dates throughout the years. |
| (b) | Amount
represents less than $0.005 per share. |
| (c) | The
Fund received credits from a designated broker who agreed to pay certain Fund operating
expenses. Had such payments not been made, this expense ratio for the year ended December
31, 2015 would have been 1.27%. For the years ended December 31, 2017 and 2016, there
was no impact on the expense ratios. |
| (d) | Based
on weekly prices. |
| (e) | Asset
coverage per share is calculated by combining all series of preferred shares. |
| (f) | Asset
coverage is calculated by combining all series of preferred shares. |
The Gabelli
Healthcare & WellnessRx Trust
Additional
Fund Information (Unaudited) (Continued)
MANAGEMENT
OF THE FUND
The Net Asset Value per
share appears in the Publicly Traded Funds column, under the heading “Specialized Equity Funds,” in Monday’s
The Wall Street Journal. It is also listed in Barron’s Mutual Funds/Closed End Funds section under the heading “Specialized
Equity Funds.”
The Net Asset Value per share may be obtained
each day by calling (914) 921-5070 or visiting www.gabelli.com.