During the year ended December 31, 2022, the Fund
did not have transfers into or out of Level 3.
The Adviser reports quarterly
to the Board the results of the application of fair valuation policies and procedures. These may include backtesting the prices
realized in subsequent trades of these fair valued securities to fair values previously recognized.
between the amounts of interest
and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses
related to fluctuation in exchange rates between the initial purchase trade date and subsequent sale trade date is included in
realized gain/(loss) on investments.
have no impact on the NAV of
the Fund. For the year ended December 31, 2022, reclassifications were made to decrease paid-in capital by $84,093 with an offsetting
adjustment to total distributable earnings.
Under the Fund’s current
common share distribution policy announced February 25, 2019, the Fund declares and pays quarterly distributions from net investment
income, capital gains, and paid-in capital. The actual source of the distribution is determined after the end of the year. Pursuant
to this policy, distributions during the year may be made in excess of required distributions. To the extent such distributions
are made from current earnings and profits, they are considered ordinary income or long term capital gains. Distributions sourced
from paid-in capital should not be considered as dividend yield or the total return from an investment in the Fund. The Board
will continue to monitor the Fund’s distribution level, taking into consideration the Fund’s NAV and the financial
market environment. The Fund’s distribution policy is subject to modification by the Board at any time.
Distributions to shareholders
of the Fund’s 4.000% Series B Cumulative Preferred Shares (Series B Preferred) are recorded on a daily basis and are determined
as described in Note 6.
The tax character of distributions
paid during the years ended December 31, 2022 and 2021 was as follows:
At December 31, 2022, the components
of accumulated earnings/losses on a tax basis were as follows:
At December 31, 2022, the temporary
differences between book basis and tax basis net unrealized appreciation on investments were primarily due to a tax basis adjustment
due to corporate action, the deferral of losses from wash sales for tax purposes, cumulative mark-to-market adjustments on investments
in passive foreign investment companies, cumulative adjustments on investments no longer considered passive foreign investment
companies, and adjustments on partnerships.
The Fund is required to evaluate
tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax
positions are “more-likely-than-not” of being sustained by the applicable tax authority. Income tax and related interest
and penalties would be recognized by the Fund as tax expense in the Statement of Operations if the tax positions were deemed not
to meet the more-likely-than-not threshold. For the year ended December 31, 2022, the Fund had an excise tax expense of $54,761.
As of December 31, 2022, the Adviser has reviewed the open tax years and concluded that there was no tax impact to the Fund’s
net assets or results of operations. The Fund’s current federal and state tax returns will remain open for three fiscal
years, subject to examination. On an ongoing basis, the Adviser will monitor the Fund’s tax positions to determine if adjustments
to this conclusion are necessary.
During the year ended December
31, 2022, the Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. The amount of
such expenses paid through this directed brokerage arrangement during this period was $6,753.
The cost of calculating the
Fund’s NAV per share is a Fund expense pursuant to the Advisory Agreement between the Fund and the Adviser. Under the sub-administration
agreement with Bank of New York Mellon, the fees paid include the cost of calculating the Fund’s NAV. The Fund reimburses
the Adviser for this service. During the year ended December 31, 2022, the Fund accrued $45,000 in accounting fees in the Statement
of Operations.
As per the approval of the
Board, the Fund compensates officers of the Fund, who are employed by the Fund and are not employed by the Adviser (although the
officers may receive incentive based variable compensation from affiliates of the Adviser). During the year ended December 31,
2022, the Fund accrued $187,367 in payroll expenses in the Statement of Operations.
The Fund pays retainer and
per meeting fees to Trustees not affiliated with the Adviser, plus specified amounts to the Lead Trustee and Audit Committee Chairman.
Trustees are also reimbursed for out of pocket expenses incurred in attending meetings. Trustees who are directors or employees
of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund.
The Fund has an effective shelf
registration that expires August 13, 2024 which authorizes the offering of $100 million of common shares or preferred shares.
The Fund’s Declaration
of Trust, as amended, authorizes the issuance of 1,200,000 shares of $0.001 par value Cumulative Preferred Shares (Preferred Shares).
The Preferred Shares are senior to the common shares and result in the financial leveraging of the common shares. Such leveraging
tends to magnify both the risks and opportunities to common shareholders. The Fund is required by the 1940 Act and by the Fund’s
Statement of Preferences to meet certain asset coverage tests with respect to the Preferred Shares. If the Fund fails to meet
these requirements and does not correct such failure, the Fund may be required to redeem, in part or in full, the Preferred Shares
at the redemption price of $25 per share plus an amount equal to the accumulated and unpaid dividends whether or not declared
on such shares in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could
restrict the Fund’s ability to pay dividends to common shareholders and could lead to sales of portfolio securities at inopportune
times. The income received on the Fund’s assets may vary in a manner unrelated to the fixed rates, which could have either
a beneficial or detrimental impact on net investment income and gains available to common shareholders.
On November 1, 2021, the Fund
issued 4,000,000 shares of Series B 4.00% Cumulative Preferred Shares receiving $39,875,000 after the deduction of estimated offering
expenses of $125,000. The Series B Preferred has a liquidation value of $10 per share and an annual dividend rate of 4.00%. The
Series B Preferred is subject to mandatory redemption by the Fund on September 26, 2025.
The Series B Preferred are
puttable during the 60 day period prior to each of September 28, 2022 and September 26, 2023, and callable at the Fund’s
option at any time commencing on September 26, 2024 and thereafter. The Series B Preferred is subject to mandatory redemption
by the Fund on September 26, 2025. At December 31, 2022, 3,200,000 shares of Series B Preferred were outstanding and accrued dividends
amounted to $17,778.
On September 28, 2022, 800,000
of the Series B Shares were put back to the Fund at their liquidation preference of $10 per share plus accrued and unpaid dividends.
On February 28, 2022, the Fund
redeemed all of the Series A Preferred at the redemption price of $25.24600694 which consisted of the $25.00 per share liquidation
preference and $0.24600694 per share representing accumulated but unpaid dividends and distributions to the redemption date.
The holders of Preferred Shares
generally are entitled to one vote per share held on each matter submitted to a vote of shareholders of the Fund and will vote
together with holders of common stock as a single class. The holders of Preferred Shares voting together as a single class also
have the right currently to elect two Trustees and, under certain circumstances, are entitled to elect a majority of the Board
of Trustees. In addition, the affirmative vote of a majority of the votes entitled to be cast by holders of all outstanding shares
of the preferred stock, voting as a single class, will be required to approve any plan of reorganization adversely affecting the
preferred stock, and the approval of two-thirds of each class, voting separately, of the Fund’s outstanding voting stock
must approve the conversion of the Fund from a closed-end to an open-end investment company. The approval of a majority (as defined
in the 1940 Act) of the outstanding preferred stock and a majority (as defined in the 1940 Act) of the Fund’s outstanding
voting securities are required to approve certain other actions, including changes in the Fund’s investment objectives or
fundamental investment policies.
Opinion on the
Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of The Gabelli Global
Small and Mid Cap Value 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.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Unaudited)
Delaware Statutory Trust
Act – Control Share Acquisitions
The Fund is organized as a
Delaware statutory trust and thus is subject to the control share acquisition statute contained in Subchapter III of the Delaware
Statutory Trust Act (the DSTA Control Share Statute). The DSTA Control Share Statute applies to any closed-end investment company
organized as a Delaware statutory trust and listed on a national securities exchange, such as the Fund. The DSTA Control Share
Statute became automatically applicable to the Fund on August 1, 2022.
The DSTA Control Share Statute
defines “control beneficial interests” (referred to as “control shares” herein) by reference to a series
of voting power thresholds and provides that a holder of control shares acquired in a control share acquisition has no voting
rights under the Delaware Statutory Trust Act (DSTA) or the Fund’s Governing Documents (as used herein, “Governing
Documents” means the Fund’s Agreement and Declaration of Trust and By-Laws, together with any amendments or supplements
thereto, including any Statement of Preferences establishing a series of preferred shares) with respect to the control shares
acquired in the control share acquisition, except to the extent approved by the Fund’s shareholders by the affirmative vote
of two–thirds of all the votes entitled to be cast on the matter, excluding all interested shares (generally, shares held
by the acquiring person and their associates and shares held by Fund insiders).
The DSTA Control Share Statute
provides for a series of voting power thresholds above which shares are considered control shares. Whether one of these thresholds
of voting power is met is determined by aggregating the holdings of the acquiring person as well as those of his, her or its “associates.”
These thresholds are:
| ● | 10% or more, but less than 15% of all voting power; |
| ● | 15% or more, but less than 20% of all voting power; |
| ● | 20% or more, but less than 25% of all voting power; |
| ● | 25% or more, but less than 30% of all voting power; |
| ● | 30% or more, but less than a majority of all voting power;
or |
| ● | a majority or more of all voting power. |
Under the DSTA Control Share
Statute, once a threshold is reached, an acquirer has no voting rights with respect to shares in excess of that threshold (i.e.,
the “control shares”) until approved by a vote of shareholders, as described above, or otherwise exempted by the Fund’s
Board of Trustees. The DSTA Control Share Statute contains a statutory process for an acquiring person to request a shareholder
meeting for the purpose of considering the voting rights to be accorded control shares. An acquiring person must repeat this process
at each threshold level.
Under the DSTA Control Share
Statute, an acquiring person’s “associates” are broadly defined to include, among others, relatives of the acquiring
person, anyone in a control relationship with the acquiring person, any investment fund or other collective investment vehicle
that has the same investment adviser as the acquiring person, any investment adviser of an acquiring person that is an investment
fund or other collective investment vehicle and any other person acting or intending to act jointly or in concert with the acquiring
person.
Voting power under the DSTA
Control Share Statute is the power (whether such power is direct or indirect or through any contract, arrangement, understanding,
relationship or otherwise) to directly or indirectly exercise or direct the exercise of the voting power of shares of the Fund
in the election of the Fund’s Trustees (either
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
generally or with respect to
any subset, series or class of trustees, including any Trustees elected solely by a particular series or class of shares, such
as the preferred shares). Thus, Fund preferred shares, including the Series B Preferred Shares, acquired in excess of the above
thresholds would be considered control shares with respect to the preferred share class vote for two Trustees.
Any control shares of the Fund
acquired before August 1, 2022 are not subject to the DSTA Control Share Statute; however, any further acquisitions on or after
August 1, 2022 are considered control shares subject to the DSTA Control Share Statute.
The DSTA Control Share Statute
requires shareholders to disclose to the Fund any control share acquisition within 10 days of such acquisition, and also permits
the Fund to require a shareholder or an associate of such person to disclose the number of shares owned or with respect to which
such person or an associate thereof can directly or indirectly exercise voting power. Further, the DSTA Control Share Statute
requires a shareholder or an associate of such person to provide to the Fund within 10 days of receiving a request therefor from
the Fund any information that the Fund’s Trustees reasonably believe is necessary or desirable to determine whether a control
share acquisition has occurred.
The DSTA Control Share Statute
permits the Fund’s Board of Trustees, through a provision in the Fund’s Governing Documents or by Board action alone,
to eliminate the application of the DSTA Control Share Statute to the acquisition of control shares in the Fund specifically,
generally, or generally by types, as to specifically identified or unidentified existing or future beneficial owners or their
affiliates or associates or as to any series or classes of shares. The DSTA Control Share Statute does not provide that the Fund
can generally “opt out” of the application of the DSTA Control Share Statute; rather, specific acquisitions or classes
of acquisitions may be exempted by the Fund’s Board of Trustees, either in advance or retroactively, but other aspects of
the DSTA Control Share Statute, which are summarized above, would continue to apply. The DSTA Control Share Statute further provides
that the Board of Trustees is under no obligation to grant any such exemptions.
The foregoing is only a summary
of the material terms of the DSTA Control Share Statute. Shareholders should consult their own counsel with respect to the application
of the DSTA Control Share Statute to any particular circumstance.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Unaudited)
SUMMARY OF FUND EXPENSES
The following table shows the
Fund’s expenses as a percentage of net assets attributable to common shares. All expenses of the Fund are borne, directly
or indirectly, by the common shareholders. The table is based on the capital structure of the Fund as of December 31, 2022. The
purpose of the table and example below is to help you understand all fees and expenses that you, as a holder of common shares,
would bear directly or indirectly.
Shareholder Transaction
Expenses |
|
Sales Load (as a percentage of offering price) |
- (a) |
Offering Expenses Borne by the Fund |
|
(as a percentage
of offering price) |
- (a) |
Dividend Reinvestment and Cash Purchase Plan Fees |
|
Purchase Transactions |
$0.75 (b) |
Sales Transactions |
$2.50 (b) |
Annual
Expenses (as a percentage of net assets
attributable to common shares) |
|
Percentages
of Net Assets
Attributable to Common Shares |
Management Fees |
|
1.28% (c) |
Interest Expense |
|
1.10% (d) |
Other Expenses |
|
0.70% (e) |
Total Annual Expenses |
|
3.08% |
Dividends on Preferred Shares |
|
-% |
Total Annual Expenses and Dividends on Preferred
Shares |
|
3.08% (c) |
| (a) | If
common shares are sold to or through underwriters or dealer managers, a prospectus or
prospectus supplement will set forth any applicable sales load and the estimated offering
expense borne by the Fund. |
| (b) | Shareholders
participating in the Fund’s Automatic Dividend Reinvestment Plan do not incur any
additional fees. Shareholders participating in the Voluntary Cash Purchase Plan would
pay $0.75 per transaction plus their pro rata share of brokerage commissions per transaction
to purchase shares and $2.50 plus their pro rata share of brokerage commissions per transaction
to sell shares. See “Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plans.” |
| (c) | The
Investment Adviser’s fee is 1.00% annually of the Fund’s average weekly net
assets including proceeds attributable to any outstanding preferred shares, with no deduction
for liquidation preference of any preferred shares, and the outstanding principal amount
of any debt securities the proceeds of which were used for investment purposes. Consequently,
if the Fund has preferred shares outstanding, the investment management fees and other
expenses as a percentage of net assets attributable to common shares may be higher than
if the Fund does not utilize a leveraged capital structure. |
| (d) | The
Series B Preferred Shares have a mandatory redemption date of September 26, 2025. Therefore,
for financial reporting purposes only, the dividends paid on the Series B Preferred Shares
are included as a component of “Interest Expense.” |
| (e) | “Other
Expenses” are based on the Fund’s fiscal year ended December 31, 2022. |
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Example
The following example illustrates
the expenses you would pay on a $1,000 investment in common shares, assuming a 5% annual portfolio total return.*
| |
1 Year | |
3 Year | |
5 Year | |
10 Year |
Total Expenses Incurred | |
$31 | |
$95 | |
$161 | |
$339 |
| * | The example should not be considered a representation
of future expenses. The example assumes that the amounts set forth in the Annual Expenses table are accurate and that all distributions
are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate
of return may be greater or less than the hypothetical 5% return shown in the example. |
The example includes Dividends
on Preferred Shares. If Dividends on Preferred Shares were not included in the example calculation, the expenses for the 1-, 3-,
5- and 10-year periods in the table above would be as follows (based on the same assumptions as above): $20, $62, $106 and $230.
The Fund’s common shares
are listed on the NYSE under the trading or “ticker” symbol “GGZ.” The Fund’s common shares have
historically traded at a discount to the Fund’s net asset value. Over the past ten years, the Fund’s common shares
have traded at a premium to net asset value as high as 0.83% and a discount to net asset value as low (26.53)%. Any additional
series of fixed rate preferred shares or subscription rights issued in the future pursuant to a Prospectus Supplement by the Fund
would also likely be listed on the NYSE.
The following table sets forth
for the quarters indicated, the high and low sale prices on the NYSE per share of our common shares and the net asset value and
the premium or discount from net asset value per share at which the common shares were trading, expressed as a percentage of net
asset value, at each of the high and low sale prices provided.
| |
|
| |
|
| |
|
|
| |
Market
Price | |
Corresponding
Net Asset Value (“NAV”) Per Share | |
Corresponding
Premium or Discount as a % of NAV |
Quarter Ended | |
High | |
Low | |
High | |
Low | |
High | |
Low |
March 31, 2021 | |
$14.85 | |
$12.87 | |
$17.47 | |
$15.27 | |
(14.99)% | |
(15.71)% |
June 30, 2021 | |
$16.46 | |
$14.57 | |
$18.46 | |
$16.88 | |
(10.83)% | |
(13.65)% |
September 30, 2021 | |
$16.43 | |
$15.39 | |
$18.42 | |
$17.09 | |
(10.80)% | |
(9.90)% |
December 31, 2021 | |
$16.96 | |
$15.00 | |
$18.89 | |
$16.99 | |
(10.21)% | |
(11.71)% |
March 31, 2022 | |
$16.06 | |
$13.20 | |
$17.70 | |
$15.34 | |
(9.27)% | |
(13.95)% |
June 30, 2022 | |
$14.06 | |
$10.85 | |
$16.09 | |
$12.68 | |
(12.62)% | |
(14.43)% |
September 30, 2022 | |
$12.70 | |
$9.53 | |
$14.58 | |
$11.37 | |
(12.89)% | |
(16.18)% |
December 31, 2022 | |
$12.05 | |
$9.70 | |
$14.05 | |
$11.41 | |
(14.23)% | |
(14.99)% |
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
The last reported price for
our common shares on December 31, 2022 was $11.22 per share. As of December 31, 2022, the net asset value per share of the Fund’s
common shares was $13.26. Accordingly, the Fund’s common shares traded at a discount to net asset value of (15.38)% on December
31, 2022.
Outstanding Securities
The following information regarding
the Fund’s authorized shares is as of December 31, 2022.
Title of Class | |
Amount Authorized | |
Amount Held
by Fund for its Account | |
Amount Outstanding
Exclusive of Amount Held by Fund |
Common Shares | |
Unlimited | |
– | |
8,757,479 |
Series B Cumulative Preferred Shares | |
4,000,000 | |
– | |
3,200,000 |
Unresolved SEC Staff Comments
The Fund does not believe that
there are any material unresolved written comments, received 180 days or more before December 31, 2022 from the Staff of the SEC
regarding any of the Fund’s periodic or current reports under the Securities Exchange Act of 1934 or the Investment Company
Act of 1940, or its registration statement.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Selected data for a common share of beneficial
interest outstanding throughout the year:
| |
For the Year Ended December 31, | | |
For the Period Ended December 31, | |
| |
| 2017 | | |
| 2016 | | |
| 2015 | | |
| 2014(a) | |
Operating Performance: | |
| | | |
| | | |
| | | |
| | |
Net asset value, beginning of period | |
$ | 12.57 | | |
$ | 12.20 | | |
$ | 11.86 | | |
$ | 12.00 | |
Net investment income/(loss). | |
| (0.01 | )(b) | |
| 0.10 | | |
| (0.02 | )(b) | |
| (0.07 | ) |
Net realized and unrealized gain/(loss) on investments and foreign
currency transactions | |
| 3.34 | | |
| 0.60 | | |
| 0.34 | | |
| (0.07 | ) |
Total from investment operations | |
| 3.33 | | |
| 0.70 | | |
| 0.32 | | |
| (0.14 | ) |
Distributions to Preferred Shareholders: (c) | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| (0.04 | ) | |
| (0.04 | ) | |
| — | | |
| — | |
Net realized gain | |
| (0.14 | ) | |
| (0.10 | ) | |
| — | | |
| — | |
Return of capital | |
| (0.03 | ) | |
| — | | |
| — | | |
| — | |
Total distributions to preferred shareholders | |
| (0.21 | ) | |
| (0.14 | ) | |
| — | | |
| — | |
Net Increase/(Decrease) in Net Assets Attributable
to Common Shareholders Resulting from Operations | |
| 3.12 | | |
| 0.56 | | |
| 0.32 | | |
| (0.14 | ) |
Distributions to Common Shareholders: | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| — | | |
| (0.04 | ) | |
| — | | |
| — | |
Net realized gain | |
| — | | |
| (0.08 | ) | |
| | | |
| — | |
Total distributions to common shareholders | |
| — | | |
| (0.12 | ) | |
| — | | |
| — | |
Fund Share Transactions: | |
| | | |
| | | |
| | | |
| | |
Increase in net asset value from repurchase of common shares | |
| 0.01 | | |
| 0.07 | | |
| 0.02 | | |
| 0.00 | (d) |
Decrease in net asset value from costs charged to repurchase of
common shares. | |
| (0.00 | )(d) | |
| (0.00 | )(d) | |
| (0.00 | )(d) | |
| — | |
Offering costs and adjustment to offering costs for preferred shares
charged to paid-in capital | |
| 0.00 | (d) | |
| (0.14 | ) | |
| — | | |
| — | |
Offering costs for common shares charged to paid-in capital | |
| (0.05 | ) | |
| — | | |
| — | | |
| — | |
Decrease in net asset value from rights offering | |
| (1.02 | ) | |
| — | | |
| — | | |
| — | |
Total fund share transactions | |
| (1.06 | ) | |
| (0.07 | ) | |
| 0.02 | | |
| 0.00 | (d) |
Net Asset Value Attributable to Common Shareholders,
End of Period | |
$ | 14.63 | | |
$ | 12.57 | | |
$ | 12.20 | | |
$ | 11.86 | |
NAV total return † | |
| 24.62 | % | |
| 4.02 | % | |
| 2.87 | % | |
| (1.17 | )% |
Market value, end of period | |
$ | 12.74 | | |
$ | 10.60 | | |
$ | 10.40 | | |
$ | 10.44 | |
Investment total return †† | |
| 25.40 | % | |
| 2.40 | % | |
| (0.38 | )% | |
| (13.00 | )% |
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Selected data for a common share
of beneficial interest outstanding throughout the year:
| |
| | | |
| | | |
| | | |
| | |
| |
For the Year Ended December 31, | | |
For the Period Ended December 31, | |
| |
| 2017 | | |
| 2016 | | |
| 2015 | | |
| 2014(a) | |
Ratios to Average Net Assets and Supplemental
Data: | |
| | | |
| | | |
| | | |
| | |
Net assets including liquidation value of preferred shares, end
of period (in 000’s) | |
$ | 180,933 | | |
$ | 127,960 | | |
| — | | |
| — | |
Net assets attributable to common shares, end of period (in 000’s) | |
$ | 150,933 | | |
$ | 97,960 | | |
$ | 99,137 | | |
$ | 97,857 | |
Ratio of net investment income to average net assets attributable
to common shares before | |
| | | |
| | | |
| | | |
| | |
preferred share distributions | |
| (0.16 | )% | |
| 0.80 | % | |
| (0.14 | )% | |
| (1.12 | )%(e) |
Ratio of operating expenses to average net assets attributable to
common shares | |
| 1.76 | %(f) | |
| 1.72 | %(f) | |
| 1.53 | %(f) | |
| 1.58 | %(e) |
Ratio of operating expenses to average net assets including liquidation
value of preferred shares | |
| 1.39 | %(f) | |
| 1.44 | %(f) | |
| — | | |
| — | |
Portfolio turnover rate | |
| 70.4 | % | |
| 76.6 | % | |
| 114.0 | % | |
| 20.0 | % |
5.450% Series A Cumulative Preferred Shares | |
| | | |
| | | |
| | | |
| | |
Liquidation value, end of period (in 000’s) | |
$ | 30,000 | | |
$ | 30,000 | | |
| — | | |
| — | |
Total shares outstanding (in 000’s) | |
| 1,200 | | |
| 1,200 | | |
| — | | |
| — | |
Liquidation preference per share | |
$ | 25.00 | | |
$ | 25.00 | | |
| — | | |
| — | |
Average market value (g) | |
$ | 25.30 | | |
$ | 25.32 | | |
| — | | |
| — | |
Asset coverage per share | |
$ | 150.78 | | |
$ | 106.63 | | |
| — | | |
| — | |
Asset Coverage | |
| 603 | % | |
| 427 | % | |
| — | | |
| — | |
| † | Based
on net asset value per share, adjusted for reinvestment of distributions at net asset
value on the ex-dividend dates and adjustments for the rights offering. Total return
for a period of less than one year is not annualized. |
| †† | Based on market value per share, adjusted for reinvestment of distributions at prices
determined under the Fund’s dividend reinvestment plan and adjustments for the
rights offering. Total return for a period of less than one year is not annualized. |
| (a) | The
Fund commenced investment operations on June 23, 2014. |
| (b) | Per
share amounts have been calculated using the average shares outstanding method. |
| (c) | Calculated
based on average common shares outstanding on record dates throughout the period. |
| (d) | Amount
represents less than $0.005 per share. |
| (f) | The
Fund received credits from a designated broker who agreed to pay certain Fund operating
expenses. For the years ended December 31, 2017, 2016, and 2015, there was no impact
on the expense ratios. |
| (g) | Based
on weekly prices. |
CHANGES OCCURRING DURING
THE PRIOR FISCAL PERIOD
The following information is
a summary of certain changes during the most recent fiscal year ended December 31, 2022. This information may not reflect all
of the changes that have occurred since you purchased shares of the Fund.
During the Fund’s
most recent fiscal year, there were no material changes to the Fund’s investment objective or policies that have not been
approved by shareholders or in the principal risk factors associated with an investment in the fund.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
INVESTMENT OBJECTIVES AND
POLICIES
Investment Objectives and
Policies
The investment objective of
the Fund is long term growth of capital. Under normal market conditions, the Fund invests at least 80% of its total assets in
equity securities (such as common stock and preferred stock) of companies with small or medium-sized market capitalizations (“small-cap”
and “mid-cap” companies, respectively) and at least 40% of its total assets in the equity securities of companies
located outside the United States and in at least three countries. A company’s market capitalization is generally calculated
by multiplying the number of a company’s shares outstanding by its stock price. The Fund defines “small-cap”
companies as those with a market capitalization generally less than $3 billion at the time of investment and “mid-cap”
companies as those with a market capitalization between $3 billion and $12 billion at the time of investment. A company is deemed
to be “located” outside the United States if its country of organization, its headquarters, its principal place of
business and/or the principal trading market of its stock is located outside of the United States. From time to time, a substantial
portion of the Fund’s assets may be invested in companies located in a single country.
The Fund may also invest up
to 20% of its total assets in U.S. and non-U.S. nonconvertible debt. There are no maturity limits or credit quality requirements
for such investments. Although there are no geographic limits on the Fund’s investments, no more than 35% of the Fund’s
total assets may be invested in the securities of companies headquartered or principally operating in developing, or emerging
market, countries. 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. Generally emerging market countries include every country in the world
other than the United States, Canada, Japan, Australia, New Zealand, Hong Kong, Singapore, South Korea, Taiwan, Bermuda and Western
European countries (which include Austria, Belgium, Denmark, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom).
The Fund may invest in the
equity securities of companies of any market capitalization, subject to its policy of investing at least 80% of its assets in
the equity securities of small-cap and/or mid-cap companies at the time of investment. The Fund may invest up to 25% of its total
assets in securities of issuers in a single industry. The Fund may also invest up to 5% of its total assets in below investment-grade
debt securities, also known as high-yield fixed income securities. These securities, which may be preferred stock or debt, are
predominantly speculative and involve major risk exposure to adverse conditions. Debt securities that are rated lower than “BBB”
by S&P or lower than “Baa” by Moody’s (or unrated debt securities of comparable quality) are referred to
in the financial press as “junk bonds.”
The Fund may, from time to
time, modify the foregoing definitions and limitations, which are measured at the time of investment, and will provide notice
to shareholders of material changes. The principal circumstance under which the Fund would modify the definitions of “small-cap”
and “mid-cap” would be in response to a change in market standards regarding the market capitalization of issuers
considered to be “small-cap” or “mid-cap.” The Fund’s policy to invest at least 80% of its total
assets in equity securities of small-cap and mid-cap
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
companies may be changed by
the Board; however, if this policy changes, the Fund will provide shareholders at least 60 days’ written notice before implementation
of the change in compliance with SEC rules.
In selecting securities for
the Fund, the Investment Adviser will use a bottom-up, value approach. The Investment Adviser will primarily focus on company-specific
criteria rather than on political, economic or other country specific factors. The Fund may invest without limitation in securities
of foreign issuers, although the portion invested in foreign securities will vary over time based on market conditions. 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.
No assurances can be given
that the Fund’s objective will be achieved. Neither the Fund’s investment objective nor, except as expressly stated
herein, any of its policies are fundamental, and each may be modified by the Board without shareholder approval. The percentage
and ratings limitations stated herein apply only at the time of investment and are not considered violated as a result of subsequent
changes to the value, or downgrades to the ratings, of the Fund’s portfolio investments.
Investment Methodology
of the Fund
In selecting securities for
the Fund, the Investment Adviser normally considers the following factors, among others:
the Investment Adviser’s own evaluations of
the private market value (as defined below), cash flow, earnings per share and other fundamental aspects of the underlying assets
and business of the company;
| ● | the potential for capital appreciation of the securities; |
| ● | the interest or dividend income generated by the securities; |
| ● | the prices of the securities relative to other comparable
securities; |
| ● | whether the securities are entitled to the benefits of
call protection or other protective covenants; |
| ● | the existence of any anti-dilution protections or guarantees
of the security; and |
| ● | the diversification of the portfolio of the Fund as to
issuers. |
The Investment Adviser’s
investment philosophy with respect to equity securities is to identify assets that are selling in the public market at a discount
to their private market value. The Investment Adviser defines private market value as the value informed purchasers are willing
to pay to acquire assets with similar characteristics. The Investment Adviser also normally evaluates an issuer’s free cash
flow and long-term earnings trends. Finally, the Investment Adviser looks for a catalyst, something indigenous to the company,
its industry or country, that will surface additional value.
Certain Investment Practices
Equity Securities. The Fund invests in equity
securities (such as common stock and preferred stock) of small-and mid-cap companies.
Common stocks represent the residual ownership interest
in the issuer and holders of common stock are entitled to the income and increase in the value of the assets and business of the
issuer after all of its debt obligations
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
and obligations to preferred
shareholders are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors
including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates,
investor perceptions and market liquidity.
Equity securities also include
preferred stock (whether or not convertible into common stock) and debt securities convertible into or exchangeable for common
or preferred stock. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is
subordinated to the liabilities of the issuer in all respects. As a general rule the market value of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price
of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to
debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes
in the value of a preferred stock than in a more senior debt security with similarly stated yield characteristics. The market
value of preferred stock will also generally reflect whether (and if so when) the issuer may force holders to sell their preferred
stock back to the issuer and whether (and if so when) the holders may force the issuer to buy back their preferred stock. Generally
speaking, the right of the issuer to repurchase the preferred stock tends to reduce any premium at which the preferred stock might
otherwise trade due to interest rate or credit factors, while the right of the holders to require the issuer to repurchase the
preferred stock tends to reduce any discount at which the preferred stock might otherwise trade due to interest rate or credit
factors. In addition, some preferred stocks are non-cumulative, meaning that the dividends do not accumulate and need not ever
be paid. A portion of the portfolio may include investments in non-cumulative preferred stocks, whereby the issuer does not have
an obligation to make up any arrearages to its shareholders. There is no assurance that dividends or distributions on non-cumulative
preferred stocks in which the Fund invests will be declared or otherwise made payable.
Securities that are convertible
into or exchangeable for preferred or common stock are liabilities of the issuer but are generally subordinated to more senior
elements of the issuer’s balance sheet. Although such securities also generally reflect an element of conversion value,
their market value also varies with interest rates and perceived credit risk. Many convertible securities are not investment grade,
that is, not rated “BBB” or better by S&P or “Baa” or better by Moody’s or considered by the
Investment Adviser to be of similar quality. Preferred stocks and convertible securities may have many of the same characteristics
and risks as nonconvertible debt securities. See “Risk Factors and Special Considerations—Non-Investment Grade Securities.”
The Investment Adviser believes
that preferred stock and convertible securities of certain companies offer the opportunity for capital appreciation and periodic
income. This is particularly true in the case of companies that have performed below expectations. If a company’s performance
has been poor enough, its preferred stock and convertible securities may trade more like common stock than like fixed-income securities,
which may result in above average appreciation if the company’s performance improves. Even if the credit quality of such
a company is not in question, the market price of its convertible securities may reflect little or no element of conversion value
if the price of its common stock has fallen substantially below the conversion price. This can result in capital appreciation
if the price of the company’s common stock recovers.
Foreign Securities. The
Fund invests in the equity securities of companies located outside the United States.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
The Investment Adviser
believes that investing in foreign securities offers both enhanced investment opportunities and additional risks beyond those
present in U.S. securities. Investing in foreign securities may provide increased diversification by adding securities from
various foreign countries (i) that offer different investment opportunities, (ii) that generally are affected by different
economic trends and (iii) whose stock markets may not be correlated with U.S. markets. At the same time, these opportunities
and trends involve risks that may not be encountered in U.S. investments.
The following
considerations comprise both risks and opportunities not typically associated with investing in U.S. securities: fluctuations
in exchange rates of foreign currencies; possible imposition of exchange control regulations or currency restrictions that
would prevent cash from being brought back to the United States; less public information with respect to issuers of
securities; less government supervision of stock exchanges, securities brokers and issuers of securities; lack of uniform
accounting, auditing and financial reporting standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of
foreign taxes; the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits
or other assets; the adoption of foreign government restrictions and other adverse political, social or diplomatic
developments that could affect investment; sometimes less advantageous legal, operational and financial protections
applicable to foreign sub-custodial arrangements; and the historically lower level of responsiveness of foreign management to
shareholder concerns (such as dividends and return on investment).
The Fund may purchase sponsored
American Depository Receipts (“ADRs”) or U.S. dollar-denominated securities of foreign issuers, which will be considered
foreign securities for purposes of the Fund’s investment policies. ADRs are receipts issued by U.S. banks or trust companies
in respect of securities of foreign issuers held on deposit for use in the U.S. securities markets. See “Risk Factors and
Special Considerations—Foreign Securities.”
Non-Investment Grade Securities.
The Fund may invest in below investment-grade debt securities, also known as high-yield fixed income securities. These securities,
which may be preferred stock or debt, are predominantly speculative and involve major risk exposure to adverse conditions. Debt
securities that are rated lower than “BBB” by S&P or lower than “Baa” by Moody’s (or unrated
debt securities of comparable quality) are referred to in the financial press as “junk bonds” or “high yield”
securities.
Generally, such non-investment
grade securities and unrated securities of comparable quality offer a higher current yield than is offered by higher rated securities,
but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions, and (ii) are predominantly speculative with respect
to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligation. The market
values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic
conditions than higher quality securities. In addition, such non-investment grade securities and comparable unrated securities
generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly greater because
such non-investment grade securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated
to the prior payment of senior indebtedness. In light of these risks, the Investment Adviser, in evaluating the creditworthiness
of an issue, whether rated or unrated, will take various factors into consideration, which may include, as applicable, the
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
issuer’s operating history,
financial resources and its sensitivity to economic conditions and trends, the market support for the facility financed by the
issue, the perceived ability and integrity of the issuer’s management and regulatory matters.
In addition, the market value
of non-investment grade securities is more volatile than that of higher quality securities, and the markets in which such lower
rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence
of limited markets may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict the availability of securities
for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell securities at their fair value
in order to respond to changes in the economy or the financial markets.
Non-investment grade securities
and unrated securities of comparable quality also present risks based on payment expectations. If an issuer calls the obligation
for redemption (often a feature of fixed-income securities), the Fund may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Also, as the principal value of nonconvertible bonds and preferred stocks moves
inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by the Fund
may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon bonds may
be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest
currently. Interest rates have risen in recent months, and the risk that they may continue to do so is pronounced. Any interest
rate increases in the future could cause the value of the Fund to decrease. Recently, inflation levels have been at their highest
point in nearly 40 years and the Federal Reserve has begun an aggressive campaign to raise certain benchmark interest rates in
an effort to combat inflation. As inflation increases, the real value of the Fund’s common stock and distributions therefore
may decline.
The Fund may purchase securities
of companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy
or other reorganization and liquidation proceedings. Although such investments may result in significant financial returns to
the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary
for successful investments in issuers experiencing significant business and financial difficulties is unusually high. There can
be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments or the prospects
for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a portfolio investment,
the Fund may lose all or part of its investment or may be required to accept collateral with a value less than the amount of the
Fund’s initial investment.
As part of its investments
in non-investment grade securities, the Fund may invest in securities of issuers in default. The Fund will make an investment
in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations or
emerge from bankruptcy protection and the value of these securities will appreciate. By investing in securities of issuers in
default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection
or that the value of the securities will not otherwise appreciate.
In addition to using statistical
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
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
financial condition of the
issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent to its purchase
by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical
rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis. Moreover, such
ratings do not assess the risk of a decline in market value. None of these events will require the sale of the securities by the
Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue to hold the securities.
Fixed income securities, including
lower grade securities, frequently have call or buy-back features that permit their issuers to call or repurchase the securities
from their holders, such as the Fund. If an issuer exercises these rights during periods of declining interest rates, the Fund
may have to replace the security with a lower yielding security, thus resulting in a decreased return for the Fund.
The market for non-investment
grade and comparable unrated securities has experienced periods of significantly adverse price and liquidity several times, particularly
at or around times of economic recession. Past market recessions have adversely affected the value of such securities and the
ability of certain issuers of such securities to repay principal and pay interest thereon or to refinance such securities. The
market for those securities may react in a similar fashion in the future.
Emerging Market Countries.
The risks described above for foreign securities, including the risks of nationalization and expropriation of assets, are
typically increased to the extent that the Fund invests in companies headquartered in developing, or emerging market, countries.
Investments in securities of companies headquartered in such countries may be considered speculative and subject to certain special
risks. The political and economic structures in many of these countries may be in their infancy and developing rapidly, and such
countries may lack the social, political and economic characteristics of more developed countries. Certain of these countries
have in the past failed to recognize private property rights and have at times nationalized and expropriated the assets of private
companies. Some countries have inhibited the conversion of their currency to another. The currencies of certain emerging market
countries have experienced devaluation relative to the U.S. dollar, and future devaluations may adversely affect the value of
the Fund’s assets denominated in such currencies. Some emerging market countries have experienced substantial rates of inflation
for many years. Continued inflation may adversely affect the economies and securities markets of such countries. In addition,
unanticipated political or social developments may affect the value of the Fund’s investments in these countries and the
availability of the Fund of additional investments in these countries. The small size, limited trading volume and relative inexperience
of the securities markets in these countries may make the Fund’s investments in such countries illiquid and more volatile
than investments in more developed countries, and the Fund may be required to establish special custodial or other arrangements
before making investments in these countries. There may be little financial or accounting information available with respect to
companies located in these countries, and it may be difficult as a result to assess the value or prospects of an investment in
such companies.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Value Investing. The
Fund’s portfolio managers will use various value methods in managing its assets. In selecting securities for the Fund, they
evaluate the quality of a company’s balance sheet, the level of its cash flows and other measures of a company’s financial
condition and profitability. The portfolio managers may also consider other factors, such as a company’s unrecognized asset
values, its future growth prospects or its turnaround potential following an earnings disappointment or other business difficulties.
The portfolio managers then use these factors to assess the company’s current worth, basing this assessment on either what
they believe a knowledgeable buyer might pay to acquire the entire company or what they think the value of the company should
be in the stock market.
The Fund’s portfolio
managers generally invest in securities of companies that are trading significantly below their estimate of the company’s
current worth in an attempt to reduce the risk of overpaying for such companies. Seeking long-term growth of capital, they also
evaluate the prospects for the market price of the company’s securities to increase over a two- to five-year period toward
this estimate.
The Investment Adviser’s
value approach strives to reduce some of the other risks of investing in the securities of smaller companies (for the Fund’s
portfolio taken as a whole) by evaluating other risk factors. For example, its portfolio managers generally attempt to lessen
financial risk by buying companies with strong balance sheets and low leverage.
While there can be no assurance
that this risk-averse value approach will be successful, the Investment Adviser believes that it can reduce some of the risks
of investing in small-cap and mid-cap companies, which are inherently fragile in nature and whose securities have substantially
greater market price volatility.
Although the Investment Adviser’s
approach to security selection seeks to reduce downside risk to the Fund’s portfolio, especially during periods of broad
smaller-company stock market declines, it may also potentially have the effect of limiting gains in strong smaller-company up
markets.
Securities Subject to
Reorganization. The Fund may invest without limit in securities of companies for which a tender or exchange offer has
been made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal
has been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of high total return significantly
greater than the brokerage and other transaction expenses involved.
In general, securities which
are the subject of such an offer or proposal sell at a premium to their historic market price immediately prior to the announcement
of the offer or may also trade at a discount to what the stated or appraised value of the security would be if the contemplated
transaction were approved or consummated. Such investments may be advantageous when the discount significantly overstates the
risk of the contingencies involved; significantly undervalues the securities, assets or cash to be received by shareholders of
the prospective portfolio company as a result of the contemplated transaction; or fails adequately to recognize the possibility
that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies
requires unusually broad knowledge and experience on the part of the Investment Adviser which must appraise not only the value
of the issuer and its component businesses and the assets or securities to be received as a result of the contemplated transaction
but also the financial resources and business motivation of the offeror and the dynamics and business climate when the offer or
proposal is in process. Since such investments are ordinarily short term in nature, they will tend to increase the turnover ratio
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
of the Fund, thereby increasing
its brokerage and other transaction expenses. The Investment Adviser intends to select investments of this type which, in its
view, have a reasonable prospect of capital appreciation which is significant in relation to both risk involved and the potential
of available alternative investments.
Temporary Defensive Investments.
When a temporary defensive posture is believed by the Investment Adviser to be warranted (“temporary defensive periods”),
the Fund may without limitation hold cash or invest all or a portion of its assets in money market instruments and repurchase
agreements in respect of those instruments. The money market instruments in which the Fund may invest are obligations of the U.S.
government, its agencies or instrumentalities; commercial paper rated “A-1” or higher by S&P or “Prime-1”
by Moody’s; and certificates of deposit and bankers’ acceptances issued by domestic branches of U.S. banks that are
members of the Federal Deposit Insurance Corporation. During temporary defensive periods, the Fund may also invest to the extent
permitted by applicable law in shares of money market mutual funds. Money market mutual funds are investment companies and the
investments in those companies by the Fund are in some cases subject to certain fundamental investment restrictions and applicable
law. As a shareholder in a mutual fund, the Fund will bear its ratable share of its expenses, including management fees, and will
remain subject to payment of the fees to the Investment Adviser, with respect to assets so invested. The Fund may find it more
difficult to achieve its investment objective during temporary defensive periods.
Options. The
Fund may purchase or sell, i.e., write, options on securities, securities indices and foreign currencies which are listed on a
national securities exchange or in the over-the-counter market, as a means of achieving additional return or of hedging the value
of the Fund’s portfolio. A call option is a contract that, in return for a premium, gives the holder of the option the right
to buy from the writer of the call option the security or currency underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver
the underlying security or currency upon payment of the exercise price during the option period. A put option is the reverse of
a call option, giving the holder of the put option the right, in return for a premium, to sell the underlying security to the
writer, at a specified price, and obligating the writer to purchase the underlying security from the holder upon exercise of the
exercise price. The Fund may purchase call or put options as long as the aggregate initial margins and premiums, measured at the
time of such investment, do not exceed 10% of the fair market value of the Fund’s total assets. There is no limit on the
amount of options the Fund may write (sell).
If the Fund has written an
option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option
of the same series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will
be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position
by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund realizes a profit
from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund realizes a loss from a closing transaction if the price of the transaction
is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call
option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of the underlying security, and any gain resulting
from
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
the repurchase of a call option
may also be wholly or partially offset by unrealized depreciation of the underlying security. Other principal factors affecting
the market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility
of the underlying security and the time remaining until the expiration date of the option. Gains and losses on investments in
options depend, in part, on the ability of the Investment Adviser to predict correctly the effect of these factors. The use of
options cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow
the price movements of the portfolio securities subject to the hedge.
An option position may be closed
out only on an exchange which provides a secondary market for an option of the same series or in a private transaction. Although
the Fund generally purchases or writes only those options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any particular option. In such event, it might not be possible
to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying
securities for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise or otherwise covers the position.
The sale of covered call
options may also be used by the Fund to reduce the risks associated with individual investments and to increase total
investment return. A call option is “covered” if the Fund owns the underlying instrument covered by the call or
has an absolute and immediate right to acquire that instrument without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or exchange of other instruments held in its
portfolio. A call option is also covered if the Fund holds a call option on the same instrument as the call option written
where the exercise price of the call option held is (i) equal
to or less than the exercise price of the call option written or (ii) greater than the exercise price of the call option
written if the difference is maintained by the Fund in cash, U.S. government securities or other high-grade short-term
obligations in a segregated account with its custodian. A put option is “covered” if the Fund maintains cash or
other liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds a
put option on the same instrument as the put option written where the exercise price of the put option held is equal to or
greater than the exercise price of the put option written.
To the extent that the Fund
purchases options pursuant to a hedging strategy, the Fund will be subject to the following additional risks. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the market price of the underlying security remains
equal to or greater than the exercise price (in the case of a put), or remains less than or equal to the exercise price (in the
case of a call), the Fund will lose its entire investment in the option.
Where a put or call option
on a particular security is purchased to hedge against price movements in that or a related security, the price of the put or
call option may move more or less than the price of the security. If restrictions on exercise are imposed, the Fund may be unable
to exercise an option it has purchased. If the Fund is unable to close out an option that it has purchased on a security, it will
have to exercise the option in order to realize any profit, or the option may expire worthless.
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Although the Investment Adviser
will attempt to take appropriate measures to minimize the risks relating to the Fund’s writing of put and call options,
there can be no assurance that the Fund will succeed in any option-writing program it undertakes.
Futures Contracts and
Options on Futures. The Fund may purchase and sell financial futures contracts and options thereon which are traded on
a commodities exchange or board of trade for certain hedging, yield enhancement and risk management purposes. A financial futures
contract is an agreement to purchase or sell an agreed amount of securities or currencies at a set price for delivery in the future.
These futures contracts and related options may be on debt securities, financial indices, securities indices, U.S. government
securities and foreign currencies. The Investment Adviser has claimed an exclusion from the definition of the term “commodity
pool operator” under the Commodity Exchange Act and therefore is not subject to registration under the Commodity Exchange
Act.
Forward Foreign Currency
Exchange Contracts. Subject to guidelines of the Board, the Fund may enter into forward foreign currency exchange contracts
to protect the value of its portfolio against uncertainty in the level of future currency exchange rates. The Fund may enter into
such contracts on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis,
by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of
the contract at a price set on the date of the contract. The Fund invests in forward currency contracts for hedging or currency
risk management purposes and not in order to speculate on currency exchange rate movements. The Fund only enters into forward
currency contracts with parties which it believes to be creditworthy.
When Issued, Delayed
Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale of securities,
including on a “when issued” or “delayed delivery” basis, in excess of customary settlement periods for
the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event,
such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a when, as and if issued
security. When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery taking
place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward commitment
with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if it is deemed
advisable by the Investment Adviser. Securities purchased under a forward commitment are subject to market fluctuation, and no
interest (or dividends) accrues to the Fund prior to the settlement date.
Short Sales.
The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own
in anticipation that the market price of that security will decline. The market value of the securities sold short of any one
issuer will not exceed either 10% of the Fund’s total assets or 5% of such issuer’s voting securities. The Fund also
will not make a short sale, if, after giving effect to such sale, the market value of all securities sold short exceeds 25% of
the value of its assets. The Fund may also make short sales “against the box” without respect to such limitations.
In this type of short sale, at the time of the sale, the Fund owns, or has the immediate and unconditional right to acquire at
no additional cost, the identical security.
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
The Fund expects to make short
sales both to obtain capital gain from anticipated declines in securities and as a form of hedging to offset potential declines
in long positions in the same or similar securities. The short sale of a security is considered a speculative investment technique.
Short sales “against the box” may be subject to special tax rules, one of the effects of which may be to accelerate
income to the Fund.
When the Fund makes a short
sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale in order
to satisfy its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such borrowed securities.
If the price of the security
sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur
a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will
be increased, by the transaction costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer
(usually cash, U.S. government securities or other highly liquid debt securities). Although the Fund’s gain is limited to
the price at which it sold the security short, its potential loss is theoretically unlimited.
Repurchase Agreements.
Repurchase agreements may be seen as loans by the Fund collateralized by underlying securities. Under the terms of a typical
repurchase agreement, the Fund acquires an underlying security for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase, and the Fund to resell, the security at an agreed price and time. This arrangement
results in a fixed rate of return to the Fund that is not subject to market fluctuations during the holding period. The Fund bears
a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the Fund is delayed
in or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in
the value of the underlying securities during the period in which it seeks to assert these rights. The Investment Adviser, acting
under the supervision of the Board, reviews the creditworthiness of those banks and dealers with which the Fund enters into repurchase
agreements to evaluate these risks and monitors on an ongoing basis the value of the securities subject to repurchase agreements
to ensure that the value is maintained at the required level. The Fund does not enter into repurchase agreements with the Investment
Adviser or any of its affiliates.
Restricted and Illiquid
Securities. The Fund may invest in securities for which there is no readily available trading market or are otherwise
illiquid. Illiquid securities include securities legally restricted as to resale, such as commercial paper issued pursuant to
Section 4(a)(2) of the 1933 Act and securities eligible for resale pursuant to Rule 144A thereunder. Section 4(a)(2) and Rule
144A securities may, however, be treated as liquid by the Investment Adviser pursuant to procedures adopted by the Board, which
require consideration of factors such as trading activity, availability of market quotations and number of dealers willing to
purchase the security. If the Fund invests in Rule 144A securities, the level of portfolio illiquidity may be increased to the
extent that eligible buyers become uninterested in purchasing such securities.
It may be difficult to sell
such securities at a price representing the fair value until such time as such securities may be sold publicly. Where registration
is required, a considerable period may elapse between a decision to sell the securities and the time when it would be permitted
to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time of the decision to sell.
The Fund may also acquire securities
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
through private placements
under which it may agree to contractual restrictions on the resale of such securities. Such restrictions might prevent their sale
at a time when such sale would otherwise be desirable.
Leveraging. As
provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior securities (which may be stock, such as
preferred shares, and/or securities representing debt) so long as its total assets, less certain ordinary course liabilities,
exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding. Any
such preferred shares may be convertible in accordance with the SEC staff guidelines, which may permit the Fund to obtain leverage
at attractive rates.
The use of leverage magnifies
the impact of changes in net asset value, which means that, all else being equal, the use of leverage results in outperformance
on the upside and underperformance on the downside. Such volatility may increase the likelihood of the Fund having to sell investments
in order to meet its obligations to make distributions on the preferred shares or principal or interest payments on debt securities,
or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use of leverage may require
it to sell portfolio investments at inopportune times in order to raise cash to redeem preferred shares or otherwise de-leverage
so as to maintain required asset coverage amounts or comply with any mandatory redemption terms of any outstanding preferred shares.
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. See “Risk Factors and Special Considerations—Special Risks to Holders of Common Shares—Leverage Risk.”
In the event the Fund had both
outstanding preferred shares and senior securities representing debt at the same time, the Fund’s obligations to pay dividends
or distributions and, upon liquidation of the Fund, liquidation payments in respect of its preferred shares would be subordinate
to the Fund’s obligations to make any principal and/or interest payments due and owing with respect to its outstanding senior
debt securities. Accordingly, the Fund’s issuance of senior securities representing debt would have the effect of creating
special risks for the Fund’s preferred shareholders that would not be present in a capital structure that did not include
such securities.
Additionally, the Fund may
enter into derivative transactions that have economic leverage embedded in them. Derivative transactions that the Fund may enter
into and the risks associated with them are described elsewhere in this Annual Report. The Fund cannot assure you that investments
in derivative transactions that have economic leverage embedded in them will result in a higher return on its common shares.
Subject to the requirements
of Rule 18f-4 under the 1940 Act (“Rule 18f-4”), the Fund may enter into derivative transactions including transactions
that have economic leverage embedded in them. Rule 18f-4 defines “derivatives transactions” as (1) any swap, security-based
swap, futures contract, forward contract, option, any combination of the foregoing, or any similar instrument, under which a fund
is or may be required to make any payment or delivery of cash or other assets during the life of the instrument or at maturity
or early termination, whether as margin or settlement payment or otherwise; and (2) any short sale borrowing. Derivatives transactions
entered into by the Fund in compliance with Rule 18f-4 will not be considered senior securities for purposes of computing the
asset coverage requirements described above. Economic leverage exists when the Fund achieves the right to a return on a capital
base that exceeds the investment which the Fund has contributed to the instrument achieving a return. Derivative transactions
that the Fund may enter into and the risks associated
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
with them are described elsewhere
in this Annual Report. The Fund cannot assure you that investments in derivative transactions that have economic leverage embedded
in them will result in a higher return on its common shares.
These earmarking, segregation
or cover requirements can result in the Fund maintaining securities positions it would otherwise liquidate, segregating or earmarking
assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management.
If the Fund enters into any
reverse repurchase agreement or similar financing transactions obligating the Fund to make future payments, the Fund must either
treat all such transactions as derivatives transactions for all purposes under Rule 18f-4 or otherwise comply with the asset coverage
requirements described above and combine the aggregate amount of indebtedness associated with all such transactions with the aggregate
amount of any other senior securities representing indebtedness when calculating the Fund’s asset coverage ratio limit requirements.
The asset coverage requirements under section 18 of the 1940 Act and the limits and conditions imposed by Rule 18f-4 may limit
or restrict portfolio management.
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 subject to class approval rights of any preferred shares). In addition, pursuant to
the Fund’s Series A Preferred statement of preferences, a majority, as defined in the 1940 Act, of the outstanding preferred
shares of the Fund (voting separately as a single class) is also required to change a fundamental policy.
Loans of Portfolio Securities.
To increase income, the Fund may lend its portfolio securities to securities broker-dealers or financial institutions
if the loan is collateralized in accordance with applicable regulatory requirements.
If the
borrower fails to maintain the requisite amount of collateral, the loan automatically terminates and the Fund could use the collateral
to replace the securities while holding the borrower liable for any excess of replacement cost over the value of the collateral
pledged by the borrower. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of
rights in collateral should the borrower of the securities violate the terms of the loan or fail financially. There can be no
assurance that borrowers will not fail financially. On termination of the loan, the borrower is required to return the securities
to the Fund, and any gain or loss in the market price during the loan would inure to the Fund. If the other party to the loan
petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is
unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund’s ability to sell the collateral
and the Fund would suffer a loss. See “Risk Factors and Special Considerations—Loans of Portfolio Securities”
and “Additional Investment Policies—Loans of Portfolio Securities.
Portfolio Turnover.
The Fund will buy and sell securities to accomplish its investment objective. The investment policies of the Fund may lead to
frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange rates.
Portfolio turnover generally
involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. The portfolio
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
turnover rate is computed by
dividing the lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned
during the year (excluding securities whose maturities at acquisition were one year or less). Higher portfolio turnover may decrease
the after-tax return to individual investors in the Fund to the extent it results in a decrease of the long-term capital gains
portion of distributions to shareholders.
For the years ended December
31, 2021 and 2022, the portfolio turnover rate of the Fund was 23% and 9%, respectively.
RISK FACTORS AND SPECIAL
CONSIDERATIONS
Investors should consider the
following risk factors and special considerations associated with investing in the Fund:
General Risks
Market Risk. The
market price of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in
value due to factors affecting securities markets generally or particular industries represented in the securities markets. The
value of a security may decline due to general market conditions which are not specifically related to a particular company, such
as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or
currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security may also decline
due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive
conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value
simultaneously. Equity securities generally have greater price volatility than fixed income securities. Credit ratings downgrades
may also negatively affect securities held by the Fund. Even when markets perform well, there is no assurance that the investments
held by the Fund will increase in value along with the broader market.
In addition, market risk includes
the risk that geopolitical and other events will disrupt the economy on a national or global level. For instance, war, terrorism,
market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public health emergencies
(such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters can all negatively impact
the securities markets, which could cause the Fund to lose value. These events could reduce consumer demand or economic output,
result in market closures, travel restrictions or quarantines, and significantly adversely impact the economy. The current contentious
domestic political environment, as well as political and diplomatic events within the United States and abroad, such as the U.S.
government’s inability at times to agree on a long-term budget and deficit reduction plan, has in the past resulted, and
may in the future result, in a government shutdown, which could have an adverse impact on the Fund’s investments and operations.
Additional and/or prolonged U.S. federal government shutdowns may affect investor and consumer confidence and may adversely impact
financial markets and the broader economy, perhaps suddenly and to a significant degree. Governmental and quasi-governmental authorities
and regulators throughout the world have previously responded to serious economic disruptions with a variety of significant fiscal
and monetary policy changes, including, but not limited to, direct capital infusions into companies, new monetary programs and
dramatically lower interest rates. An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies,
could increase volatility
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
in securities markets, which
could adversely affect the Fund’s investments. Any market disruptions could also prevent the Fund from executing advantageous
investment decisions in a timely manner. To the extent that the Fund focuses its investments in a region enduring geopolitical
market disruption, it will face higher risks of loss, although the increasing interconnectivity between global economies and financial
markets can lead to events or conditions in one country, region or financial market adversely impacting a different country, region
or financial market. Thus, investors should closely monitor current market conditions to determine whether the Fund meets their
individual financial needs and tolerance for risk.
Current market conditions may
pose heightened risks with respect to the Fund’s investment in income producing securities. Recently, central banks such
as the Federal Reserve Bank have been raising interest rates to combat the rate of inflation. There is a risk that additional
increases in interest rates or a prolonged period of rising interest rates may cause the economy to enter a recession. Additional
interest rate increases in the future could cause the value of the Fund to decrease. Recently, inflation has reached its highest
levels in decades. As such, the markets for income producing securities may experience heightened levels of interest rate, volatility
and liquidity risk.
Exchanges and securities markets
may close early, close late or issue trading halts on specific securities or generally, which may result in, among other things,
the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time or accurately price its
portfolio investments.
Interest Rate Risk Generally.
The primary risk associated with dividend-and interest-paying securities is interest rate risk. A decrease in interest
rates will generally result in an increase in the investment value of such securities, while increases in interest rates will
generally result in a decline in the investment value of such securities. This effect is generally more pronounced for fixed rate
securities than for securities whose income rate is periodically reset.
General interest rate fluctuations
may have a substantial negative impact on the Fund’s investments, the value of the Fund and the Fund’s rate of return.
A reduction in the interest or dividend rates on new investments relative to interest or dividend rates on current investments
could also have an adverse impact on the Fund’s net investment income. An increase in interest rates could decrease the
value of any investments held by the Fund that earn fixed interest or dividend rates, including debt securities, convertible securities,
preferred stocks, loans and high-yield bonds, and also could increase interest or dividend expenses, thereby decreasing net income.
Interest rates have risen over the past year and the chance that they will continue to rise is pronounced.
The magnitude of these fluctuations
in the market price of bonds and other income- or dividend-paying securities is generally greater for those securities with longer
maturities. Fluctuations in the market price of the Fund’s investments will not affect interest income derived from instruments
already owned by the Fund, but will be reflected in the Fund’s net asset value. The Fund may lose money if short-term or
long-term interest rates rise sharply in a manner not anticipated by Fund management. To the extent the Fund invests in securities
that may be prepaid at the option of the obligor, the sensitivity of such securities to changes in interest rates may increase
(to the detriment of the Fund) when interest rates rise. Moreover, because rates on certain floating rate securities typically
reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected
to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating rate securities. These
basic principles of bond prices also apply to U.S. government
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
securities. A security backed
by the “full faith and credit” of the U.S. government is guaranteed only as to its stated interest rate and face value
at maturity, not its current market price. Just like other income- or dividend-paying securities, government-guaranteed securities
will fluctuate in value when interest rates change.
The Fund’s use of leverage
will tend to increase the Fund’s interest rate risk. The Fund may invest in variable and floating rate instruments, which
generally are less sensitive to interest rate changes than longer duration fixed rate instruments but may decline in value in
response to rising interest rates if, for example, the rates at which they pay interest do not rise as much, or as quickly, as
market interest rates in general. Conversely, variable and floating rate instruments generally will not increase in value if interest
rates decline. The Fund also may invest in inverse floating rate securities, which may decrease in value if interest rates increase,
and which also may exhibit greater price volatility than fixed rate obligations with similar credit quality. To the extent the
Fund holds variable or floating rate instruments, a decrease (or, in the case of inverse floating rate securities, an increase)
in market interest rates will adversely affect the income received from such securities, which may adversely affect the net asset
value of the Fund’s common shares.
Recently, central banks such
as the Federal Reserve Bank have been increasing interest rates in an effort to slow the rate of inflation. There is a risk that
increased interest rates may cause the economy to enter a recession. Any such recession would negatively impact the Fund and the
investments held by the Fund. These impacts may include:
| ● | severe declines in the Fund’s net asset values; |
| ● | inability of the Fund to accurately or reliably value its
portfolio; |
| ● | inability of the Fund to pay any dividends or distributions; |
| ● | inability of the Fund to
maintain its status as a registered investment company (“RIC”) under the
Internal Revenue Code of 1986, as amended (the “Code”); |
| ● | declines in the value of the Fund’s investments; |
| ● | increased risk of default or bankruptcy by the companies
in which the Fund invests; |
| ● | increased
risk of companies in which the Fund invests being unable to weather an extended cessation
of normal economic activity and thereby impairing their ability to continue functioning
as a going concern; and |
| ● | limited availability of new
investment opportunities. |
Inflation Risk. Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the
value of money. Recently, inflation has increased to its highest level in decades, and the Federal Reserve has been raising the
federal funds rate in response. Inflation rates may change frequently and significantly as a result of various factors, including
unexpected shifts in the domestic or global economy and changes in economic policies, and the Fund’s investments may not
keep pace with inflation, which may result in losses to Fund shareholders. As inflation increases, the real value of the Fund’s
shares and dividends may decline. In addition, during any periods of rising inflation, interest rates of any debt securities held
by the Fund would likely increase, which would tend to further reduce returns to shareholders. This risk is greater for fixed-income
instruments with longer maturities.
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Equity Risk. Investing
in the Fund involves equity risk, which is the risk that the securities held by the Fund will fall in market value due to adverse
market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate
and the particular circumstances and performance of particular companies whose securities the Fund holds. An investment in the
Fund represents an indirect economic stake in the securities owned by the Fund, which are for the most part traded on securities
exchanges or in the OTC markets. The market value of these securities, like other market investments, may move up or down, sometimes
rapidly and unpredictably. The net asset value of the Fund may at any point in time be less than the net asset value of the Fund
at the time the shareholder invested in the Fund, even after taking into account any reinvestment of distributions.
Common Stock Risk. Common
stock of an issuer in the Fund’s portfolio may decline in price for a variety of reasons, including if the issuer fails
to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial
condition. Common stock in which the Fund invests is structurally subordinated as to income and residual value to preferred stock,
bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore
will be subject to greater dividend risk than preferred stock or debt instruments of such issuers. In addition, while common stock
has historically generated higher average returns than fixed income securities, common stock has also experienced significantly
more volatility in generating those returns.
Preferred Stock Risk.
There are special risks associated with the Fund’s investing in preferred securities, including:
| ● | Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion,
to defer dividends or distributions for a stated period without any adverse consequences
to the issuer. If the Fund owns a preferred security that is deferring its dividends
or distributions, the Fund may be required to report income for tax purposes although
it has not yet received such income. |
| ● | Non-Cumulative
Dividends. Some preferred securities are non-cumulative, meaning that the dividends
do not accumulate and need not ever be paid. A portion of the portfolio may include investments
in non-cumulative preferred securities, whereby the issuer does not have an obligation
to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred
security held by the Fund determine not to pay dividends or distributions on such security,
the Fund’s return from that security may be adversely affected. There is no assurance
that dividends or distributions on non-cumulative preferred securities in which the Fund
invests will be declared or otherwise made payable. |
| ● | Subordination.
Preferred securities are subordinated to bonds and other debt instruments in an issuer’s
capital structure in terms of priority to corporate income and liquidation payments,
and therefore will be subject to greater credit risk than more senior debt security instruments. |
| ● | Liquidity.
Preferred securities may be substantially less liquid than many other securities,
such as common stocks or U.S. government securities. |
| ● | Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have no voting
rights with respect to the issuing company unless preferred dividends have been in arrears
for a specified number of periods, at which time the preferred security holders may be
entitled to elect a number of directors to |
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
the issuer’s board. Generally,
once all the arrearages have been paid, the preferred security holders no longer have voting rights.
| ● | Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities
may redeem the securities prior to a specified date. For instance, for certain types
of preferred securities, a redemption may be triggered by a change in U.S. federal income
tax or securities laws. A redemption by the issuer may negatively impact the return of
the security held by the Fund. |
Convertible Securities
Risk. Convertible securities generally offer lower interest or dividend yields than nonconvertible securities of similar
quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as
interest rates decline. In the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of
the Fund’s holding may occur in the event the underlying stock is subdivided, additional equity securities are issued for
below market value, a stock dividend is declared or the issuer enters into another type of corporate transaction that has a similar
effect.
Small Capitalization
Company Risk. The Fund invests in the equity securities of small-cap and/or mid-cap companies.
The Investment Adviser views
the large and diverse universe of smaller companies available for investment by the Fund as having two investment segments or
tiers — small-cap and mid-cap. The Investment Adviser defines “small-cap” companies as those with a market capitalization
generally less than $3 billion at the time of investment and “mid-cap” companies as those with a market capitalization
between $3 billion and $12 billion at the time of investment. The Fund may, from time to time, modify the foregoing definitions,
which are measured at the time of investment, and will provide notice to shareholders of material changes. The principal circumstance
under which the Fund would modify the definitions of “small-cap” and “mid-cap” would be in response to
a change in market standards regarding the market capitalization of issuers considered to be “small-cap” or “mid-cap.”
Smaller companies offer investment
opportunities and additional risks. They may not be well known to the investing public, may not be significantly owned by institutional
investors and may not have steady earnings growth. These companies may have limited product lines and markets, as well as shorter
operating histories, less experienced management and more limited financial resources than larger companies. In addition, the
securities of such companies may be more vulnerable to adverse general market or economic developments, more volatile in price,
have wider spreads between their bid and ask prices and have significantly lower trading volumes than the securities of larger
capitalization companies. As such, securities of these smaller companies may be less liquid than those of larger companies, and
may experience greater price fluctuations than larger companies. In addition, small-cap or mid-cap company securities may not
be widely followed by investors, which may result in reduced demand.
As a result, the purchase or
sale of more than a limited number of shares of the securities of a smaller company may affect its market price. The Investment
Adviser may need a considerable amount of time to purchase or sell its positions in these securities, particularly when other
Investment Adviser-managed accounts or other investors are also seeking to purchase or sell them. Accordingly, the Investment
Adviser’s investment focus on the securities of smaller companies generally leads it to have a long-term investment outlook
of at least two years for a portfolio security.
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
The securities of smaller capitalization
companies generally trade in lower volumes and are subject to greater and more unpredictable price changes than larger capitalization
securities or the market as a whole. In addition, smaller capitalization securities may be particularly sensitive to changes in
interest rates, borrowing costs and earnings. Investing in smaller capitalization securities requires a longer-term view.
| ● | Small-
and Mid-Cap Stock Risk. Small- and mid-cap company stocks can be more volatile than,
and perform differently from, larger company stocks. There may be less trading in a small-
or mid-cap company’s stock, which means that buy and sell transactions in that
stock could have a larger impact on the stock’s price than is the case with larger
company stocks. Small- and mid-cap company stocks may be particularly sensitive to changes
in interest rates, borrowing costs and earnings. Small- and mid-cap companies may have
fewer business lines; changes in any one line of business, therefore, may have a greater
impact on a small- and mid-cap company’s stock price than is the case for a larger
company. As a result, the purchase or sale of more than a limited number of shares of
a small- and mid-cap company may affect its market price. The Fund may need a considerable
amount of time to purchase or sell its positions in these securities. In addition, small-
and mid-cap company stocks may not be well known to the investing public. |
| ● | Unseasoned
Companies Investment Risk. The Fund may invest in the securities of smaller, less
seasoned companies. These investments may present greater opportunities for growth
but also involve greater risks than customarily are associated with investments in securities
of more established companies. Some of the companies in which the Fund may invest will
be start-up companies which may have insubstantial operational or earnings history or
may have limited products, markets, financial resources or management depth. Some may
also be emerging companies at the research and development stage with no products or
technologies to market or approved for marketing. In addition, it is more difficult to
get information on smaller companies, which tend to be less well known, have shorter
operating histories, do not have significant ownership by large investors and are followed
by relatively few securities analysts. Securities of emerging companies may lack an active
secondary market and may be subject to more abrupt or erratic price movements than securities
of larger, more established companies or stock market averages in general. Competitors
of certain companies, which may or may not be in the same industry, may have substantially
greater financial resources than many of the companies in which the Fund may invest. |
| ● | Small-Cap
and Emerging Growth Companies Investment Risk. Investment in smaller or emerging
growth companies involves greater risk than is customarily associated with investments
in more established companies. The securities of smaller or emerging growth companies
may be subject to more abrupt or erratic market movements than larger, more established
companies or the market average in general. These companies may have limited product
lines, markets or financial resources, or they may be dependent on a limited management
group. |
While small-cap or emerging
growth company issuers may offer greater opportunities for capital appreciation than large-cap issuers, investments in smaller
or emerging growth companies may involve greater risks and thus may be considered speculative. Fund management believes that properly
selected companies of this type have the potential to increase their earnings or market valuation at a rate substantially in excess
of the general growth of the economy. Full development of these companies and trends frequently takes time.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Small-cap and emerging growth
securities will often be traded only in the OTC market or on a regional securities exchange and may not be traded every day or
in the volume typical of trading on a national securities exchange. As a result, the disposition by the Fund of portfolio securities
may require the Fund to make many small sales over a lengthy period of time, or to sell these securities at a discount from market
prices or during periods when, in Fund management’s judgment, such disposition is not desirable.
The process of selection and
continuous supervision by Fund management does not, of course, guarantee successful investment results; however, it does provide
access to an asset class not available to the average individual due to the time and cost involved. Careful initial selection
is particularly important in this area as many new enterprises have promise but lack certain fundamental factors necessary to
prosper. Investing in small-cap and emerging growth companies requires specialized research and analysis. In addition, many investors
cannot invest sufficient assets in such companies to provide wide diversification.
Small-cap companies are generally
little known to most individual investors although some may be dominant in their respective industries. The Fund may invest in
securities of small issuers in the relatively early stages of business development that have a new technology, a unique or proprietary
product or service, or a favorable market position. Such companies may not develop into major industrial companies or provide
the level of returns anticipated.
Equity securities of specific
small-cap issuers may present different opportunities for long-term capital appreciation during varying portions of economic or
securities market cycles, as well as during varying stages of their business development. The market valuation of small-cap issuers
tends to fluctuate during economic or market cycles, presenting attractive investment opportunities at various points during these
cycles.
Small-cap companies, due to
the size and kinds of markets that they serve, may be less susceptible than large-cap companies to intervention from the U.S.
federal government by means of price controls, regulations or litigation.
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.
Selection Risk.
Different types of stocks tend to shift into and out of favor with stock market investors, depending on market and economic conditions.
The performance of funds that invest in value-style stocks may at times be better or worse than the performance of stock funds
that focus on other types of stocks or that have a broader investment style.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Merger Arbitrage Risk.
The Fund may invest in securities of companies for which a tender or exchange offer has been made or announced, and in
securities of companies for which a merger, consolidation, liquidation or reorganization proposal has been announced. The principal
risk of such investments is that certain of such proposed transactions may be renegotiated, terminated or involve a longer time
frame than originally contemplated, in which case the Fund may realize losses. Such risk is sometimes referred to as “merger
arbitrage risk.” Among the factors that affect the level of risk with respect to the completion of the transaction are the
deal spread and number of bidders, the friendliness of the buyer and seller, the strategic rationale behind the transaction, the
existence of regulatory hurdles, the level of due diligence completed on the target company and the ability of the buyer to finance
the transaction. If the spread between the purchase price and the current price of the seller’s stock is small, the risk
that the transaction will not be completed may outweigh the potential return. If there is very little interest by other potential
buyers in the target company, the risk of loss may be higher than where there are back-up buyers that would allow the arbitrageur
to realize a similar return if the current deal falls through. Unfriendly management of the target company or change in friendly
management in the middle of a deal increases the risk that the deal will not be completed even if the target company’s board
has approved the transaction and may involve the risk of litigation expense if the target company pursues litigation in an attempt
to prevent the deal from occurring. The underlying strategy behind the deal is also a risk consideration because the less a target
company will benefit from a merger or acquisition, the greater the risk. There is also a risk that an acquiring company may back
out of an announced deal if, in the process of completing its due diligence of the target company, it discovers something undesirable
about such company. In addition, merger transactions are also subject to regulatory risk because a merger transaction often must
be approved by a regulatory body or pass governmental antitrust review. All of these factors affect the timing and likelihood
that the transaction will close. Even if the Investment Adviser selects announced deals with the goal of mitigating the risks
that the transaction will fail to close, such risks may still delay the closing of such transaction to a date later than the Fund
originally anticipated, reducing the level of desired return to the Fund.
Merger arbitrage positions
are also subject to the risk of overall market movements. To the extent that a general increase or decline in equity values affects
the stocks involved in a merger arbitrage position differently, the position may be exposed to loss.
Finally, merger arbitrage strategies
depend for success on the overall volume of global merger activity, which has historically been cyclical in nature. During periods
when merger activity is low, it may be difficult or impossible to identify opportunities for profit or to identify a sufficient
number of such opportunities to provide balance among potential merger transactions. To the extent that the number of announced
deals and corporate reorganizations decreases or the number of investors in such transactions increases, it is possible that merger
arbitrage spreads will tighten, causing the profitability of investing in such transactions to diminish, which will in turn decrease
the returns to the Fund from such investment activity.
Recapitalization Risk.
In recapitalizations, a corporation may restructure its balance sheet by selling specific assets, significantly leveraging
other assets and creating new classes of equity securities to be distributed, together with a substantial payment in cash or in
debt securities, to existing shareholders. In connection with such transactions, there is a risk that the value of the cash and
new securities distributed will not be as high as the cost of the Fund’s original investment or that no such distribution
will ultimately be made and the value of the Fund’s investment will decline. To the extent an investment in a company that
has undertaken a recapitalization
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
is retained by the Fund, the
Fund’s risks will generally be comparable to those associated with investments in highly leveraged companies, generally
including higher than average sensitivity to (i) short-term interest rate fluctuations, (ii) downturns in the general economy
or within a particular industry or (iii) adverse developments within the company itself.
Interest Rate Risk for
Fixed Income Securities. The primary risk associated with fixed income securities is interest rate risk. A decrease in
interest rates will generally result in an increase in the value of a fixed income security, while increases in interest rates
will generally result in a decline in its value. This effect is generally more pronounced for fixed rate securities than for securities
whose income rate is periodically reset. Interest rates have risen in recent months, and the risk that they may continue to do
so is pronounced. See “— General Risks—Interest Rate Risks Generally.”
Further, while longer term
fixed rate securities may pay higher interest rates than shorter term securities, longer term fixed rate securities, like fixed
rate securities, also tend to be more sensitive to interest rate changes and, accordingly, tend to experience larger changes in
value as a result of interest rate changes. An increase in market interest rates will also generally result in a decrease in the
price of any of the Fund’s outstanding preferred shares.
Duration and Maturity
Risk for Fixed-Income Securities. The Fund has no set policy regarding portfolio maturity or duration of the fixed-income
securities it may hold. The Investment Adviser may seek to adjust the duration or maturity of the Fund’s fixed-income holdings
based on its assessment of current and projected market conditions and all other factors that the Investment Adviser deems relevant.
In comparison to maturity (which is the date on which the issuer of a debt instrument is obligated to repay the principal amount),
duration is a measure of the price volatility of a debt instrument as a result in changes in market rates of interest, based on
the weighted average timing of the instrument’s expected principal and interest payments. Specifically, duration measures
the anticipated percentage change in NAV that is expected for every percentage point change in interest rates. The two have an
inverse relationship. Duration can be a useful tool to estimate anticipated price changes to a fixed pool of income securities
associated with changes in interest rates. For example, a duration of five years means that a 1% decrease in interest rates will
increase the NAV of the portfolio by approximately 5%; if interest rates increase by 1%, the NAV will decrease by 5%. However,
in a managed portfolio of fixed income securities having differing interest or dividend rates or payment schedules, maturities,
redemption provisions, call or prepayment provisions and credit qualities, actual price changes in response to changes in interest
rates may differ significantly from a duration-based estimate at any given time. Actual price movements experienced by a portfolio
of fixed income securities will be affected by how interest rates move (i.e., changes in the relationship of long-term interest
rates to short-term interest rates), the magnitude of any move in interest rates, actual and anticipated prepayments of principal
through call or redemption features, the extension of maturities through restructuring, the sale of securities for portfolio management
purposes, the reinvestment of proceeds from prepayments on and from sales of securities, and credit quality-related considerations
whether associated with financing costs to lower credit quality borrowers or otherwise, as well as other factors. Accordingly,
while duration maybe a useful tool to estimate potential price movements in relation to changes in interest rates, investors are
cautioned that duration alone will not predict actual changes in the net asset or market value of the Fund’s shares and
that actual price movements in the Fund’s portfolio may differ significantly from duration-based estimates. Duration differs
from maturity in that it takes into account a
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
security’s yield, coupon
payments and its principal payments in addition to the amount of time until the security matures. As the value of a security changes
over time, so will its duration. Prices of securities with longer durations tend to be more sensitive to interest rate changes
than securities with shorter durations. In general, a portfolio of securities with a longer duration can be expected to be more
sensitive to interest rate changes than a portfolio with a shorter duration. Any decisions as to the targeted duration or maturity
of any particular category of investments will be made based on all pertinent market factors at any given time. The Fund may incur
costs in seeking to adjust the portfolio average duration or maturity. There can be no assurance that the Investment Adviser’s
assessment of current and projected market conditions will be correct or that any strategy to adjust duration or maturity will
be successful at any given time.
Non-Investment Grade
Securities. The Fund may invest in debt securities rated below investment grade by recognized statistical rating agencies,
also known as “high-yield” securities or “junk” bonds. Securities rated below investment grade, which
may be preferred stock or debt, are predominantly speculative and involve major risk exposure to adverse conditions. Securities
that are rated lower than “BBB” by S&P or lower than “Baa” by Moody’s (or unrated debt securities
of comparable quality) are referred to in the financial press as “junk bonds” or “high-yield” securities
and generally pay a premium above the yields of U.S. government securities or debt securities of investment grade issuers because
they are subject to greater risks than these securities. These risks, which reflect their speculative character, include the following:
| ● | greater credit risk and risk of default; |
| ● | potentially greater sensitivity to general economic or
industry conditions; |
| ● | potential lack of attractive resale opportunities (illiquidity);
and |
| ● | additional expenses to seek recovery from issuers who default. |
In addition, the prices of
these non-investment grade securities are more sensitive to negative developments, such as a decline in the issuer’s revenues
or a general economic downturn, than are the prices of higher grade securities. Non-investment grade securities tend to be less
liquid than investment grade securities. The market value of non-investment grade securities may be more volatile than the market
value of investment grade securities and generally tends to reflect the market’s perception of the creditworthiness of the
issuer and short-term market developments to a greater extent than investment grade securities, which primarily reflect fluctuations
in general levels of interest rates.
Ratings are relative and subjective
and not absolute standards of quality. Securities ratings are based largely on the issuer’s historical financial condition
and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned to any particular security is
not necessarily a reflection of the issuer’s current financial condition.
The Fund may purchase securities
of companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy
or other reorganization and liquidation proceedings. Although such investments may result in significant financial returns to
the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary
for successful investments in issuers experiencing significant business and financial difficulties is unusually high. There can
be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments or the prospects
for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a portfolio
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
investment, the Fund may lose
all or part of its investment or may be required to accept collateral with a value less than the amount of the Fund’s initial
investment.
As a part of its investments
in non-investment grade securities, the Fund may invest in the securities of issuers in default. The Fund invests in securities
of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations and emerge from
bankruptcy protection and that the value of such issuers’ securities will appreciate. By investing in the securities of
issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy
protection or that the value of these securities will not otherwise appreciate.
In addition to using statistical
rating agencies and other sources, the Investment Adviser will also perform its own analysis of issuers in seeking investments
that it believes to be underrated (and thus higher yielding) in light of the financial condition of the issuer. Its analysis of
issuers may include, among other things, current and anticipated cash flow and borrowing requirements, value of assets in relation
to historical cost, strength of management, responsiveness to business conditions, credit standing and current anticipated results
of operations. In selecting investments for the Fund, the Investment Adviser may also consider general business conditions, anticipated
changes in interest rates and the outlook for specific industries.
Subsequent to its purchase
by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical
rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis. Moreover, such
ratings do not assess the risk of a decline in market value. None of these events will require the sale of the securities by the
Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue to hold the securities.
Fixed income securities, including
non-investment grade securities and comparable unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises these rights during
periods of declining interest rates, the Fund may have to replace the security with a lower yielding security, thus resulting
in a decreased return for the Fund. The market for non-investment grade and comparable unrated securities has at various times,
particularly during times of economic recession, experienced substantial reductions in market value and liquidity. Past recessions
have adversely affected the ability of certain issuers of such securities to repay principal and pay interest thereon. The market
for those securities could react in a similar fashion in the event of any future economic recession.
U.S. Government Securities
and Credit Rating Downgrade Risk. The Fund may invest in direct obligations of the government of the United States or
its agencies. Obligations issued or guaranteed by the U.S. government, its agencies, authorities and instrumentalities and backed
by the full faith and credit of the U.S. guarantee only that principal and interest will be timely paid to holders of the securities.
These entities do not guarantee that the value of such obligations will increase, and, in fact, the market values of such obligations
may fluctuate. In addition, not all U.S. government securities are backed by the full faith and credit of the United States; some
are the obligation solely of the entity through which they are issued. There is no guarantee that the U.S. government would provide
financial support to its agencies and instrumentalities if not required to do so by law.
In 2011, S&P lowered its
long-term sovereign credit rating on the U.S. to “AA+” from “AAA.” The downgrade by S&P increased
volatility in both stock and bond markets, resulting in higher interest rates and higher Treasury
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
yields, and increased the costs
of all kinds of debt. Repeat occurrences of similar events could have significant adverse effects on the U.S. economy generally
and could result in significant adverse impacts on issuers of securities held by the Fund itself. The Investment Adviser cannot
predict the effects of similar events in the future on the U.S. economy and securities markets or on the Fund’s portfolio.
The Investment Adviser monitors developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving
the Fund’s investment objective, but there can be no assurance that it will be successful in doing so and the Investment
Adviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
| ● | the
relationship between prepayments and interest rates may give some lower grade government
sponsored mortgage-backed securities less potential for growth in value than conventional
bonds with comparable maturities; |
| ● | in
addition, when interest rates fall, the rate of prepayments tends to increase. During
such periods, the reinvestment of prepayment proceeds by the Fund will generally be at
lower rates than the rates that were carried by the obligations that have been prepaid; |
| ● | because
of these and other reasons, a government sponsored mortgage-backed security’s total
return and maturity may be difficult to predict; and |
| ● | to the
extent that the Fund purchases government sponsored mortgage-backed securities at a premium,
prepayments may result in loss of the Fund’s principal investment to the extent
of premium paid. |
Foreign Securities Risk.
Investments in the securities of foreign issuers involve certain considerations and risks not ordinarily associated with
investments in securities of domestic issuers and such securities may be more volatile than those of issuers located in the United
States. Foreign companies are not generally subject to uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. companies. Foreign securities exchanges, brokers and listed companies may be subject to less government
supervision and regulation than exists in the United States. Dividend and interest income may be subject to withholding and other
foreign taxes, which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing
a court judgment abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries. In
addition, with respect to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability
or diplomatic developments that could affect assets of the Fund held in foreign countries. Dividend income the Fund receives from
foreign securities may not be eligible for the special tax treatment applicable to qualified dividend income. Moreover, certain
equity investments in foreign issuers classified as passive foreign investment companies may be subject to additional taxation
risk.
There may be less publicly
available information about a foreign company than a U.S. company, and foreign companies may not be subject to accounting, auditing,
and financial reporting standards and requirements comparable to or as uniform as those of U.S. companies. Foreign securities
markets may have substantially less volume than U.S. securities markets and some foreign company securities are less liquid and
their prices more volatile than securities of otherwise comparable U.S. companies. A portfolio of foreign securities may also
be
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
adversely affected by fluctuations
in the rates of exchange between the currencies of different nations and by exchange control regulations, as there is generally
less government supervision and regulation of exchanges, brokers, and issuers than there is in the U.S. The Fund might have greater
difficulty taking appropriate legal action in non-U.S. courts and there may be less developed bankruptcy laws. Non-U.S. markets
also have different clearance and settlement procedures which in some markets have at times failed to keep pace with the volume
of transactions, thereby creating substantial delays and settlement failures that could adversely affect the Fund’s performance.
In addition, a portfolio that includes foreign securities can expect to have a higher expense ratio because of the increased transaction
costs on non-U.S. securities markets and the increased costs of maintaining the custody of foreign securities.
The Fund also may purchase
ADRs or U.S. dollar-denominated securities of foreign issuers. ADRs are receipts issued by U.S. banks or trust companies in
respect of securities of foreign issuers held on deposit for use in the U.S. securities markets. While ADRs may not necessarily
be denominated in the same currency as the securities into which they may be converted, many of the risks associated with foreign
securities may also apply to ADRs. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts,
or to pass through to them any voting rights with respect to the deposited securities.
The following provides more
detail on certain pronounced risks with foreign investing:
Foreign Currency Risk. The
Fund may invest in companies whose securities are denominated or quoted in currencies other than U.S. dollars or have significant
operations or markets outside of the United States. In such instances, the Fund will be exposed to currency risk, including the
risk of fluctuations in the exchange rate between U.S. dollars (in which the Fund’s shares are denominated) and such foreign
currencies, the risk of currency devaluations and the risks of non-exchangeability and blockage. As non-U.S. securities may be
purchased with and payable in currencies of countries other than the U.S. dollar, the value of these assets measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. Fluctuations in currency
rates may adversely affect the ability of the Investment Adviser to acquire such securities at advantageous prices and may also
adversely affect the performance of such assets.
Certain non-U.S. currencies,
primarily in developing countries, have been devalued in the past and might face devaluation in the future. Currency devaluations
generally have a significant and adverse impact on the devaluing country’s economy in the short and intermediate term and
on the financial condition and results of companies’ operations in that country. Currency devaluations may also be accompanied
by significant declines in the values and liquidity of equity and debt securities of affected governmental and private sector
entities generally. To the extent that affected companies have obligations denominated in currencies other than the devalued currency,
those companies may also have difficulty in meeting those obligations under such circumstances, which in turn could have an adverse
effect upon the value of the Fund’s investments in such companies. There can be no assurance that current or future developments
with respect to foreign currency devaluations will not impair the Fund’s investment flexibility, its ability to achieve
its investment objective or the value of certain of its foreign currency-denominated investments.
Tax Consequences of Foreign
Investing. The Fund’s transactions in foreign currencies, foreign currency-denominated debt obligations and certain
foreign currency options, futures contracts and forward contracts
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
(and similar instruments) may
give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency
concerned. This treatment could increase or decrease the Fund’s ordinary income distributions to you, and may cause some
or all of the Fund’s previously distributed income to be classified as a return of capital. In certain cases, the Fund may
make an election to treat gain or loss attributable to certain investments as capital gain or loss.
EMU and Redenomination Risk.
As the European debt crisis progressed, the possibility of one or more Eurozone countries exiting the European Monetary Union
(“EMU”), or even the collapse of the Euro as a common currency, arose, creating significant volatility at times in
currency and financial markets generally. The effects of the collapse of the Euro, or of the exit of one or more countries from
the EMU, on the U.S. and global economies and securities markets are impossible to predict, and any such events could have a significant
adverse impact on the value and risk profile of the Fund’s portfolio. Any partial or complete dissolution of the EMU could
have significant adverse effects on currency and financial markets, and on the values of the Fund’s portfolio investments.
If one or more EMU countries were to stop using the Euro as its primary currency, the Fund’s investments in such countries
may be redenominated into a different or newly adopted currency. As a result, the value of those investments could decline significantly
and unpredictably. In addition, securities or other investments that are redenominated may be subject to foreign currency risk,
liquidity risk and valuation risk to a greater extent than similar investments currently denominated in Euros. To the extent a
currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or should the Euro cease
to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly
difficult to value or dispose of. The Fund may incur additional expenses to the extent it is required to seek judicial or other
clarification of the denomination or value of such securities.
Emerging Markets Risk. The
considerations noted above in “Foreign Securities Risk” are generally intensified for investments in emerging market
countries. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected
to be less stable than those of more developed countries. Investing in securities of companies in emerging markets may entail
special risks relating to potential political and economic instability and the risks of expropriation, nationalization, confiscation
or the imposition of restrictions on foreign investment, the lack of hedging instruments and restrictions on repatriation of capital
invested. Economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Emerging securities
markets are substantially smaller, less developed, less liquid and more volatile than the major securities markets. The limited
size of emerging securities markets and limited trading volume compared to the volume of trading in U.S. securities could cause
prices to be erratic for reasons apart from factors that affect the quality of the securities. For example, limited market size
may cause prices to be unduly influenced by traders who control large positions. Adverse publicity and investors’ perceptions,
whether or not based on fundamental analysis, may decrease the value and liquidity of portfolio securities, especially in these
markets. Other risks include high concentration of market capitalization and trading volume in a small number of issuers representing
a limited number of industries, as well as a high concentration of investors and financial intermediaries; overdependence on exports,
including gold and natural resources exports, making these economies vulnerable to changes in commodity prices; overburdened infrastructure
and obsolete or unseasoned financial systems; environmental problems; less developed legal systems; and less reliable securities
custodial services and settlement practices. Certain emerging markets may also face other significant internal or external
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
risks, including the risk of
war and civil unrest. For all of these reasons, investments in emerging markets may be considered speculative.
Eurozone Risk. A number
of countries in the EU have experienced, and may continue to experience, severe economic and financial difficulties, increasing
the risk of investing in the European markets. In particular, many EU nations are susceptible to economic risks associated with
high levels of debt, notably due to investments in sovereign debt of countries such as Greece, Italy, Spain, Portugal, and Ireland.
As a result, financial markets in the EU have been subject to increased volatility and declines in asset values and liquidity.
Responses to these financial problems by European governments, central banks, and others, including austerity measures and reforms,
may not work, may result in social unrest, and may limit future growth and economic recovery or have other unintended consequences.
Further defaults or restructurings by governments and others of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. Greece, Ireland, and Portugal have already received one or more “bailouts”
from other Eurozone member states, and it is unclear how much additional funding they will require or if additional Eurozone member
states will require bailouts in the future. One or more other countries may also abandon the euro and/or withdraw from the EU,
placing its currency and banking system in jeopardy. The impact of these actions, especially if they occur in a disorderly fashion,
is not clear, but could be significant and far-reaching.
Brexit Risk. On January
31, 2020, the United Kingdom officially withdrew from the EU, commonly referred to as “Brexit.” Following a transition
period, the United Kingdom and the EU signed a Trade and Cooperation Agreement (“UK/EU Trade Agreement”), which came
into full force on May 1, 2021 and set out the foundation of the economic and legal framework for trade between the United Kingdom
and the EU. As the UK/EU Trade Agreement is a new legal framework, the implementation of the UK/EU Trade Agreement may result
in uncertainty in its application and periods of volatility in both the United Kingdom and wider European markets. The United
Kingdom’s exit from the EU is expected to result in additional trade costs and disruptions in this trading relationship.
Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that regulatory
standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global
financial markets, and adversely affect the Fund.
In particular, currency volatility
may mean that our returns and the returns of our portfolio companies will be adversely affected by market movements and may make
it more difficult, or more expensive, for us to implement appropriate currency hedging. Potential declines in the value of the
British Pound and/or the euro against other currencies, along with the potential downgrading of the United Kingdom’s sovereign
credit rating, may also have an impact on the performance of any of our portfolio companies located in the United Kingdom or Europe.
In addition, certain European
countries have experienced negative interest rates on certain fixed-income instruments. A negative interest rate policy is an
unconventional central bank monetary policy tool where nominal target interest rates are set with a negative value (i.e., below
zero percent) intended to help create self sustaining growth in the local economy. Negative interest rates may result in heightened
market volatility and may detract from the Fund’s performance to the extent the Fund is exposed to such interest rates.
Among other things, these developments have adversely affected the value and exchange rate of the euro and pound sterling, and
may continue to significantly affect the economies of all EU countries, which in turn may have a material adverse effect on the
Fund’s investments in such countries, other countries that depend on EU countries for significant amounts of trade or investment,
or issuers with exposure to debt issued by certain EU countries.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
To the extent the Fund has
exposure to European markets or to transactions tied to the value of the euro, these events could negatively affect the value
and liquidity of the Fund’s investments. All of these developments may continue to significantly affect the economies of
all EU countries, which in turn may have a material adverse effect on the Fund’s investments in such countries, other countries
that depend on EU countries for significant amounts of trade or investment, or issuers with exposure to debt issued by certain
EU countries.
Restricted and Illiquid
Securities. Unregistered securities are securities that cannot be sold publicly in the United States without registration
under the Securities Act. An illiquid investment is a security or other investment that cannot be disposed of within seven days
in the ordinary course of business at approximately the value at which the Fund has valued the investment. Unregistered securities
often can be resold only in privately negotiated transactions with a limited number of purchasers or in a public offering registered
under the Securities Act. Considerable delay could be encountered in either event and, unless otherwise contractually provided
for, the Fund’s proceeds upon sale may be reduced by the costs of registration or underwriting discounts. The difficulties
and delays associated with such transactions could result in the Fund’s inability to realize a favorable price upon disposition
of unregistered securities, and at times might make disposition of such securities impossible. The Fund may be unable to sell
illiquid investments when it desires to do so, resulting in the Fund obtaining a lower price or being required to retain the investment.
Illiquid investments generally must be valued at fair value, which is inherently less precise than utilizing market values for
liquid investments, and may lead to differences between the price at which a security is valued for determining the Fund’s
net asset value and the price the Fund actually receives upon sale.
Special Risks Related
to Investment in Derivatives. The Fund may participate in derivative transactions. Such transactions entail certain execution,
market, liquidity, counterparty, correlation, volatility, hedging and tax risks. Participation in the options or futures markets,
in currency exchange transactions and in other derivatives transactions involves investment risks and transaction costs to which
the Fund would not be subject absent the use of these strategies. If the Investment Adviser’s prediction of movements in
the direction of the securities, foreign currency, interest rate or other referenced instruments or markets is inaccurate, the
consequences to the Fund may leave the Fund in a worse position than if it had not used such strategies. Risks inherent in the
use of options, swaps, foreign currency, futures contracts and options on futures contracts, securities indices and foreign currencies
include:
| ● | dependence on the Investment
Adviser’s ability to predict correctly movements in the direction of the relevant
measure; |
| ● | imperfect correlation between
the price of the derivative instrument and movements in the prices of the referenced
assets; |
| ● | the fact that skills needed
to use these strategies are different from those needed to select portfolio securities; |
| ● | the possible absence of a liquid secondary market for
any particular instrument at any time; |
| ● | the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences; |
| ● | the
possible inability of the Fund to purchase or sell a security or instrument at a time
that otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a security or instrument at a disadvantageous time due to a need for the Fund
to comply with Rule 18f-4; and |
| ● | the creditworthiness of counterparties. |
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Options, futures contracts,
swaps contracts, and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the United States, may not involve a clearing mechanism
and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions also could be adversely affected by (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in the ability of
the Fund to act upon economic events occurring in the foreign markets during non-business hours in the United States, (iv) the
imposition of different exercise and settlement terms and procedures and margin requirements than in the United States and (v)
less trading volume. Exchanges on which options, futures, swaps and options on futures or swaps are traded may impose limits on
the positions that the Fund may take in certain circumstances.
Many OTC derivatives are valued
on the basis of dealers’ pricing of these instruments. However, the price at which dealers value a particular derivative
and the price which the same dealers would actually be willing to pay for such derivative should the Fund wish or be forced to
sell such position may be materially different. Such differences can result in an overstatement of the Fund’s net asset
value and may materially adversely affect the Fund in situations in which the Fund is required to sell derivative instruments.
Exchange-traded derivatives and OTC derivative transactions submitted for clearing through a central counterparty have become
subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as possible margin requirements
mandated by the SEC or the Commodity Futures Trading Commission (the “CFTC”). These regulators also have broad discretion
to impose margin requirements on non-cleared OTC derivatives. These margin requirements will increase the overall costs for the
Fund.
While hedging transactions
can reduce or eliminate losses, they can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between
the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging transactions will be
effective. Derivatives may also give rise to a form of leverage and may expose the Fund to greater risk and increase its costs.
Future CFTC or SEC rulemakings could potentially further limit or completely restrict the Fund’s ability to use these instruments
as a part of the Fund’s investment strategy, increase the costs of using these instruments or make them less effective.
Limits or restrictions applicable to the counterparties with which the Fund engages in derivative transactions could also prevent
the Fund from using these instruments or affect the pricing or other factors relating to these instruments or may change the availability
of certain investments. New regulation may make derivatives more costly, may limit the availability of derivatives, or may otherwise
adversely affect the value or performance of derivatives.
Short Sales Risk. Short-selling
involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser, with
an obligation to replace the borrowed securities at a later date. If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction
costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer (usually cash and liquid
securities). Although the Fund’s gain is limited to the price at which it sold the security short, its potential loss is
theoretically unlimited.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Short-selling necessarily involves
certain additional risks. However, if the short seller does not own the securities sold short (an uncovered short sale), the borrowed
securities must be replaced by securities purchased at market prices in order to close out the short position, and any appreciation
in the price of the borrowed securities would result in a loss. Uncovered short sales expose the Fund to the risk of uncapped
losses until a position can be closed out due to the lack of an upper limit on the price to which a security may rise. Purchasing
securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating
the loss. There is the risk that the securities borrowed by the Fund in connection with a short-sale must be returned to the securities
lender on short notice. If a request for return of borrowed securities occurs at a time when other short-sellers of the security
are receiving similar requests, a “short squeeze” can occur, and the Fund may be compelled to replace borrowed securities
previously sold short with purchases on the open market at the most disadvantageous time, possibly at prices significantly in
excess of the proceeds received at the time the securities were originally sold short.
In September 2008, in response
to spreading turmoil in the financial markets, the SEC temporarily banned short selling in the stocks of numerous financial services
companies, and also promulgated new disclosure requirements with respect to short positions held by investment managers. The SEC’s
temporary ban on short selling of such stocks has since expired, but should similar restrictions and/or additional disclosure
requirements be promulgated, especially if market turmoil occurs, the Fund may be forced to cover short positions more quickly
than otherwise intended and may suffer losses as a result. Such restrictions may also adversely affect the ability of the Fund
to execute its investment strategies generally. Similar emergency orders were also instituted in non-U.S. markets in response
to increased volatility. The Fund’s ability to engage in short sales is also restricted by various regulatory requirements
relating to short sales.
Industry Risk.
The Fund may invest up to 25% of its total assets in securities of a single industry. Should the Fund choose to do so, the net
asset value of the Fund will be more susceptible to factors affecting those particular types of companies, which, depending on
the particular industry, may include, among others: governmental regulation; inflation; cost increases in raw materials, fuel
and other operating expenses; technological innovations that may render existing products and equipment obsolete; and increasing
interest rates resulting in high interest costs on borrowings needed for capital investment, including costs associated with compliance
with environmental and other regulations. In such circumstances, the Fund’s investments may be subject to greater risk and
market fluctuation than a fund that had securities representing a broader range of industries.
Food and Beverage Sector
Risk. The Fund has in the past focused, and may in the future focus, its investments in securities issued by companies
in the food and beverage sector. The food and beverage sector is highly competitive and can be significantly affected by demographic
and product trends, competitive pricing, food fads, marketing campaigns, environmental factors, government regulation, adverse
changes in general economic conditions, evolving consumer preferences, nutritional and health-related concerns, federal, state
and local food inspection and processing controls, consumer product liability claims, consumer boycotts, risks of product tampering,
and the availability and expense of liability insurance. Product recalls require companies in the food and beverage sector to
withdraw contaminated or mislabeled products from the market. In addition, there are risks pertaining to raw materials and the
suppliers of such raw materials that include changing market prices. The prices for raw materials fluctuate in response to a number
of factors, including, but not limited to, changes in
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
the U.S. Government farm support
programs, changes in international agricultural and trading policies, weather and other conditions during the growing and harvesting
seasons.
Leverage Risk. The
Fund currently uses financial leverage for investment purposes by issuing preferred shares. As of December 31, 2021, the amount
of leverage represented approximately 22% of the Fund’s net assets. The Fund’s leveraged capital structure creates
special risks not associated with unleveraged funds that have a similar investment objective and policies. These include the possibility
of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset coverage for any preferred
shares or debt outstanding. Such volatility may increase the likelihood of the Fund having to sell investments in order to meet
its obligations to make distributions on the preferred shares or principal or interest payments on debt securities, or to redeem
preferred shares or repay debt when it may be disadvantageous to do so. The Fund’s use of leverage may require it to sell
portfolio investments at inopportune times in order to raise cash to redeem preferred shares or otherwise de-leverage so as to
maintain required asset coverage amounts or comply with the mandatory redemption terms of any outstanding preferred shares. The
use of leverage magnifies both the favorable and unfavorable effects of price movements in the investments made by the Fund. To
the extent the Fund is leveraged in its investment operations, the Fund will be subject to substantial risk of loss. The Fund
cannot assure that borrowings or the issuance of notes or preferred shares will result in a higher yield or return to the holders
of the common shares. Also, to the extent the Fund utilizes leverage, a decline in net asset value could affect the ability of
the Fund to make common share distributions and such a failure to make distributions could result in the Fund ceasing to qualify
as a RIC under the Code.
For more information regarding
the risks of a leverage capital structure to holders of the Fund’s common shares, see “Risk Factors and Special Considerations
— Special Risks to Holder of Common Shares — Leverage Risk.”
Market Discount Risk.
The Fund is a diversified, closed-end management investment company. Whether investors will realize gains or losses upon
the sale of additional securities of the Fund will depend upon the market price of the securities at the time of sale, which may
be less or more than the Fund’s net asset value per share or the liquidation value of any Fund preferred shares issued.
Since the market price of any additional securities the Fund may issue will be affected by such factors as the Fund’s dividend
and distribution levels (which are in turn affected by expenses), dividend and distribution stability, net asset value, market
liquidity, the relative demand for and supply of such securities in the market, general market and economic conditions and other
factors beyond the control of the Fund, we cannot predict whether any such securities will trade at, below or above net asset
value or at, below or above their public offering price or at, below or above their liquidation value, as applicable. For example,
common shares of closed-end funds often trade at a discount to their net asset values and the Fund’s common shares may trade
at such a discount. This risk may be greater for investors expecting to sell their securities of the Fund soon after the completion
of a public offering for such securities. The risk of a market price discount from net asset value is separate and in addition
to the risk that net asset value itself may decline. The Fund’s securities are designed primarily for long-term investors,
and investors in the shares should not view the Fund as a vehicle for trading purposes.
Long Term Objective;
Not a Complete Investment Program. The Fund is intended for investors seeking long term growth of capital. The Fund is
not meant to provide a vehicle for those who wish to play short term swings in the stock market. An investment in shares of the
Fund should not be considered a complete investment program.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Each shareholder should take
into account the Fund’s investment objective as well as the shareholder’s other investments when considering an investment
in the Fund.
Management Risk. The
Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser will apply investment techniques
and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired
results.
Decision Making Authority
Risk. Investors have no authority to make decisions or to exercise business discretion on behalf of the Fund, except as
set forth in the Fund’s governing documents. The authority for all such decisions is generally delegated to the Board, who
in turn, has delegated the day-to-day management of the Fund’s investment activities to the Investment Adviser, subject
to oversight by the Board.
Dependence on Key Personnel.
The Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect
to the Fund’s investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the
Fund could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli in the
event of his death, resignation, retirement or inability to act on behalf of the Investment Adviser.
Market Disruption and
Geopolitical Risk. General economic and market conditions, such as interest rates, availability of credit, inflation rates,
economic uncertainty, supply chain disruptions, labor shortages, energy and other resource shortages, changes in laws, trade barriers,
currency exchange controls and national and international political circumstances (including governmental responses to public
health crises or the spread of infectious diseases), may have long-term negative effects on the U.S. and worldwide financial markets
and economy. These conditions have resulted in, and in many cases continue to result in, greater price volatility, less liquidity,
widening credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain value. Such
market conditions may adversely affect the Company, including by making valuation of some of the Fund’s securities uncertain
and/or result in sudden and significant valuation increases or declines in the Fund’s holdings.
Risks resulting from any future
debt or other economic crisis could also have a detrimental impact on the global economy, the financial condition of financial
institutions and the Fund’s business, financial condition and results of operation. Market and economic disruptions have
affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence
and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S. or global economy
negatively impacts consumer confidence and consumer credit factors, the Fund could be significantly and adversely affected. Downgrades
to the credit ratings of major banks could result in increased borrowing costs for such banks and negatively affect the broader
economy. Moreover, Federal Reserve policy, including with respect to certain interest rates, may also adversely affect the value,
volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return
to unfavorable economic conditions could impair the Fund’s ability to achieve its investment objectives.
The occurrence of events similar
to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as COVID-19), epidemics or outbreaks
of infectious diseases in certain parts of the world, and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes
and global health epidemics, terrorist attacks in the U.S. and around the world, social and political discord, debt crises sovereign
debt
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
downgrades, increasingly strained
relations between the U.S. and a number of foreign countries, new and continued political unrest in various countries, the exit
or potential exit of one or more countries from the EU or the EMU, continued changes in the balance of political power among and
within the branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long-term
effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide.
In particular, the consequences
of the Russian military invasion of Ukraine, the impact on inflation and increased disruption to supply chains and energy resources
may impact the Fund’s portfolio companies, result in an economic downturn or recession either globally or locally in the
U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the form of traditional military action,
reignited “cold” wars or in the form of virtual warfare such as cyber attacks) with similar and perhaps wider ranging
impacts and consequences and have an adverse impact on the Fund’s returns and net asset values. In response to the conflict
between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions against Russia, Russian-backed
separatist regions in Ukraine, and certain banks, companies, government officials and other individuals in Russia and Belarus.
Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have
a material adverse effect on the Fund. The Fund has no way to predict the duration or outcome of the situation, as the conflict
and government reactions are rapidly developing and beyond the Fund’s control. Prolonged unrest, military activities, or
broad-based sanctions could have a material adverse effect on companies in which the Fund invests. Such consequences also may
increase such companies’ funding costs or limit their access to the capital markets.
The current political climate
has intensified concerns about a potential trade war between China and the U.S., as each country has imposed tariffs on the other
country’s products. These actions may trigger a significant reduction in international trade, the oversupply of certain
manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or large segments of
China’s export industry, which could have a negative impact on the Fund’s performance. U.S. companies that source
material and goods from China and those that make large amounts of sales in China would be particularly vulnerable to an escalation
of trade tensions. Uncertainty regarding the outcome of the trade tensions and the potential for a trade war could cause the U.S.
dollar to decline against safe haven currencies, such as the Japanese yen and the euro. Events such as these and their consequences
are difficult to predict and it is unclear whether further tariffs may be imposed or other escalating actions may be taken in
the future. Any of these effects could have a material adverse effect on the Fund.
Economic Events and Market
Risk. Periods of market volatility remain, and may continue to occur in the future, in response to various political,
social and economic events both within and outside of the United States. These conditions have resulted in, and in many cases
continue to result in, greater price volatility, less liquidity, widening credit spreads and a lack of price transparency, with
many securities remaining illiquid and of uncertain value. Such market conditions may adversely affect the Fund, including by
making valuation of some of the Fund’s securities uncertain and/or result in sudden and significant valuation increases
or declines in the Fund’s holdings. If there is a significant decline in the value of the Fund’s portfolio, this may
impact the asset coverage levels for the Fund’s outstanding leverage.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Risks resulting from any future
debt or other economic crisis could also have a detrimental impact on the global economic recovery, the financial condition of
financial institutions and our business, financial condition and results of operation. Market and economic disruptions have affected,
and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default
on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S. or global economy negatively
impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be
significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased borrowing costs
for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect to certain
interest rates, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market
volatility, rising interest rates and/or a return to unfavorable economic conditions could impair the Fund’s ability to
achieve its investment objectives.
Regulation and Government
Intervention Risk. Changes enacted by the current presidential administration could significantly impact the regulation
of financial markets in the U.S. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate
tax rates, energy and infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration,
healthcare and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes
can, and have, been effectuated through executive order. For example, the current administration has taken steps to rejoin the
Paris climate accord of 2015 and incentivize certain clean energy technologies, cancel the Keystone XL pipeline, provide military
support to Ukraine and change immigration enforcement priorities. Other potential changes that could be pursued by the current
presidential administration could include an increase in the corporate income tax rate; changes to regulatory enforcement priorities;
and spending on clean energy and infrastructure. It is not possible to predict which, if any, of these actions will be taken or,
if taken, their effect on the economy, securities markets or the financial stability of the U.S. The Fund may be affected by governmental
action in ways that are not foreseeable, and there is a possibility that such actions could have a significant adverse effect
on the Fund and the Fund’s ability to achieve its investment objectives.
Additional risks arising from
the differences in expressed policy preferences among the various constituencies in the branches of the U.S. government has led
in the past, and may lead in the future, to short-term or prolonged policy impasses, which could, and has, resulted in shutdowns
of the U.S. federal government. U.S. federal government shutdowns, especially prolonged shutdowns, could have a significant adverse
impact on the economy in general and could impair the ability of issuers to raise capital in the securities markets. Any of these
effects could have a material adverse effect on the Fund’s net asset value.
In addition, the rules dealing
with the U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS
and the U.S. Treasury Department. The Tax Cuts and Jobs Act made substantial changes to the Code. Among those changes were a significant
permanent reduction in the generally applicable corporate tax rate, changes in the taxation of individuals and other non-corporate
taxpayers that generally but not universally reduce their taxes on a temporary basis subject to “sunset” provisions,
the elimination or modification of various previously allowed deductions (including substantial limitations on the deductibility
of interest and, in the case of individuals, the deduction for personal state and local taxes), certain additional limitations
on the deduction of net operating losses, certain preferential rates of taxation on certain
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
dividends and certain business
income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers, and significant
changes to the international tax rules. In addition, on August 16, 2022, the Biden administration signed into law the Inflation
Reduction Act, which modifies key aspects of the Code, including by creating an alternative minimum tax on certain corporations
and an excise tax on stock repurchases by certain corporations. The effect of these and other changes is uncertain, both in terms
of the direct effect on the taxation of an investment in the Fund’s shares and their indirect effect on the value of the
Fund’s assets, Fund shares or market conditions generally.
In addition, the U.S. government
has proposed and adopted multiple regulations that could have a long-lasting impact on the Fund and on the closed-end fund industry
in general. The SEC’s final rules and amendments that modernize reporting and disclosure, along with other potential upcoming
regulations, including in respect of investment company names and other matters, could, among other things, restrict the Fund’s
ability to engage in transactions, and/or increase overall expenses of the Fund.
The Fund may be affected by
governmental action in ways that are not foreseeable, and there is a possibility that such actions could have a significant adverse
effect on the Fund and its ability to achieve its investment objective(s).
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.
Legislation Risk. At
any time after the date of this Annual Report, legislation may be enacted that could negatively affect the assets of the Fund.
Legislation or regulation may change the way in which the Fund itself is regulated. The Investment Adviser cannot predict the
effects of any new governmental regulation that may be implemented and there can be no assurance that any new governmental regulation
will not adversely affect the Fund’s ability to achieve its investment objective.
Reliance on Service Providers
Risk. The Fund must rely upon the performance of service providers to perform certain functions, which may include functions
that are integral to the Fund’s operations and financial performance. Failure by any service provider to carry out its obligations
to the Fund in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the
Fund at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance
and returns to shareholders. The termination of the Fund’s relationship with any service provider, or any delay in appointing
a replacement for such service provider, could materially disrupt the business of the Fund and could have a material adverse effect
on the Fund’s performance and returns to shareholders.
Cyber Security Risk.
The Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorized
monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks;
unauthorized access to relevant systems, compromises to networks or devices that the Fund and its service providers use to service
the Fund’s operations; or operational disruption or failures in the physical infrastructure or operating systems that support
the Fund and its service providers. Cyber attacks are becoming increasingly common and more sophisticated, and may be perpetrated
by computer hackers, cyber-terrorists or others engaged in corporate espionage. Cyber attacks against or security
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
breakdowns of the Fund or its
service providers may adversely impact the Fund and its stockholders, potentially resulting in, among other things, financial
losses; the inability of Fund stockholders to transact business and the Fund to process transactions; inability to calculate the
Fund’s NAV; violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement
or other compensation costs; and/or additional compliance costs. The Fund may incur additional costs for cyber security risk
management and remediation purposes. In addition, cyber security risks may also impact issuers of securities in which the Fund
invests, which may cause the Fund’s investment in such issuers to lose value. There have been a number of recent highly
publicized cases of companies reporting the unauthorized disclosure of client or customer information, as well as cyber-attacks
involving the dissemination, theft and destruction of corporate information or other assets, as a result of failure to follow
procedures by employees or contractors or as a result of actions by third parties, including actions by terrorist organizations
and hostile foreign governments. Although service providers typically have policies and procedures, business continuity plans
and/or risk management systems intended to identify and mitigate cyber incidents, there are inherent limitations in such plans
and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber
security policies, plans and systems put in place by its service providers or any other third parties whose operations may affect
the Fund or its shareholders. There can be no assurance that the Fund or its service providers will not suffer losses relating
to cyber attacks or other information security breaches in the future.
Because technology is consistently
changing, new ways to carry out cyber attacks are always developing. Therefore, there is a chance that some risks have not been
identified or prepared for, or that an attack may not be detected, which puts limitations on the Fund’s ability to plan
for or respond to a cyber attack. In addition to deliberate cyber attacks, unintentional cyber incidents can occur, such as the
inadvertent release of confidential information by the Fund or its service providers. Like other funds and business enterprises,
the Fund and its service providers are subject to the risk of cyber incidents occurring from time to time.
Misconduct of Employees
and of Service Providers Risk. Misconduct or misrepresentations by employees of the Investment Adviser or the Fund’s
service providers could cause significant losses to the Fund. Employee misconduct may include binding the Fund to transactions
that exceed authorized limits or present unacceptable risks and unauthorized trading activities, concealing unsuccessful trading
activities (which, in any case, may result in unknown and unmanaged risks or losses) or making misrepresentations regarding any
of the foregoing. Losses could also result from actions by the Fund’s service providers, including, without limitation,
failing to recognize trades and misappropriating assets. In addition, employees and service providers may improperly use 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.
Loans of Portfolio Securities.
Consistent with applicable regulatory requirements and the Fund’s investment restrictions, the Fund may lend its
portfolio securities to securities broker-dealers or financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described in the SAI), and are at all times collateralized in accordance with applicable
regulatory requirements. The advantage of such loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
interest on the cash amounts
deposited as collateral, which will be invested in short-term obligations. The Fund will not lend its portfolio securities if
such loans are not permitted by the laws or regulations of any state in which its shares are qualified for sale.
Legal, Tax and Regulatory
Risk. Legal, tax and regulatory changes could occur that may have material adverse effects on the Fund or its shareholders.
For example, the regulatory and tax environment for derivative instruments in which the Fund may participate is evolving, and
such changes in the regulation or taxation of derivative instruments may have material adverse effects on the value of derivative
instruments held by the Fund and the ability of the Fund to pursue its investment strategies. In addition, on August 16, 2022,
the Biden administration signed into law the Inflation Reduction Act, which modifies key aspects of the Code, including by creating
an alternative minimum tax on certain corporations and an excise tax on stock repurchases by certain corporations. Changes to
the U.S. federal tax laws and interpretations thereof could adversely affect an investment in the Fund.
We cannot assure you what percentage
of the distributions paid on the Fund’s shares, if any, will consist of tax-advantaged qualified dividend income or long-term
capital gains or what the tax rates on various types of income will be in future years.
To qualify for the favorable
U.S. federal income tax treatment generally accorded to RICs under the Code, the Fund must, among other things, meet certain asset
diversification tests, derive in each taxable year at least 90% of its gross income from certain prescribed sources and distribute
for each taxable year at least 90% of its “investment company taxable income.” Statutory limitations on distributions
on the common shares if the Fund fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize the Fund’s
ability to meet such distribution requirements. While the Fund presently intends to purchase or redeem notes or preferred shares,
if any, to the extent necessary in order to maintain compliance with such asset coverage requirements, there can be no assurance
that such actions can be effected in time to meet the Code requirements. If for any taxable year the Fund does not qualify as
a RIC, all of its taxable income for that year (including its net capital gain) would be subject to tax at regular corporate rates
without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the
extent of the Fund’s current and accumulated earnings and profits. The resulting corporate taxes would materially reduce
the Fund’s net assets and the amount of cash available for distribution to shareholders. For a more complete discussion
of these and other U.S. federal income tax considerations.
Investment Dilution Risk.
The Fund’s investors do not have preemptive rights to any shares the Fund may issue in the future. The Fund’s
Agreement and Declaration of Trust authorizes it to issue an unlimited number of shares. The Board may make certain amendments
to the Agreement and Declaration of Trust. After an investor purchases shares, the Fund may sell additional shares or other classes
of shares in the future or issue equity interests in private offerings. To the extent the Fund issues additional equity interests
after an investor purchases its shares, such investor’s percentage ownership interest in the Fund will be diluted.
Anti-Takeover Provisions.
The Agreement and Declaration of Trust and By-Laws of the Fund include provisions that could limit the ability of other
entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. See also – “Delaware Statutory
Trust Act – Control Share Acquisitions.”
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Special Risks to Holders of Notes
An investment in our notes
is subject to special risks. Our notes are not likely to be listed on an exchange or automated quotation system. We cannot assure
you that any market will exist for our notes or if a market does exist, whether it will provide holders with liquidity. Broker-dealers
that maintain a secondary trading market for the notes are not required to maintain this market, and the Fund is not required
to redeem notes if an attempted secondary market sale fails because of a lack of buyers. To the extent that our notes trade, they
may trade at a price either higher or lower than their principal amount depending on interest rates, the rating (if any) on such
notes and other factors.
Special Risks to Holders of Fixed Rate Preferred
Shares
Illiquidity Prior to
Exchange Listing. Prior to an offering, there will be no public market for any series of fixed rate preferred shares.
In the event any additional series of fixed rate preferred shares are issued, we expect to apply to list such shares on a national
securities exchange, which will likely be the NYSE. However, during an initial period, which is not expected to exceed 30 days
after the date of initial issuance, such shares may not be listed on any securities exchange. During such period, the underwriters
may make a market in such shares, though they will have no obligation to do so. Consequently, an investment in such shares may
be illiquid during such period.
Market Price Fluctuation.
Fixed rate preferred shares may trade at a premium to or discount from liquidation value for various reasons, including
changes in interest rates, perceived credit quality and other factors.
Special Risks to Holders of Notes and Preferred
Shares
Common Share Repurchases.
Repurchases of common shares by the Fund may reduce the net asset coverage of the notes and preferred shares, which could
adversely affect their liquidity or market prices.
Common Share Distribution
Policy. In the event the Fund does not generate a total return from dividends and interest received and net realized capital
gains in an amount at least equal to its distributions for a given year, the Fund expects that it would return capital as part
of its distribution. This would decrease the asset coverage per share with respect to the Fund’s notes or preferred shares,
which could adversely affect their liquidity or market prices.
During the fiscal year ended
December 31, 2022, the Fund made distributions of $0.64 per common share, none of which was comprised of return of capital. The
composition of each distribution is estimated based on earnings as of the record date for the distribution. The actual composition
of each distribution may change based on the Fund’s investment activity through the end of the calendar year.
Credit Quality Ratings.
The Fund may obtain credit quality ratings for its preferred shares or notes, 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. The Fund’s portfolio must satisfy over-collateralization tests established by the
relevant rating agencies in order to obtain and maintain attractive credit quality ratings for preferred shares or borrowings,
if desired. 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.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
These guidelines could affect
portfolio decisions and may be more stringent than those imposed by the 1940 Act. With respect to ratings (if any) of the notes
or preferred shares, a rating by a ratings agency does not eliminate or necessarily mitigate the risks of investing in our preferred
shares or notes, and a rating may not fully or accurately reflect all of the securities’ credit risks. A rating does not
address the liquidity or any other market risks of the securities being rated. A rating agency could downgrade the rating of our
notes or preferred shares, which may make such securities less liquid in the secondary market. If a rating agency downgrades the
rating assigned to our preferred shares or notes, we may alter our portfolio or redeem all or a portion of the preferred shares
or notes that are then redeemable under certain circumstances.
Special Risks of Notes
to Holders of Preferred Shares
As provided in the 1940 Act,
and subject to compliance with the Fund’s investment limitations, the Fund may issue notes. In the event the Fund were to
issue such securities, the Fund’s obligations to pay dividends or make distributions and, upon liquidation of the Fund,
liquidation payments in respect of its preferred shares would be subordinate to the Fund’s obligations to make any principal
and interest payments due and owing with respect to its outstanding notes. Accordingly, the Fund’s issuance of notes would
have the effect of creating special risks for the Fund’s preferred shareholders that would not be present in a capital structure
that did not include such securities.
Special Risks to Holders
of Common Shares
Dilution Risk. If
the Fund determines to conduct a rights offering to subscribe for common shares, holders of common shares may experience dilution
of the aggregate net asset value of their common shares. Such dilution will depend upon whether (i) such shareholders participate
in the rights offering and (ii) the Fund’s net asset value per common share is above or below the subscription price on
the expiration date of the rights offering.
Shareholders who do not exercise
their subscription rights may, at the completion of such an offering, own a smaller proportional interest in the Fund than if
they exercised their subscription rights. As a result of such an offering, a shareholder may experience dilution in net asset
value per share if the subscription price per share is below the net asset value per share on the expiration date. If the subscription
price per share is below the net asset value per share of the Fund’s shares on the expiration date, a shareholder will experience
an immediate dilution of the aggregate net asset value of such shareholder’s shares if the shareholder does not participate
in such an offering and the shareholder will experience a reduction in the net asset value per share of such shareholder’s
shares whether or not the shareholder participates in such an offering. The Fund cannot state precisely the extent of this dilution
(if any) if the shareholder does not exercise such shareholder’s subscription rights because the Fund does not know what
the net asset value per share will be when the offer expires or what proportion of the subscription rights will be exercised.
Leverage Risk.
The Fund currently uses financial leverage for investment purposes by issuing preferred shares and is also permitted to use other
types of financial leverage, such as through the issuance of debt securities or additional preferred shares and borrowing from
financial institutions. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue additional senior securities
(which may be stock, such as preferred shares, and/or securities representing debt) only if immediately after such issuance the
value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding
and exceeds 200% of the amount of preferred shares and debt outstanding. As of December 31, 2022, the amount
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
of leverage represented approximately
22% of the Fund’s net assets. The Fund’s leveraged capital structure creates special risks not associated with unleveraged
funds having a similar investment objective and policies. These include the possibility of greater loss and the likelihood of
higher volatility of the net asset value of the Fund and the asset coverage for the preferred shares. Such volatility may increase
the likelihood of the Fund having to sell investments in order to meet its obligations to make distributions on the preferred
shares or principal or interest payments on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous
to do so. The Fund’s use of leverage may require it to sell portfolio investments at inopportune times in order to raise
cash to redeem preferred shares or otherwise de-leverage so as to maintain required asset coverage amounts or comply with the
mandatory redemption terms of any outstanding preferred shares. The use of leverage magnifies both the favorable and unfavorable
effects of price movements in the investments made by the Fund. To the extent that the Fund employs leverage in its investment
operations, the Fund is subject to substantial risk of loss. The Fund cannot assure you that borrowings or the issuance of notes
or preferred shares will result in a higher yield or return to the holders of the common shares. Also, since the Fund utilizes
leverage, a decline in net asset value could affect the ability of the Fund to make common share distributions and such a failure
to make distributions could result in the Fund ceasing to qualify as a RIC under the Code.
Any decline in the net asset
value of the Fund’s investments would be borne entirely by the holders of common shares. Therefore, if the market value
of the Fund’s portfolio declines, the leverage will result in a greater decrease in net asset value to the holders of common
shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause a greater decline in
the market price for the common shares. The Fund might be in danger of failing to maintain the required asset coverage of its
borrowings, notes or preferred shares or of losing its ratings on its notes or preferred shares or notes or, in an extreme case,
the Fund’s current investment income might not be sufficient to meet the distribution or interest requirements on the borrowings,
preferred shares or notes. In order to counteract such an event, the Fund might need to liquidate investments in order to fund
a redemption or repayment of some or all of the borrowings, preferred shares or notes.
Preferred Share and Note Risk.
The issuance of preferred shares or notes causes the net asset value and market value of the common shares to become more volatile.
If the dividend rate on the preferred shares or the interest rate on the notes approaches the net rate of return on the Fund’s
investment portfolio, the benefit of leverage to the holders of the common shares would be reduced. If the dividend rate on the
preferred shares or the interest rate on the notes plus the management fee rate exceeds the net rate of return on the Fund’s
portfolio, the leverage will result in a lower rate of return to the holders of common shares than if the Fund had not issued
preferred shares or notes. If the Fund has insufficient investment income and gains, all or a portion of the distributions to
preferred shareholders or interest payments to note holders would come from the common shareholders’ capital. Such distributions
and interest payments reduce the net assets attributable to common shareholders and do not reduce the principal due to noteholders
on maturity or the liquidation preference to which preferred shareholders are entitled. The Prospectus Supplement relating to
any sale of preferred shares will set forth dividend rate on such preferred shares.
In addition, the Fund would
pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and ongoing maintenance of the
preferred shares or notes, including the advisory fees on the incremental assets attributable to the preferred shares or notes.
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Holders of preferred shares
and notes may have different interests than holders of common shares and may at times have disproportionate influence over the
Fund’s affairs. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior securities (which
may be stock, such as preferred shares, and/or securities representing debt, such as notes) only if immediately after the issuance
the value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding
(i.e., for every dollar of indebtedness outstanding, the Fund is required to have at least three dollars of assets) and exceeds
200% of the amount of preferred shares and debt outstanding (i.e., for every dollar in liquidation preference of preferred stock
outstanding, the Fund is required to have two dollars of assets), which is referred to as the “asset coverage” required
by the 1940 Act. In the event the Fund fails to maintain an asset coverage of 100% for any notes outstanding for certain periods
of time, the 1940 Act requires that either an event of default be declared or that the holders of such notes have the right to
elect a majority of the Fund’s Trustees until asset coverage recovers to 110%. In addition, holders of preferred shares,
voting separately as a single class, have the right (subject to the rights of noteholders) to elect two members of the Board at
all times and in the event dividends become two full years in arrears would have the right to elect a majority of the Trustees
until such arrearage is completely eliminated. In addition, preferred shareholders have class voting rights on certain matters,
including changes in fundamental investment restrictions and conversion of the Fund to open-end status, and accordingly can veto
any such changes. Further, interest on notes will be payable when due as described in a Prospectus Supplement and if the Fund
does not pay interest when due, it will trigger an event of default and the Fund expects to be restricted from declaring dividends
and making other distributions with respect to common shares and preferred shares. Upon the occurrence and continuance of an event
of default, the holders of a majority in principal amount of a series of outstanding notes or the trustee will be able to declare
the principal amount of that series of notes immediately due and payable upon written notice to the Fund. The 1940 Act also generally
restricts the Fund from declaring distributions on, or repurchasing, common or preferred shares unless notes have an asset coverage
of 300% (200% in the case of declaring distributions on preferred shares). The Fund’s common shares are structurally subordinated
as to income and residual value to any preferred shares or notes in the Fund’s capital structure, in terms of priority to
income and payment in liquidation.
Restrictions imposed on the
declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and preferred shares,
both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to maintain its qualification
as a RIC for U.S. federal income tax purposes. While the Fund intends to redeem its preferred shares or notes to the extent necessary
to enable the Fund to distribute its income as required to maintain its qualification as a RIC under the Code, there can be no
assurance that such actions can be effected in time to meet the Code requirements.
Portfolio Guidelines of
Rating Agencies for Preferred Shares and/or Credit Facility. In order to obtain and maintain attractive credit quality ratings
for preferred shares or borrowings, the Fund must comply with investment quality, diversification and other guidelines established
by the relevant rating agencies. These guidelines could affect portfolio decisions and may be more stringent than those imposed
by the 1940 Act. In the event that a rating on the Fund’s preferred shares or notes is lowered or withdrawn by the relevant
rating agency, the Fund may also be required to redeem all or part of its outstanding preferred shares or notes, and the common
shares of the Fund will lose the potential benefits associated with a leveraged capital structure.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Impact on Common Shares.
Assuming that leverage will (1) be equal in amount to approximately % of the Fund’s total net assets (the Fund’s
outstanding financial leverage as of December 31, 2022), and (2) charge interest or involve dividend payments at a projected blended
annual average leverage dividend or interest rate of 4.00%, then the total return generated by the Fund’s portfolio (net
of estimated expenses) must exceed approximately 0.86% of the Fund’s total net assets in order to cover such interest or
dividend payments and other expenses specifically related to leverage. Of course, these numbers are merely estimates, used for
illustration. Actual dividend rates, interest or payment rates may vary frequently and may be significantly higher or lower than
the rate estimated above. The following table is furnished in response to requirements of the SEC. It is designed to illustrate
the effect of leverage on common share total return, assuming investment portfolio total returns (comprised of net investment
income of the Fund, realized gains or losses of the Fund and changes in the value of the securities held in the Fund’s portfolio)
of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative
of the investment portfolio returns experienced or expected to be experienced by the Fund. The table further reflects leverage
representing 22% of the Fund’s net assets (the Fund’s outstanding financial leverage as of December 31, 2022), the
Fund’s current projected blended annual average leverage dividend or interest rate of 4.00% (the average dividend rate on
the Fund’s outstanding financial leverage as of December 31, 2022), a base management fee at an annual rate of 1.00% and
estimated annual incremental expenses attributable to any outstanding preferred shares of approximately 0.01% of the Fund’s
net assets attributable to common shares. These assumed investment portfolio returns are hypothetical figures and are not necessarily
indicative of the investment portfolio returns experienced or expected to be experienced by the Fund.
Assumed Return on Portfolio (Net of Expenses) | |
| (10 | )% | |
| (5 | )% | |
| 0 | % | |
| 5 | % | |
| 10 | % |
Corresponding Return to Common Shareholder | |
| (14.13 | )% | |
| (7.76 | )% | |
| (1.38 | )% | |
| 5.00 | % | |
| 11.38 | % |
Common share total return is
composed of two elements—the common share distributions paid by the Fund (the amount of which is largely determined by the
taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or dividends on any preferred
shares) and unrealized gains or losses on the value of the securities the Fund owns. As required by SEC rules, the table assumes
that the Fund is more likely to suffer capital losses than to enjoy total return. For example, to assume a total return of 0%
the Fund must assume that the income it receives on its investments is entirely offset by expenses and losses in the value of
those investments.
Market Discount Risk. As
described above in “—General Risks—Market Discount Risk,” common shares of closed-end funds often trade
at a discount to their net asset values and the Fund’s common shares may trade at such a discount. This risk may be greater
for investors expecting to sell their common shares of the Fund soon after completion of a public offering. The common shares
of the Fund are designed primarily for long-term investors and investors in the shares should not view the Fund as a vehicle for
trading purposes.
The Gabelli Global Small and Mid
Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
Special Risk to Holders
of Subscription Rights
There is a risk that changes
in market conditions may result in the underlying common or preferred shares purchasable upon exercise of the subscription rights
being less attractive to investors at the conclusion of the subscription period. This may reduce or eliminate the value of the
subscription rights. Investors who receive subscription rights may find that there is no market to sell rights they do not wish
to exercise. If investors exercise only a portion of the rights, the number of common or preferred shares issued may be reduced,
and the common or preferred shares may trade at less favorable prices than larger offerings for similar securities.
Additional Investment
Policies
Options. The
Fund may purchase or sell, i.e., write, options on securities, securities indices and foreign currencies which are listed on a
national securities exchange or in the over-the-counter (“OTC”) market, as a means of achieving additional return
or of hedging the value of the Fund’s portfolio. The Fund may purchase call or put options as long as the aggregate initial
margins and premiums, measured at the time of such investment, do not exceed 10% of the fair market value of the Fund’s
total assets.
A call option is a contract
that gives the holder of the option the right to buy from the writer of the call option, in return for a premium, the security
or currency underlying the option at a specified exercise price at any time during the term of the option. The writer of the call
option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise
price during the option period.
A put option is a contract
that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying security at a specified
price. The seller of the put option has the obligation to buy the underlying security upon exercise at the exercise price.
A call option is “covered”
if the Fund owns the underlying instrument covered by the call or has an absolute and immediate right to acquire that instrument
without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon
conversion or exchange of other instruments held in its portfolio. A call option is also covered if the Fund holds a call on the
same instrument as the call written where the exercise price of the call held is (i) equal to or less than the exercise price
of the call written or (ii) greater than the exercise price of the call written if the difference is maintained by the Fund in
cash, U.S. government securities or other high-grade short-term obligations in a segregated account with its custodian. A put
option is “covered” if the Fund maintains cash or other high-grade short-term obligations with a value equal to the
exercise price in a segregated account with its custodian, or else holds a put on the same instrument as the put written where
the exercise price of the put held is equal to or greater than the exercise price of the put written.
If the Fund has written an
option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option
of the same series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will
be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position
by effecting a closing sale transaction.
This is accomplished by selling
an option of the same series as the option previously purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
The Fund realizes a profit
from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund realizes a loss from a closing transaction if the price of the transaction
is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call
option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors
affecting the market value of a put or a call option include supply and demand, interest rates, the current market price and price
volatility of the underlying security and the time remaining until the expiration date. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to predict correctly the effect of these factors. The use of options
cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow the
price movements of the portfolio securities subject to the hedge.
An option position may be closed
out only on an exchange which provides a secondary market for an option of the same series or in a private transaction. Although
the Fund generally purchases or writes only those options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any particular option. In such event it might not be possible
to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying
securities for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers
the underlying security upon exercise or otherwise covers the position.
Options on Securities
Indices. The Fund may purchase and sell securities index options. One effect of such transactions may be to hedge all
or part of the Fund’s securities holdings against a general decline in the securities market or a segment of the securities
market. Options on securities indices are similar to options on stocks except that, rather than the right to take or make delivery
of stock at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the securities index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
The Fund’s successful
use of options on indices depends upon its ability to predict the direction of the market and is subject to various additional
risks. The correlation between movements in the index and the price of the securities being hedged against is imperfect and the
risk from imperfect correlation increases as the composition of the Fund diverges from the composition of the relevant index.
Accordingly, a decrease in the value of the securities being hedged against may not be wholly offset by a gain on the exercise
or sale of a securities index put option held by the Fund.
Options on Foreign Currencies.
Instead of purchasing or selling currency futures (as described below), the Fund may attempt to accomplish similar objectives
by purchasing put or call options on currencies or by writing put options or call options on currencies either on exchanges or
in OTC markets. A put option gives the Fund the right to sell a currency at the exercise price until the option expires. A call
option gives the Fund the right to purchase a currency at the exercise price until the option expires. Both types of options serve
to insure against adverse currency price movements in the underlying portfolio assets designated in a given currency. The Fund’s
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
use of options on currencies
will be subject to the same limitations as its use of options on securities described above. Currency options may be subject to
position limits which may limit the ability of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest
rate futures contracts and options thereon, described below, the Fund may hedge against the risk of a decrease or increase in
the U.S. dollar value of a foreign currency denominated debt security which the Fund owns or intends to acquire by purchasing
or selling options contracts, futures contracts or options thereon with respect to a foreign currency other than the foreign currency
in which such debt security is denominated, where the values of such different currencies (vis-à-vis the U.S. dollar) historically
have a high degree of positive correlation.
Futures Contracts and
Options on Futures. The Fund may, without limit, enter into futures contracts or options on futures contracts. It is anticipated
that these investments, if any, will be made by the Fund primarily for the purpose of hedging against changes in the value of
its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made if they are
economically appropriate to the reduction of risks involved in the management of the Fund. In this regard, the Fund may enter
into futures contracts or options on futures for the purchase or sale of securities indices or other financial instruments including,
but not limited to, U.S. government securities.
A “sale” of a futures
contract (or a “short” futures position) means the assumption of a contractual obligation to deliver the securities
underlying the contract at a specified price at a specified future time. A “purchase” of a futures contract (or a
“long” futures position) means the assumption of a contractual obligation to acquire the securities underlying the
contract at a specified price at a specified future time. Certain futures contracts, including stock and bond index futures, are
settled on a net cash payment basis rather than by the sale and delivery of the securities underlying the futures contracts.
No consideration will be paid
or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange or board of trade on which the contract is traded and brokers or members of such board of trade may
charge a higher amount). This amount is known as the “initial margin” and is in the nature of a performance bond or
good faith deposit on the contract. Subsequent payments, known as “variation margin,” to and from the broker will
be made daily as the price of the index or security underlying the futures contract fluctuates. At any time prior to the expiration
of the futures contract, the Fund may elect to close the position by taking an opposite position, which will operate to terminate
its existing position in the contract.
An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise
price at any time prior to the expiration of the option. Upon exercise of an option, the delivery of the futures position by the
writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s
futures margin account attributable to that contract, which represents the amount by which the market price of the futures contract
exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option purchased is fixed at the point of sale, there are
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Cap Value Trust
Additional Fund Information (Continued) (Unaudited)
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 potential.
Interest Rate Futures
Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage of or to
protect the Fund against fluctuations in interest rates affecting the value of debt securities which the Fund holds or intends
to acquire. For example, if interest rates are expected to increase, the Fund might sell futures contracts on debt securities,
the values of which historically have a high degree of positive correlation to the values of the Fund’s portfolio securities.
Such a sale would have an effect similar to selling an equivalent value of the Fund’s portfolio securities. If interest
rates increase, the value of the Fund’s portfolio securities will decline, but the value of the futures contracts to the
Fund will increase at approximately an equivalent rate thereby keeping the net asset value of the Fund from declining as much
as it otherwise would have. The Fund could accomplish similar results by selling debt securities with longer maturities and investing
in debt securities with shorter maturities when interest rates are expected to increase. However, since the futures market may
be more liquid than the cash market, the use of futures contracts as a risk management technique allows the Fund to maintain a
defensive position without having to sell its portfolio securities.
Similarly, the Fund may purchase
interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures contracts for this
purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest rates) which the Fund
intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate that of the
debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt securities
without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash market
and liquidate its futures position.
The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the
pricing of the option compared to either the price of the futures contract upon which it is based or the price of the underlying
debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. As with
the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option on a futures contract to
hedge against a market advance due to declining interest rates.
The purchase of a put option
on a futures contract is similar to the purchase of protective put options on portfolio securities. The Fund will purchase a put
option on a futures contract to hedge the Fund’s portfolio against the risk of rising interest rates and consequent reduction
in the value of portfolio securities.
The writing of a call option
on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund’s
portfolio holdings. The writing of a
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put option on a futures contract
constitutes a partial hedge against increasing prices of the securities that are deliverable upon exercise of the futures contract.
If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the
option premium, which provides a partial hedge against any increase in the price of debt securities that the Fund intends to purchase.
If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Fund’s losses from options on futures it has written may to some extent be reduced
or increased by changes in the value of its portfolio securities.
Currency Futures and Options
Thereon. Generally, foreign currency futures contracts and options thereon are similar to the interest rate futures contracts
and options thereon discussed previously. By entering into currency futures and options thereon, the Fund will seek to establish
the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By selling currency
futures, the Fund will seek to establish the number of dollars it will receive at delivery for a certain amount of a foreign currency.
In this way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can
attempt to “lock in” the U.S. dollar value of some or all of the securities held in its portfolio that are denominated
in that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be required to pay for
a specified amount of a foreign currency in a future month. Thus, if the Fund intends to buy securities in the future and expects
the U.S. dollar to decline against the relevant foreign currency during the period before the purchase is effected, the Fund can
attempt to “lock in” the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on
currency futures will allow the Fund, for the price of the premium and related transaction costs it must pay for the option, to
decide whether or not to buy (in the case of a call option) or to sell (in the case of a put option) a futures contract at a specified
price at any time during the period before the option expires. If the Investment Adviser, in purchasing an option, has been correct
in its judgment concerning the direction in which the price of a foreign currency would move as against the U.S. dollar, the Fund
may exercise the option and thereby take a futures position to hedge against the risk it had correctly anticipated or close out
the option position at a gain that will offset, to some extent, currency exchange losses otherwise suffered by the Fund. If exchange
rates move in a way the Fund did not anticipate, however, the Fund will have incurred the expense of the option without obtaining
the expected benefit; any such movement in exchange rates may also thereby reduce rather than enhance the Fund’s profits
on its underlying securities transactions.
Securities Index Futures
Contracts and Options Thereon. Purchases or sales of securities index futures contracts are used for hedging purposes
to attempt to protect the Fund’s current or intended investments from broad fluctuations in stock or bond prices. For example,
the Fund may sell securities index futures contracts in anticipation of or during a market decline to attempt to offset the decrease
in market value of the Fund’s securities portfolio that might otherwise result. If such decline occurs, the loss in value
of portfolio securities may be offset, in whole or part, by gains on the futures position. When the Fund is not fully invested
in the securities market and anticipates a significant market advance, it may purchase securities index futures contracts in order
to gain rapid market exposure that may, in part or entirely, offset increases in the cost of securities that the Fund intends
to purchase. As such purchases are made, the corresponding positions in securities index futures
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contracts will be closed out.
The Fund may write put and call options on securities index futures contracts for hedging purposes.
Traditional Preferred
Securities. Traditional preferred securities generally pay fixed or adjustable rate dividends to investors and generally
have a “preference” over common stock in the payment of dividends and the liquidation of a company’s assets.
This means that a company must pay dividends on preferred stock before paying any dividends on its common stock. In order to be
payable, distributions on such preferred securities must be declared by the issuer’s board of directors. Income payments
on typical preferred securities currently outstanding are cumulative, causing dividends and distributions to accumulate even if
not declared by the board of directors or otherwise made payable. In such a case all accumulated dividends must be paid before
any dividend on the common stock can be paid. However, some traditional preferred stocks are non-cumulative, in which case dividends
do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative preferred securities,
whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer of a non-cumulative
preferred stock held by the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays may be adversely
affected. There is no assurance that dividends or distributions on the preferred securities in which the Fund invests will be
declared or otherwise made payable.
Preferred shareholders usually
have no right to vote for corporate directors or on other matters. Shares of preferred stock have a liquidation value that generally
equals the original purchase price at the date of issuance. The market value of preferred securities may be affected by favorable
and unfavorable changes impacting companies in which the Fund invests and by actual and anticipated changes in tax laws, such
as changes in corporate income tax rates or the “Dividends Received Deduction.” Because the claim on an issuer’s
earnings represented by preferred securities may become onerous when interest rates fall below the rate payable on such securities,
the issuer may redeem the securities. Thus, in declining interest rate environments in particular, the Fund’s holdings,
if any, of higher rate-paying fixed rate preferred securities may be reduced and the Fund may be unable to acquire securities
of comparable credit quality paying comparable rates with the redemption proceeds.
Trust Preferred Securities.
The Fund may invest in trust preferred securities. Trust preferred securities are typically issued by corporations, generally
in the form of interest bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation,
generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The trust preferred
securities market consists of both fixed and adjustable coupon rate securities that are either perpetual in nature or have stated
maturity dates.
Trust preferred securities
are typically junior and fully subordinated liabilities of an issuer and benefit from a guarantee that is junior and fully subordinated
to the other liabilities of the guarantor. In addition, trust preferred securities typically permit an issuer to defer the payment
of income for five years or more without triggering an event of default. Because of their subordinated position in the capital
structure of an issuer, the ability to defer payments for extended periods of time without default consequences to the issuer,
and certain other features (such as restrictions on common dividend payments by the issuer or ultimate guarantor when full cumulative
payments on the trust preferred securities have not been made), these trust preferred securities are often treated as close substitutes
for traditional preferred securities, both by issuers and investors. Trust preferred securities have many of the key characteristics
of equity due to their subordinated position in an issuer’s capital
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structure and because their
quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets
or cash flows.
Trust preferred securities
include but are not limited to trust originated preferred securities (“TOPRS®”); monthly income preferred securities
(“MIPS®”); quarterly income bond securities (“QUIBS®” ); quarterly income debt securities (“QUIDS®”);
quarterly income preferred securities (“QUIPSSM”); corporate trust securities (“CORTS®”); public income
notes (“PINES®”); and other trust preferred securities.
Trust preferred securities
are typically issued with a final maturity date, although some are perpetual in nature. In certain instances, a final maturity
date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a specified time without
default. No redemption can typically take place unless all cumulative payment obligations have been met, although issuers may
be able to engage in open-market repurchases without regard to whether all payments have been paid.
Many trust preferred securities
are issued by trusts or other special purpose entities established by operating companies and are not a direct obligation of an
operating company. At the time the trust or special purpose entity sells such preferred securities to investors, it purchases
debt of the operating company (with terms comparable to those of the trust or special purpose entity securities), which enables
the operating company to deduct for tax purposes the interest paid on the debt held by the trust or special purpose entity. The
trust or special purpose entity is generally required to be treated as transparent for Federal income tax purposes such that the
holders of the trust preferred securities are treated as owning beneficial interests in the underlying debt of the operating company.
Accordingly, payments on the trust preferred securities are treated as interest rather than dividends for Federal income tax purposes.
The trust or special purpose entity in turn would be a holder of the operating company’s debt and would have priority with
respect to the operating company’s earnings and profits over the operating company’s common shareholders, but would
typically be subordinated to other classes of the operating company’s debt. Typically a preferred share has a rating that
is slightly below that of its corresponding operating company’s senior debt securities.
Convertible Securities.
A convertible security entitles the holder to exchange such security for a fixed number of shares of common stock or other
equity security, usually of the same company, at fixed prices within a specified period of time and to receive the fixed income
of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. The fixed
income or dividend component of a convertible security is referred to as the security’s “investment value.”
A convertible security’s
position in a company’s capital structure depends upon its particular provisions. In the case of subordinated convertible
debentures, the holder’s claims on assets and earnings are subordinated to the claims of others and are senior to the claims
of common stockholders.
To the degree that the price
of a convertible security rises above its investment value because of a rise in price of the underlying common stock, the value
of such security is influenced more by price fluctuations of the underlying common stock and less by its investment value. The
price of a convertible security that is supported principally by its conversion value will rise along with any increase in the
price of the common stock, and such price generally will decline along with any decline in the price of the common stock except
that the security will receive additional support as its price approaches investment value. A convertible security purchased or
held at a time when its price is influenced by its conversion value will produce a lower yield than nonconvertible senior
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securities with comparable
investment values. Convertible securities may be purchased by the Fund at varying price levels above their investment values and/or
their conversion values in keeping with the Fund’s investment objective.
Many convertible securities
in which the Fund will invest have call provisions entitling the issuer to redeem the security at a specified time and at a specified
price. This is one of the features of a convertible security which affects valuation. Calls may vary from absolute calls to provisional
calls. Convertible securities with superior call protection usually trade at a higher premium. If long-term interest rates decline,
the interest rates of new convertible securities will also decline. Therefore, in a falling interest rate environment, companies
may be expected to call convertible securities with high coupons and the Fund would have to invest the proceeds from such called
issues in securities with lower coupons. Thus, convertible securities with superior call protection will permit the Fund to maintain
a higher yield than with issues without call protection.
Dilution Risk for Convertible
Securities. In the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of the
Fund’s holding may occur in the event the underlying stock is subdivided, additional equity securities are issued for below
market value, a stock dividend is declared, or the issuer enters into another type of corporate transaction that has a similar
effect.
Forward Foreign Currency
Exchange Contracts. The Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio
against uncertainty in the level of future currency exchange rates between a particular foreign currency and the U.S. dollar or
between foreign currencies in which its securities are or may be denominated. The Fund may enter into such contracts on a spot
(i.e., cash) basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward
contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract. Forward currency contracts (i) are traded in a market conducted directly between currency
traders (typically, commercial banks or other financial institutions) and their customers, (ii) generally have no deposit requirements
and (iii) are typically consummated without payment of any commissions. The Fund, however, may enter into forward currency contracts
requiring deposits or involving the payment of commissions.
The dealings of the Fund in
forward foreign exchange are limited to hedging involving either specific transactions or portfolio positions. Transaction hedging
is the purchase or sale of one forward foreign currency for another currency with respect to specific receivables or payables
of the Fund accruing in connection with the purchase and sale of its portfolio securities or its payment of distributions. Position
hedging is the purchase or sale of one forward foreign currency for another currency with respect to portfolio security positions
denominated or quoted in the foreign currency to offset the effect of an anticipated substantial appreciation or depreciation,
respectively, in the value of the currency relative to the U.S. dollar. In this situation, the Fund also may, for example, enter
into a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount where it is believed that
the U.S. dollar value of the currency to be sold or bought pursuant to the forward contract will fall or rise, as the case may
be, whenever there is a decline or increase, respectively, in the U.S. dollar value of the currency in which its portfolio securities
are denominated (this practice being referred to as a “cross-hedge”).
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In hedging a specific transaction,
the Fund may enter into a forward contract with respect to either the currency in which the transaction is denominated or another
currency deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency contracts is limited
to the amount of its aggregate investments in foreign currencies.
The use of forward currency
contracts may involve certain risks, including the failure of the counterparty to perform its obligations under the contract,
and such use may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts
and the prices of the currencies hedged or used for cover. The Fund will only enter into forward currency contracts with parties
which the Investment Adviser believes to be creditworthy institutions.
Securities of Investment
Companies. To the extent permitted by law, the Fund may invest in investment company securities, including preferred shares
and the common equity of such companies. Investments in the common equity of investment companies will cause the Fund to bear
a ratable share of any such investment company’s expenses, including management fees. The Fund will also remain obligated
to pay management fees to the Investment Adviser with respect to the assets invested in any securities of another investment company.
In these circumstances, holders of the Fund’s common shares will be subject to duplicative investment expenses.
Warrants and Rights.
The Fund may invest in warrants and rights (including those acquired in units or attached to other securities) which entitle
the holder to buy equity securities at a specific price for or at the end of a specific period of time. The Fund will do so only
if the underlying equity securities are deemed appropriate by the Investment Adviser for inclusion in the Fund’s portfolio.
Investing in rights and warrants
can provide a greater potential for profit or loss than an equivalent investment in the underlying security, and thus can be a
riskier investment. The value of a right or warrant may decline because of a decline in the value of the underlying security,
the passage of time, changes in interest rates or in the dividend or other policies of the Fund whose equity underlies the warrant,
a change in the perception as to the future price of the underlying security, or any combination thereof. Rights and warrants
generally pay no dividends and confer no voting or other rights other than the right to purchase the underlying security.
Investing in Japan.
There are special risks associated with investments in Japan. If the Fund invests in Japan, the value of the Fund’s shares
may vary widely in response to political and economic factors affecting companies in Japan. Political, social or economic disruptions
in Japan or in other countries in the region may adversely affect the values of Japanese securities and thus the Fund’s
holdings. Additionally, since securities in Japan are denominated and quoted in yen, the value of the Fund’s Japanese securities
as measured in U.S. dollars may be affected by fluctuations in the value of the Japanese yen relative to the U.S. dollar. Japanese
securities are also subject to the more general risks associated with foreign securities.
Investing in Latin America.
The economies of Latin American countries have in the past experienced considerable difficulties, including high inflation
rates and high interest rates. The emergence of the Latin American economies and securities markets will require continued economic
and fiscal discipline that has been lacking at times in the past, as well as stable political and social conditions. International
economic conditions, particularly those in the United States, as well as world prices for oil and other commodities may also influence
the development of the Latin American economies.
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Some Latin American currencies
have experienced steady devaluations relative to the U.S. dollar and certain Latin American countries have had to make major adjustments
in their currencies from time to time. In addition, governments of many Latin American countries have exercised and continue to
exercise substantial influence over many aspects of the private sector. Governmental actions in the future could have a significant
effect on economic conditions in Latin American countries, which could affect the companies in which the Fund invests and, therefore,
the value of the Fund’s shares. As noted, in the past, many Latin American countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. For companies that keep accounting records in the local currency,
inflation accounting rules in some Latin American countries require, for both tax and accounting purposes, that certain assets
and liabilities be restated on the company’s balance sheet in order to express items in terms of currency of constant purchasing
power. Inflation accounting may indirectly generate losses or profits for certain Latin American companies. Inflation and rapid
fluctuations in inflation rates have had, and could, in the future, have very negative effects on the economies and securities
markets of certain Latin American countries.
Substantial limitations may
exist in certain countries with respect to the Fund’s ability to repatriate investment income, capital or the proceeds of
sales of securities. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any restrictions on investments.
Certain Latin American countries
have entered into regional trade agreements that are designed to, among other things, reduce barriers between countries, increase
competition among companies and reduce government subsidies in certain industries. No assurances can be given that these changes
will be successful in the long-term, or that these changes will result in the economic stability intended. There is a possibility
that these trade arrangements will not be fully implemented, or will be partially or completely unwound. It is also possible that
a significant participant could choose to abandon a trade agreement, which could diminish its credibility and influence. Any of
these occurrences could have adverse effects on the markets of both participating and nonparticipating countries, including sharp
appreciation or depreciation of participants’ national currencies and a significant increase in exchange rate volatility,
a resurgence in economic protectionism, an undermining of confidence in the Latin American markets, an undermining of Latin American
economic stability, the collapse or slowdown of the drive towards Latin American economic unity, and/or reversion of the attempts
to lower government debt and inflation rates that were introduced in anticipation of such trade agreements. Such developments
could have an adverse impact on the Fund’s investments in Latin America generally or in specific countries participating
in such trade agreements.
Other Latin American market
risks include foreign exchange controls, difficulties in pricing securities, defaults on sovereign debt, difficulties in enforcing
favorable legal judgments in local courts and political and social instability. Legal remedies available to investors in certain
Latin American countries may be less extensive than those available to investors in the United States or other foreign countries.
Investing in Asia-Pacific
Countries. In addition to the risks of investing in foreign securities and the risks of investing in emerging markets,
the developing market Asia-Pacific countries are subject to certain additional or specific risks. In many of these markets, there
is a 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. Many of these markets also may be affected
by developments with
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respect to more established
markets in the region such as in Japan and Hong Kong. Brokers in developing market Asia-Pacific countries typically are fewer
in number and less well capitalized than brokers in the United States.
Many of the developing market
Asia-Pacific countries may be subject to a greater degree of economic, political and social instability than is the case in the
United States and Western European countries. Such instability may result from, among other things: (i) authoritarian governments
or military involvement in political and economic decision-making, including changes in government through extra-constitutional
means; (ii) popular unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and racial disaffection. In addition, the governments
of many of such countries, such as Indonesia, have a substantial role in regulating and supervising the economy.
Another risk common to most
such countries is that the economy is heavily export oriented and, accordingly, is dependent upon international trade. The existence
of overburdened infrastructure and obsolete financial systems also presents risks in certain countries, as do environmental problems.
Certain economies also depend to a significant degree upon exports of primary commodities and, therefore, are vulnerable to changes
in commodity prices that, in turn, may be affected by a variety of factors.
The rights of investors in
developing market Asia-Pacific companies may be more limited than those of shareholders of U.S. corporations. It may be difficult
or impossible to obtain and/or enforce a judgment in a developing market Asia-Pacific country.
Some developing Asia-Pacific
countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets,
by foreign entities. For example, certain countries may require governmental approval prior to investments by foreign persons
or limit the amount of investment by foreign persons in a particular company.
Asset-Backed and Mortgage-Backed
Securities. The Fund may invest in asset-backed and mortgage-backed securities, although investments in asset- or mortgage-backed
securities do not constitute a substantial part of the Fund’s investment portfolio.
Mortgage-backed securities
are securities that indirectly represent a participation in, or are secured by and payable from, a pool of mortgage loans secured
by real property. Aggregate principal and interest payments received from the pool are used to pay principal and interest on a
mortgage-backed security. Mortgage-backed securities may be more volatile than other fixed income securities and are subject to
prepayment risk which can result in the Fund failing to recoup all of its investment or achieving lower than expected returns.
Asset-backed securities are
securities, which through the use of trusts and special purpose vehicles, are securitized with various types of assets such as
automobile receivables, credit card receivables, home equity loans, leases or royalties in pass-through structures similar to
mortgage-backed securities. In general, the collateral supporting asset-backed securities is of shorter maturity than the collateral
supporting mortgage loans and is less likely to experience substantial prepayments. However, asset-backed securities are not backed
by any governmental agency.
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Prepayments of principal generally
may be made at any time without penalty on residential mortgages and these prepayments are passed through to holders of one or
more of the classes of mortgage-backed securities. Prepayment rates may change rapidly and greatly, thereby affecting yield to
maturity, reinvestment risk, and market value of the mortgage backed securities. As a result, the high credit quality of many
of these securities may provide little or no protection against loss in market value, and there have been periods during which
many mortgage backed securities have experienced substantial losses in market value. The Investment Adviser believes that, under
certain circumstances, many of these securities may trade at prices below their inherent value on a risk-adjusted basis and believes
that selective purchases by the Fund may provide high yield and total return in relation to risk levels.
Prepayments of principal may
be made at any time on the obligations underlying asset- and mortgage-backed securities and are passed on to the holders of the
asset- and mortgage-backed securities. As a result, if the Fund purchases such a security at a premium, faster than expected prepayments
will reduce and slower than expected prepayments will increase yield to maturity. Conversely, if the Fund purchases these securities
at a discount, faster than expected prepayments will increase and slower than expected prepayments will reduce yield to maturity.
Sovereign Government
and Supranational Debt. The Fund may invest in all types of debt securities of governmental issuers in all countries,
including emerging market countries. These sovereign debt securities may include: debt securities issued or guaranteed by governments,
governmental agencies or instrumentalities and political subdivisions located in emerging market countries; debt securities issued
by government owned, controlled or sponsored entities located in emerging market countries; interests in entities organized and
operated for the purpose of restructuring the investment characteristics of instruments issued by any of the above issuers; or
debt securities issued by supranational entities such as the World Bank. A supranational entity is a bank, commission or company
established or financially supported by the national governments of one or more countries to promote reconstruction or development.
Sovereign government and supranational
debt involve all the risks described in this Annual Report regarding foreign and emerging markets investments as well as the risk
of debt moratorium, repudiation or renegotiation. In addition, investments in sovereign debt involve special risks. Foreign governmental
issuers of debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal
or pay interest when due. In the event of default, there may be limited or no legal recourse in that, generally, remedies for
defaults must be pursued in the courts of the defaulting party. Political conditions, especially a sovereign entity’s willingness
to meet the terms of its debt obligations, are of considerable significance. The ability of a foreign sovereign issuer, especially
an emerging market country, to make timely payments on its debt obligations will also be strongly influenced by the sovereign
issuer’s balance of payments, including export performance, its access to international credit facilities and investments,
fluctuations of interest rates and the extent of its foreign reserves. The cost of servicing external debt will also generally
be adversely affected by rising international interest rates, as many external debt obligations bear interest at rates which are
adjusted based upon international interest rates. Also, there can be no assurance that the holders of commercial bank loans to
the same sovereign entity may not contest payments to the holders of sovereign debt in the event of default under commercial bank
loan agreements. In addition, there is no bankruptcy proceeding with respect to sovereign debt on which a sovereign has defaulted
and the Fund may be unable to collect all or any part of
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its investment in a particular
issue. Foreign investment in certain sovereign debt is restricted or controlled to varying degrees, including requiring governmental
approval for the repatriation of income, capital or proceeds of sales by foreign investors. These restrictions or controls may
at times limit or preclude foreign investment in certain sovereign debt and increase the costs and expenses of the Fund.
Loans of Portfolio Securities.
Consistent with applicable regulatory requirements and the Fund’s investment restrictions, the Fund may lend its
portfolio securities to securities broker-dealers or financial institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and are at all times collateralized by cash or cash equivalents, which
are maintained at all times in an amount equal to at least 100% of the market value, determined daily, of the loaned securities.
The advantage of such loans is that the Fund continues to receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in short-term highly liquid obligations. The Fund
will not lend its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares
are qualified for sale. The Fund’s loans of portfolio securities will be collateralized in accordance with applicable regulatory
requirements, which means that “cash equivalents” accepted as collateral will be limited to securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities or irrevocable letters of credit issued by a bank (other than a borrower
of the Fund’s portfolio securities or any affiliate of such borrower) which qualifies as a custodian bank for an investment
company under the 1940 Act. The Fund’s ability to lend portfolio securities may be limited by rating agency guidelines (if
any).
A loan may generally be terminated
by the borrower on one business day’s notice, or by the Fund at any time thereby requiring the borrower to redeliver the
borrowed securities within the normal and customary settlement time for securities transactions. If the borrower fails to deliver
the loaned securities within the normal and customary settlement time for securities transactions, the Fund could use the collateral
to replace the securities while holding the borrower liable for any excess of replacement cost over the value of the collateral
pledged by the borrower. As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities violate the terms of the loan or fail financially. However, these
loans of portfolio securities will only be made to firms deemed by the Investment Adviser to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. The Board will oversee the creditworthiness of the contracting
parties on an ongoing basis. Upon termination of the loan, the borrower is required to return the securities to the Fund. Any
gain or loss in the market price during the loan period would inure to the Fund.
The risks associated with loans
of portfolio securities are substantially similar to those associated with repurchase agreements. Thus, if the counter party to
the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the
Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund’s ability to sell the
collateral and the Fund would suffer a loss. Moreover, because the Fund will reinvest any cash collateral it receives, as described
above, the Fund is subject to the risk that the value of the investments it makes will decline and result in losses to the Fund.
These losses, in extreme circumstances such as the 2007-2009 financial crisis, could be substantial and have a significant adverse
impact on the Fund and its shareholders.
When voting or consent rights
which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the loaned securities, to be
delivered within one day after notice, to permit the exercise
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of such rights if the matters
involved would have a material effect on the Fund’s investment in such loaned securities. The Fund will pay reasonable finder’s,
administrative and custodial fees in connection with a loan of its securities, and may also pay fees to one or more securities
lending agents and/or pay other fees or rebates to borrowers.
Additional Risks Relating
to Derivative Investments
Counterparty Risk. The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties,
the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization
proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
The counterparty risk for cleared
derivatives is generally lower than for uncleared OTC derivative transactions since generally a clearing organization becomes
substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the parties’ performance under
the contract as each party to a trade looks only to the clearing organization for performance of financial obligations under the
derivative contract. However, there can be no assurance that a clearing organization, or its members, will satisfy its obligations
to the Fund, or that the Fund would be able to recover the full amount of assets deposited on its behalf with the clearing organization
in the event of the default by the clearing organization or the Fund’s clearing broker. In addition, cleared derivative
transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable
to intermediaries. Uncleared OTC derivative transactions generally do not benefit from such protections. This exposes the Fund
to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute
over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Fund to
suffer a loss. Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene
to prevent settlement, or where the Fund has concentrated its transactions with a single or small group of counterparties.
Failure of Futures Commission
Merchants and Clearing Organizations Risk. The Fund may deposit funds required to margin open positions in the derivative
instruments subject to the Commodity Exchange Act (“CEA”) with a clearing broker registered as a “futures commission
merchant” (“FCM”). The CEA requires an FCM to segregate all funds received from customers with respect to any
orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the FCM’s proprietary assets.
Similarly, the CEA requires each FCM to hold in a separate secure account all funds received from customers with respect to any
orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect
to domestic futures contracts. However, all funds and other property received by a clearing broker from its customers are held
by the clearing broker on a commingled basis in an omnibus account and may be invested by the clearing broker in certain instruments
permitted under the applicable regulation. There is a risk that assets deposited by the Fund with any swaps or futures clearing
broker as margin for futures contracts may, in certain circumstances, be used to satisfy losses of other clients of the Fund’s
clearing broker. In addition, the assets of the Fund may not be fully protected in the event of the clearing broker’s bankruptcy,
as the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing broker’s
combined domestic customer accounts.
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Similarly, the CEA requires
a clearing organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property
received from a clearing member’s clients in connection with domestic futures, swaps and options contracts from any funds
held at the clearing organization to support the clearing member’s proprietary trading. Nevertheless, with respect to futures
and options contracts, a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing
organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. As a
result, in the event of a default or the clearing broker’s other clients or the clearing broker’s failure to extend
own funds in connection with any such default, the Fund would not be able to recover the full amount of assets deposited by the
clearing broker on its behalf with the clearing organization.
Derivatives Risk
Regulation. The Dodd-Frank Act has made broad changes to the derivatives market, granted significant new authority to
the CFTC and the SEC to regulate derivatives (swaps and security-based swaps) and participants in these markets. The
Dodd-Frank Act is intended to regulate the derivatives market by requiring many derivative transactions to be cleared and
traded on an exchange, expanding entity registration requirements, imposing business conduct requirements on dealers and
requiring banks to move some derivatives trading units to a non-guaranteed affiliate separate from the deposit-taking bank or
divest them altogether. The CFTC has implemented mandatory clearing and exchange-trading of certain derivatives contracts
including many standardized interest rate swaps and credit default index swaps. The CFTC continues to approve contracts for
central clearing. Exchange-trading and central clearing are expected to reduce counterparty credit risk by substituting the
clearinghouse as the counterparty to a swap and increase liquidity, but exchange-trading and central clearing do not make
swap transactions risk-free. Uncleared swaps, such as non-deliverable foreign currency forwards, are subject to certain
margin requirements that mandate the posting and collection of minimum margin amounts. This requirement may result in the
Fund and its counterparties posting higher margin amounts for uncleared swaps than would otherwise be the case. Certain rules
require centralized reporting of detailed information about many types of cleared and uncleared swaps. Reporting of swap data
may result in greater market transparency, but may subject the Fund to additional administrative burdens, and the safeguards
established to protect trader anonymity may not function as expected.
In addition, on October 28,
2020, the SEC adopted new regulations governing the use of derivatives by closed-end funds, which the Fund was required to comply
with as of August 19, 2022. As a result, the Fund is required to implement and comply with the Rule 18f-4 limits described previously
under “Special Risks Related to Investment in Derivatives” on the amount of derivatives the Fund can enter into, eliminate
the asset segregation framework previously used to comply with Section 18 of the 1940 Act, treat derivatives as senior securities
so that a failure to comply with the limits would result in a statutory violation and require the Fund, if the Fund’s use
of derivatives is more than a limited specified exposure amount (10% of net assets), to establish and maintain a comprehensive
derivatives risk management program and appoint a derivatives risk manager. These requirements may limit the ability of the Fund
to invest in derivatives, engage in securities lending activities, short sales, reverse repurchase agreements and similar financing
transactions. Additionally, Rule 18f-4 and the SEC’s corresponding recission and withdrawal of prior guidance and relief
related to asset segregation and asset coverage requirements under section 18 of the 1940 Act may affect the Fund’s ability
to implement its investment strategy, pursue its investment objectives and may increase the cost of the Fund’s investments.
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Special Risk Considerations
Relating to Futures and Options Thereon. The Fund’s ability to establish and close out positions in futures contracts
and options thereon will be subject to the development and maintenance of liquid markets. Although the Fund generally purchases
or sells only those futures contracts and options thereon for which there appears to be a liquid market, there is no assurance
that a liquid market on an exchange will exist for any particular futures contract or option thereon at any particular time. In
the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position,
it will not be possible to effect a closing transaction in that contract or to do so at a satisfactory price and the Fund would
have to either make or take delivery under the futures contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a purchased option, exercise the option. In the case of
a futures contract or an option thereon which the Fund has written and which the Fund is unable to close, the Fund would be required
to maintain margin deposits on the futures contract or option thereon and to make variation margin payments until the contract
is closed.
Successful use of futures contracts
and options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser to predict correctly
movements in the direction of interest and foreign currency rates. If the Investment Adviser’s expectations are not met,
the Fund will be in a worse position than if a hedging strategy had not been pursued. For example, if the Fund has hedged against
the possibility of an increase in interest rates that would adversely affect the price of securities in its portfolio and the
price of such securities increases instead, the Fund will lose part or all of the benefit of the increased value of its securities
because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities to meet the requirements. These sales may be,
but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time
when it is disadvantageous to do so.
Limitations on the Purchase
and Sale of Futures Contracts and Options on Futures Contracts. Subject to the guidelines of the Board, the Fund may engage
in “commodity interest” transactions (generally, transactions in futures, certain options, certain currency transactions
and certain types of swaps) only for bona fide hedging, yield enhancement and risk management purposes, in each case in accordance
with the rules and regulations of the CFTC. CFTC Rule 4.5, upon which the Fund relies to avoid having its adviser register with
the CFTC as a “commodity pool operator,” imposes certain commodity interest trading restrictions on the Fund. These
trading restrictions permit the Fund to engage in commodity interest transactions that include (i) “bona fide hedging”
transactions, as that term is defined and interpreted by the CFTC and its staff, without regard to the percentage of the Fund’s
assets committed to margin and option premiums and (ii) non-bona fide hedging transactions, provided that the Fund not enter into
such non-bona fide hedging transactions if, immediately thereafter, either (a) the sum of the amount of initial margin deposits
on the Fund’s existing futures or swaps positions and option or swaption premiums would exceed 5% of the market value of
the Fund’s liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions,
or (b) the aggregate net notional value of the Fund’s commodity interest transactions would not exceed 100% of the market
value of the Fund’s liquidating value, after taking into account unrealized profits and unrealized losses on any such transactions.
In addition to meeting one of the foregoing trading limitations, the Fund may not market itself as a commodity pool or otherwise
as a vehicle for trading in the futures, options or swaps markets. If the Investment Adviser was required to register as a commodity
pool operator with respect to the Fund, compliance with additional
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Additional Fund Information (Continued) (Unaudited)
registration and regulatory
requirements would increase Fund expenses. Other potentially adverse regulatory initiatives could also develop.
Additional Risks of
Foreign Options, Futures Contracts, Options on Futures Contracts and Forward Contracts. Options, futures contracts
and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays
in the Fund’s ability to act upon economic events occurring in the foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United States and (v) lesser trading volume.
Exchanges on which options,
futures and options on futures are traded may impose limits on the positions that the Fund may take in certain circumstances.
Risks of Currency Transactions.
Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of
currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation
of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action can result
in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and could also cause
hedges it has entered into to be rendered useless, resulting in full currency exposure and incurring transaction costs.
INVESTMENT RESTRICTIONS
The Fund operates under the
following restrictions that constitute fundamental policies under the 1940 Act and that, except as otherwise noted, cannot be
changed without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding voting securities (voting together
as a single class) of the Fund. If the Fund issues and has outstanding preferred shares, the affirmative vote of the holders of
a majority (as defined under the 1940 Act) of the outstanding preferred shares of the Fund voting as a separate class would also
be required to change a fundamental policy. Except as otherwise noted, all percentage limitations set forth below apply immediately
after a purchase or initial investment and any subsequent change in any applicable percentage resulting from market fluctuations
does not require any action. The Fund may not:
(1) invest more than 25% of its total assets, taken at market value at the time of each investment, in the securities of issuers
in any particular industry. This restriction does not apply to investments in U.S. government securities;
(2) purchase commodities or commodity contracts if such purchase would result in regulation of the Fund as a commodity pool
operator;
(3) purchase or sell real estate, provided the Fund may invest in securities and other instruments secured by real estate or
interests therein or issued by companies that invest in real estate or interests therein;
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Additional Fund Information (Continued) (Unaudited)
(4) make loans of money or other property, except that (i) the Fund may acquire debt obligations of any type (including through
extensions of credit), enter into repurchase agreements and lend portfolio assets and (ii) the Fund may lend money or other property
to other investment companies advised by the Investment Adviser pursuant to a common lending program to the extent permitted by
applicable law;
(5) borrow money, except to the extent permitted by applicable law;
(6) issue senior securities, except to the extent permitted by applicable law; or
(7) underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under applicable law in
selling portfolio securities; provided, however, this restriction shall not apply to securities of any investment company organized
by the Fund that are to be distributed pro rata as a dividend to its shareholders.
With respect to investment
restriction (2), the Fund may only sell commodities or commodity contracts to the extent consistent with maintaining its or the
Investment Adviser’s exclusion from “commodity pool operator” status under CFTC Rule 4.5. See “Investment
Policies—Additional Risks Relating to Derivative Investments— Limitations on the Purchase and Sale of Futures Contracts
and Options on Futures Contracts.”
With respect to investment
restriction (5), the 1940 Act permits the Fund to borrow money in amounts of up to one-third of the Fund’s total assets
from banks for any purpose, and to borrow up to 5% of the Fund’s total assets from banks or other lenders for temporary
purposes. The Fund’s total assets include the amounts being borrowed. To limit the risks attendant to borrowing, the 1940
Act requires the Fund to maintain at all times an “asset coverage” of at least 300% of the amount of its borrowings.
Asset coverage means the ratio that the value of the Fund’s total assets (including amounts borrowed), minus liabilities
other than borrowings, bears to the aggregate amount of all borrowings. Borrowing money to increase portfolio holdings is known
as “leveraging.”
The investment restriction
in (5) above will be interpreted to permit the Fund to (a) engage in in securities lending in accordance with SEC staff guidance
and interpretations and (b) settle securities transactions within the ordinary settlement cycle for such transactions.
Practices and investments that
may involve leverage but are not considered to be borrowings are not subject to the policy.
With respect to investment
restriction (6), under the 1940 Act, the Fund may issue senior securities (which may be stock, such as preferred shares, and/or
securities representing debt, such as notes) only if immediately after such issuance the value of the Fund’s total assets,
less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount of
preferred shares (measured by liquidation value) and debt outstanding, which is referred to as the “asset coverage”
required by the 1940 Act. The 1940 Act also generally restricts the Fund from declaring cash distributions on, or repurchasing,
common or preferred shares unless outstanding debt securities have an asset coverage of 300% (200% in the case of declaring distributions
on preferred shares), or from declaring cash distributions on, or repurchasing, common shares unless preferred shares have an
asset coverage of 200% (in each case, after giving effect to such distribution or repurchase).
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Additional Fund Information (Unaudited)
(Continued)
MANAGEMENT OF THE FUND