UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMN-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21969
The GDL Fund
(Exact name of registrant as specified in charter)
One Corporate Center
Rye, New York 10580-1422
(Address of principal executive offices) (Zip code)
Bruce N. Alpert
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1422
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-800-422-3554
Date of fiscal year end: December 31
Date of reporting period: December 31, 2019
FormN-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule30e-1 under the Investment Company Act of 1940 (17 CFR270.30e-1). The Commission may use the information provided on FormN-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by FormN-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in FormN-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
The GDL Fund
Annual Report — December 31, 2019
(Y)our Portfolio Management Team
Mario J. Gabelli, CFA | Willis M. Brucker | Regina M. Pitaro, | ||||||
Chief Investment Officer | Portfolio Manager | Managing Director, | ||||||
BS, Boston College | MBA, Columbia | |||||||
Business School |
To Our Shareholders,
For the year ended December 31, 2019, the net asset value (NAV) total return of The GDL Fund was 5.1%, compared with a total return of 2.3% for the ICE Bank of America Merrill Lynch 3 Month U.S. Treasury Bill Index. The total return for the Fund’s publicly traded shares was 5.8%. The Fund’s NAV per share was $11.15, while the price of the publicly traded shares closed at $9.30 on the New York Stock Exchange (NYSE). See page 2 for additional performance information.
Enclosed are the financial statements, including the schedule of investments, as of December 31, 2019.
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.gabelli.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. To elect to receive all future reports on paper free of charge, please contact your financial intermediary, or, if you invest directly with the Fund, you may call800-422-3554 or send an email request to info@gabelli.com.
Comparative Results
Average Annual Returns through December 31, 2019 (a) (Unaudited) | ||||||||||||||||||||
1 Year | 3 Year | 5 Year | 10 Year | Since Inception (01/31/07) | ||||||||||||||||
GDL Fund | ||||||||||||||||||||
NAV Total Return (b) | 5.15 | % | 1.92 | % | 2.95 | % | 3.07 | % | 2.75 | % | ||||||||||
Investment Total Return (c) | 5.81 | 2.91 | 3.53 | 3.18 | 1.96 | |||||||||||||||
ICE Bank of America Merrill Lynch 3 Month U.S. Treasury Bill Index | 2.28 | 1.67 | 1.07 | 0.58 | 0.97 |
(a) | Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. The Fund’s use of leverage may magnify the volatility of net asset value changes versus funds that do not employ leverage. When shares are sold, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing.The ICE Bank of America Merrill Lynch 3 Month U.S. Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month, that issue is sold and rolled into the outstanding Treasury Bill that matures closest to, but not beyond three months from there-balancing date. To qualify for selection, an issue must have settled on or before there-balancing (month end) date. Dividends are not reinvested for the ICE Bank of America Merrill Lynch 3 Month U.S. Treasury Bill Index. You cannot invest directly in an index. |
(b) | Total returns and average annual returns reflect changes in the NAV per share and reinvestment of distributions at NAV on theex-dividend date and are net of expenses. Since inception return is based on an initial NAV of $19.06. |
(c) | Total returns and average annual returns reflect changes in closing market values on the NYSE and reinvestment of distributions. Since inception return is based on an initial offering price of $20.00. |
2
Summary of Portfolio Holdings (Unaudited)
The following table presents portfolio holdings as a percent of total investments before securities sold short as of December 31, 2019:
The GDL Fund
Long Positions | ||||
U.S. Government Obligations | 27.1 | % | ||
Health Care | 19.0 | % | ||
Energy and Utilities | 8.8 | % | ||
Hotels and Gaming | 4.8 | % | ||
Aerospace | 4.5 | % | ||
Specialty Chemicals | 4.3 | % | ||
Retail | 3.7 | % | ||
Business Services | 3.6 | % | ||
Automotive: Parts and Accessories | 3.5 | % | ||
Telecommunications | 3.1 | % | ||
Computer Software and Services | 2.9 | % | ||
Closed-End Funds | 2.5 | % | ||
Food and Beverage | 2.2 | % | ||
Semiconductors | 1.8 | % | ||
Entertainment | 1.3 | % | ||
Financial Services | 1.2 | % | ||
Transportation | 1.2 | % | ||
Building and Construction | 1.1 | % | ||
Electronics | 1.0 | % |
Cable and Satellite | 0.7 | % | ||
Real Estate | 0.7 | % | ||
Paper and Forest Products | 0.4 | % | ||
Machinery | 0.3 | % | ||
Metals and Mining | 0.2 | % | ||
Wireless Communications | 0.1 | % | ||
Diversified Industrial | 0.0 | %* | ||
|
| |||
100.0 | % | |||
|
| |||
Short Positions | ||||
Health Care | (2.5 | )% | ||
Hotels and Gaming | (1.7 | )% | ||
Building and Construction | (0.5 | )% | ||
Financial Services | (0.2 | )% | ||
Real Estate | (0.1 | )% | ||
|
| |||
(5.0 | )% | |||
|
|
* | Amount represents less than 0.05%. |
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the SEC) for the first and third quarters of each year on FormN-PORT. Shareholders may obtain this information at www.gabelli.com or by calling the Fund at800-GABELLI(800-422-3554). The Fund’s FormN-PORT is available on the SEC’s website at www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling800-SEC-0330.
Proxy Voting
The Fund files FormN-PX with its complete proxy voting record for the twelve months ended June 30, no later than August 31 of each year. A description of the Fund’s proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling800-GABELLI(800-422-3554); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC’s website at www.sec.gov.
3
The GDL Fund
Schedule of Investments — December 31, 2019
Shares | Cost | Market Value | ||||||||||
COMMON STOCKS— 70.0% |
| |||||||||||
Aerospace — 4.5% | ||||||||||||
4,500,000 | Cobham plc | $ | 9,026,236 | $ | 9,790,513 | |||||||
500,000 | Wesco Aircraft Holdings Inc.† | 5,503,571 | 5,510,000 | |||||||||
|
|
|
| |||||||||
14,529,807 | 15,300,513 | |||||||||||
|
|
|
| |||||||||
Automotive: Parts and Accessories — 3.5% |
| |||||||||||
52,000 | Haldex AB | 503,811 | 283,141 | |||||||||
85,000 | WABCO Holdings Inc.† | 11,297,430 | 11,517,500 | |||||||||
|
|
|
| |||||||||
11,801,241 | 11,800,641 | |||||||||||
|
|
|
| |||||||||
Building and Construction — 1.1% |
| |||||||||||
50,000 | Continental Building Products Inc.† | 1,823,495 | 1,821,500 | |||||||||
5,000 | Cramo Oyj | 74,310 | 74,257 | |||||||||
1,000 | Koninklijke Volkerwessels NV | 24,500 | 24,621 | |||||||||
40,000 | Lennar Corp., Cl. B | 1,454,362 | 1,788,000 | |||||||||
5,000 | William Lyon Homes, Cl. A† | 105,410 | 99,900 | |||||||||
|
|
|
| |||||||||
3,482,077 | 3,808,278 | |||||||||||
|
|
|
| |||||||||
Business Services — 3.6% |
| |||||||||||
120,038 | Clear Channel Outdoor Holdings Inc.† | 427,179 | 343,309 | |||||||||
87,000 | exactEarth Ltd.† | 249,767 | 18,089 | |||||||||
82,974 | Tech Data Corp.† | 11,912,683 | 11,915,066 | |||||||||
|
|
|
| |||||||||
12,589,629 | 12,276,464 | |||||||||||
|
|
|
| |||||||||
Cable and Satellite — 0.7% |
| |||||||||||
23,000 | Liberty Global plc, Cl. A† | 820,747 | 523,020 | |||||||||
48,000 | Liberty Global plc, Cl. C† | 1,678,557 | 1,046,160 | |||||||||
16,000 | Liberty Latin America Ltd., Cl. A† | 348,022 | 308,800 | |||||||||
28,000 | Liberty Latin America Ltd., Cl. C† | 630,975 | 544,880 | |||||||||
|
|
|
| |||||||||
3,478,301 | 2,422,860 | |||||||||||
|
|
|
| |||||||||
Computer Software and Services — 2.9% |
| |||||||||||
51,000 | Altran Technologies SA | 793,723 | 810,051 | |||||||||
10,000 | Business & Decision† | 92,512 | 86,652 | |||||||||
800,000 | Cision Ltd.† | 7,986,257 | 7,976,000 | |||||||||
5,000 | Instructure Inc.† | 241,400 | 241,050 | |||||||||
2,000 | Just Eat plc† | 19,156 | 22,116 | |||||||||
4,000 | LogMeIn Inc. | 344,244 | 342,960 | |||||||||
6,000 | NortonLifeLock Inc. | 155,458 | 153,120 | |||||||||
20,000 | Sophos Group plc | 146,825 | 147,826 | |||||||||
|
|
|
| |||||||||
9,779,575 | 9,779,775 | |||||||||||
|
|
|
| |||||||||
Diversified Industrial — 0.0% |
| |||||||||||
500 | Anixter International Inc.† | 41,064 | 46,050 | |||||||||
|
|
|
| |||||||||
Electronics — 1.0% |
| |||||||||||
71,000 | Bel Fuse Inc., Cl. A | 1,818,628 | 1,136,000 | |||||||||
360,000 | Fitbit Inc., Cl. A† | 2,577,205 | 2,365,200 | |||||||||
|
|
|
| |||||||||
4,395,833 | 3,501,200 | |||||||||||
|
|
|
| |||||||||
Energy and Utilities — 8.8% |
| |||||||||||
39,000 | AltaGas Canada Inc. | 989,265 | 1,002,218 |
Shares | Cost | Market Value | ||||||||||
20,000 | Alvopetro Energy Ltd.† | $ | 7,446 | $ | 12,013 | |||||||
3,500 | Avista Corp. | 179,305 | 168,315 | |||||||||
146,915 | El Paso Electric Co. | 9,842,774 | 9,974,059 | |||||||||
45,000 | Endesa SA | 1,123,130 | 1,200,841 | |||||||||
727 | Energy Transfer LP | 9,162 | 9,327 | |||||||||
460,000 | Gulf Coast Ultra Deep Royalty Trust | 30,398 | 11,960 | |||||||||
10,000 | Noble Energy Inc. | 379,709 | 248,400 | |||||||||
95,756 | Pattern Energy Group Inc., Cl. A | 2,584,983 | 2,561,952 | |||||||||
670,000 | Tallgrass Energy LP, Cl. A | 14,758,704 | 14,820,400 | |||||||||
|
|
|
| |||||||||
29,904,876 | 30,009,485 | |||||||||||
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|
|
| |||||||||
Entertainment — 1.3% |
| |||||||||||
500,054 | Central European Media Enterprises Ltd., Cl. A† | 2,251,361 | 2,265,245 | |||||||||
2,000 | Cineplex Inc. | 51,709 | 52,135 | |||||||||
3,500 | Fox Corp., Cl. A | 128,589 | 129,745 | |||||||||
55,000 | Fox Corp., Cl. B | 2,277,000 | 2,002,000 | |||||||||
|
|
|
| |||||||||
4,708,659 | 4,449,125 | |||||||||||
|
|
|
| |||||||||
Financial Services — 1.2% |
| |||||||||||
3,000 | Bolsas y Mercados Espanoles SHMSF SA | 116,016 | 115,693 | |||||||||
1,000 | Charles Taylor plc | 4,079 | 4,557 | |||||||||
1,000 | Entegra Financial Corp.† | 29,504 | 30,160 | |||||||||
900,000 | Ladenburg Thalmann Financial Services Inc. | 3,146,856 | 3,132,000 | |||||||||
45,000 | MoneyGram International Inc.† | 95,628 | 94,500 | |||||||||
2,500 | SLM Corp. | 21,099 | 22,275 | |||||||||
10,000 | Steuben Trust Co. | 647,708 | 718,750 | |||||||||
1,500 | VersaPay Corp.† | 3,056 | 3,096 | |||||||||
|
|
|
| |||||||||
4,063,946 | 4,121,031 | |||||||||||
|
|
|
| |||||||||
Food and Beverage — 2.2% |
| |||||||||||
405,888 | Craft Brew Alliance Inc.† | 6,676,848 | 6,697,152 | |||||||||
1,300,000 | Premier Foods plc† | 866,058 | 651,774 | |||||||||
950,000 | Yashili International Holdings Ltd. | 429,196 | 85,341 | |||||||||
|
|
|
| |||||||||
7,972,102 | 7,434,267 | |||||||||||
|
|
|
| |||||||||
Health Care — 18.7% |
| |||||||||||
70,000 | Achillion Pharmaceuticals Inc.† | 432,817 | 422,100 | |||||||||
100,000 | Akorn Inc.† | 680,304 | 150,000 | |||||||||
45,000 | Allergan plc | 7,776,390 | 8,602,650 | |||||||||
76,855 | ArQule Inc.† | 1,539,706 | 1,534,026 | |||||||||
14,000 | AstraZeneca plc, ADR | 467,992 | 698,040 | |||||||||
253,700 | Audentes Therapeutics Inc.† | 15,171,081 | 15,181,408 | |||||||||
10,000 | Consort Medical plc | 135,863 | 135,772 | |||||||||
350,000 | Diplomat Pharmacy Inc.† | 1,381,353 | 1,400,000 | |||||||||
17,400 | Hemacare Corp.† | 437,927 | 439,350 | |||||||||
30,000 | Idorsia Ltd.† | 308,848 | 928,084 | |||||||||
324,000 | Pacific Biosciences of California Inc.† | 2,353,908 | 1,665,360 |
See accompanying notes to financial statements.
4
The GDL Fund
Schedule of Investments (Continued) — December 31, 2019
Shares | Cost | Market Value | ||||||||||
COMMON STOCKS (Continued) |
| |||||||||||
Health Care (Continued) | ||||||||||||
14,000 | Ra Pharmaceuticals Inc.† | $ | 646,976 | $ | 657,020 | |||||||
30,000 | Spark Therapeutics Inc.† | 3,341,629 | 3,435,000 | |||||||||
180,000 | The Medicines Co.† | 15,241,020 | 15,289,200 | |||||||||
23,982 | WellCare Health Plans Inc.† | 7,934,079 | 7,919,096 | |||||||||
174,132 | Wright Medical Group NV† | 5,254,230 | 5,307,543 | |||||||||
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|
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| |||||||||
63,104,123 | 63,764,649 | |||||||||||
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Hotels and Gaming — 4.8% |
| |||||||||||
1,100,000 | Caesars Entertainment Corp.† | 14,583,244 | 14,960,000 | |||||||||
18,000 | Cherry AB, Cl. B†(a) | 170,911 | 167,194 | |||||||||
31,613 | Gamenet Group SpA | 453,538 | 460,986 | |||||||||
36,000 | The Stars Group Inc.† | 708,496 | 939,240 | |||||||||
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15,916,189 | 16,527,420 | |||||||||||
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Machinery — 0.3% |
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2,000 | AquaVenture Holdings Ltd.† | 53,860 | 54,240 | |||||||||
14,000 | CIRCOR International Inc.† | 559,036 | 647,360 | |||||||||
15,000 | CNH Industrial NV | 107,938 | 164,722 | |||||||||
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720,834 | 866,322 | |||||||||||
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Metals and Mining — 0.1% |
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55,000 | Alamos Gold Inc., Cl. A | 743,477 | 331,100 | |||||||||
20,000 | Artemis Gold Inc.† | 152 | 20,022 | |||||||||
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743,629 | 351,122 | |||||||||||
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Paper and Forest Products — 0.4% |
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150,000 | Canfor Corp.† | 1,702,958 | 1,402,333 | |||||||||
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Real Estate — 0.7% |
| |||||||||||
288,745 | Atrium European Real Estate Ltd. | 1,162,687 | 1,117,409 | |||||||||
26,990 | Condor Hospitality Trust Inc., REIT | 298,357 | 297,970 | |||||||||
2,500 | Hansteen Holdings plc | 3,840 | 3,855 | |||||||||
8,000 | Liberty Property Trust | 468,549 | 480,400 | |||||||||
75,000 | Temple Hotels Inc.† | 119,691 | 120,134 | |||||||||
8,000 | Vastned Retail Belgium NV, REIT | 553,412 | 401,122 | |||||||||
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2,606,536 | 2,420,890 | |||||||||||
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Retail — 3.7% |
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10,000 | Hudson’s Bay Co. | 77,010 | 76,085 | |||||||||
20,000 | Swedol AB, Cl. B | 95,412 | 98,971 | |||||||||
92,000 | Tiffany & Co. | 12,268,301 | 12,295,800 | |||||||||
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12,440,723 | 12,470,856 | |||||||||||
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Semiconductors — 1.8% |
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80,000 | Cypress Semiconductor Corp. | 1,825,793 | 1,866,400 | |||||||||
35,000 | Mellanox Technologies Ltd.† | 4,145,592 | 4,101,300 | |||||||||
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5,971,385 | 5,967,700 | |||||||||||
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Specialty Chemicals — 4.3% |
| |||||||||||
161,752 | Innophos Holdings Inc. | 5,156,169 | 5,172,829 | |||||||||
930,000 | OMNOVA Solutions Inc.† | 9,344,955 | 9,402,300 |
Shares | Cost | Market Value | ||||||||||
5,000 | SGL Carbon SE† | $ | 44,464 | $ | 26,584 | |||||||
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| |||||||||
14,545,588 | 14,601,713 | |||||||||||
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Telecommunications — 3.1% |
| |||||||||||
30,000 | Acacia Communications Inc.† | 1,973,081 | 2,034,300 | |||||||||
3,000 | Cincinnati Bell Inc.† | 30,967 | 31,410 | |||||||||
175,000 | Koninklijke KPN NV | 535,802 | 516,461 | |||||||||
1,200 | Loral Space & Communications Inc.† | 37,479 | 38,784 | |||||||||
713,121 | NII Holdings Inc.† | 1,546,255 | 1,547,473 | |||||||||
2,400 | North State Telecommunications Corp., Cl. B | 185,270 | 187,200 | |||||||||
21,000 | Parrot SA† | 76,152 | 62,894 | |||||||||
180,000 | Zayo Group Holdings Inc.† | 6,098,470 | 6,237,000 | |||||||||
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| |||||||||
�� | 10,483,476 | 10,655,522 | ||||||||||
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Transportation — 1.2% |
| |||||||||||
40,000 | Abertis Infraestructuras SA†(a) | 864,972 | 290,297 | |||||||||
100,000 | Aircastle Ltd. | 3,226,670 | 3,201,000 | |||||||||
2,000 | XPO Logistics Europe SA | 484,562 | 583,287 | |||||||||
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|
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| |||||||||
4,576,204 | 4,074,584 | |||||||||||
|
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Wireless Communications — 0.1% |
| |||||||||||
5,000 | T-Mobile US Inc.† | 329,589 | 392,100 | |||||||||
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| |||||||||
TOTAL COMMON STOCKS | 239,888,344 | 238,444,900 | ||||||||||
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|
|
| |||||||||
CLOSED-END FUNDS — 2.5% |
| |||||||||||
415,000 | Altaba Inc., Escrow† | 8,514,032 | 8,611,250 | |||||||||
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|
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PREFERRED STOCKS — 0.0% |
| |||||||||||
Financial Services — 0.0% |
| |||||||||||
2,968 | Steel Partners Holdings LP, Ser. A, 6.000%, 02/07/26 | 47,114 | 69,244 | |||||||||
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|
|
| |||||||||
CONVERTIBLE PREFERRED STOCKS — 0.0% |
| |||||||||||
Telecommunications — 0.0% |
| |||||||||||
1,000 | Cincinnati Bell Inc. | 47,351 | 47,500 | |||||||||
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|
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RIGHTS — 0.4% |
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Business Services — 0.0% |
| |||||||||||
9,091 | TheStreet Inc., CVR†(a) | 818 | 818 | |||||||||
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|
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| |||||||||
Entertainment — 0.0% |
| |||||||||||
225,000 | Media General Inc., CVR†(a) | 0 | 0 | |||||||||
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|
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| |||||||||
Health Care — 0.3% |
| |||||||||||
215,942 | Alder BioPharmaceuticals | 0 | 194,348 | |||||||||
79,391 | Ambit Biosciences Corp., CVR†(a) | 0 | 160,767 | |||||||||
136,000 | Bristol-Myers Squibb Co., CVR† | 312,800 | 409,360 | |||||||||
30,000 | Corium International, CVR†(a) | 15,000 | 5,400 | |||||||||
103,040 | Dova Pharmaceuticals Inc., CVR†(a) | 0 | 51,520 |
See accompanying notes to financial statements.
5
The GDL Fund
Schedule of Investments (Continued) — December 31, 2019
Shares | Cost | Market Value | ||||||||||
RIGHTS (Continued) |
| |||||||||||
Health Care (Continued) |
| |||||||||||
400,000 | Elanco Animal Health Inc., CVR†(a) | $ | 2 | $ | 20,000 | |||||||
300,000 | Innocoll, CVR†(a) | 180,000 | 3 | |||||||||
125,000 | Ipsen SA/Clementia, CVR†(a) | 168,750 | 168,750 | |||||||||
23,000 | Ocera Therapeutics, CVR†(a) | 6,210 | 6,785 | |||||||||
100 | Omthera Pharmaceuticals Inc., CVR†(a) | 0 | 0 | |||||||||
346,322 | Teva Pharmaceutical Industries Ltd., CCCP, expire 02/20/23†(a) | 164,073 | 0 | |||||||||
11,000 | Tobira Therapeutics Inc., CVR†(a) | 660 | 660 | |||||||||
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| |||||||||
847,495 | 1,017,593 | |||||||||||
|
|
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| |||||||||
Metals and Mining — 0.1% |
| |||||||||||
419,000 | Pan American Silver Corp., CVR† | 96,370 | 314,250 | |||||||||
|
|
|
| |||||||||
Specialty Chemicals — 0.0% |
| |||||||||||
25,772 | A. Schulman Inc., | 13,479 | 13,479 | |||||||||
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|
| |||||||||
TOTAL RIGHTS | 958,162 | 1,346,140 | ||||||||||
|
|
|
| |||||||||
Principal Amount | ||||||||||||
U.S. GOVERNMENT OBLIGATIONS — 27.1% |
| |||||||||||
$92,486,000 | U.S. Treasury Bills, 1.515% to 1.888%††, 01/02/20 to 05/28/20(b) | 92,237,608 | 92,260,294 | |||||||||
|
|
|
| |||||||||
| TOTAL INVESTMENTS BEFORE | $ | 341,692,611 | 340,779,328 | ||||||||
|
| |||||||||||
SECURITIES SOLD SHORT — (5.0)% |
| |||||||||||
(Proceeds received $16,088,183) |
| (16,930,174 | ) | |||||||||
|
|
Market Value | ||||||||||||
Other Assets and Liabilities (Net) | $ | (17,961,885 | ) | |||||||||
| PREFERRED STOCK | (131,201,250 | ) | |||||||||
|
| |||||||||||
| NET ASSETS — COMMON STOCK | $ | 174,686,019 | |||||||||
|
| |||||||||||
| NET ASSET VALUE PER COMMON SHARE | $ | 11.15 | |||||||||
|
| |||||||||||
Shares | Proceeds | Market Value | ||||||||||
SECURITIES SOLD SHORT — (5.0)% |
| |||||||||||
Building and Construction — (0.5)% |
| |||||||||||
30,000 | Lennar Corp., Cl. A | $ | 1,478,773 | $ | 1,673,700 | |||||||
|
|
|
| |||||||||
Financial Services — (0.2)% | ||||||||||||
8,054 | Community Bank System Inc. | 531,927 | 571,351 | |||||||||
|
|
|
| |||||||||
Health Care — (2.5)% | ||||||||||||
38,970 | AbbVie Inc. | 2,923,959 | 3,450,404 | |||||||||
81,060 | Centene Corp. | 5,112,171 | 5,096,241 | |||||||||
|
|
|
| |||||||||
8,036,130 | 8,546,645 | |||||||||||
|
|
|
| |||||||||
Hotels and Gaming — (1.7)% | ||||||||||||
98,890 | Eldorado Resorts Inc. | 5,804,395 | 5,897,800 | |||||||||
|
|
|
| |||||||||
Real Estate — (0.1)% | ||||||||||||
2,700 | Prologis Inc., REIT | 236,958 | 240,678 | |||||||||
|
|
|
| |||||||||
TOTAL SECURITIES SOLD SHORT(c) | $ | 16,088,183 | $ | 16,930,174 | ||||||||
|
|
|
|
(a) | Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy. |
(b) | At December 31, 2019, $33,700,000 of the principal amount was pledged as collateral for securities sold short, equity contract for difference swap agreements, and forward foreign exchange contracts. |
(c) | At December 31, 2019, these proceeds were being held at Pershing LLC. |
† | Non-income producing security. |
†† | Represents annualized yields at dates of purchase. |
ADR | American Depositary Receipt |
CCCP | Contingent Cash Consideration Payment |
CVR | Contingent Value Right |
REIT | Real Estate Investment Trust |
See accompanying notes to financial statements.
6
The GDL Fund
Schedule of Investments (Continued) — December 31, 2019
% of Total | Market | |||||||||
Geographic Diversification | Investments* | Value | ||||||||
Long Positions | ||||||||||
North America | 90.6 | % | $ | 308,582,999 | ||||||
Europe | 9.4 | 32,110,988 | ||||||||
Asia/Pacific | 0.0 | ** | 85,341 | |||||||
|
|
|
| |||||||
Total Investments — Long Positions | 100.0 | % | $ | 340,779,328 | ||||||
|
|
|
|
% of Total | Market | |||||||||
Geographic Diversification | Investments* | Value | ||||||||
Short Positions | ||||||||||
North America | (5.0 | )% | $ | (16,930,174 | ) | |||||
|
|
|
| |||||||
Total Investments — Short Positions | (5.0 | )% | $ | (16,930,174 | ) | |||||
|
|
|
|
* | Total investments exclude securities sold short. |
** | Amount represents less than 0.05%. |
As of December 31, 2019, forward foreign exchange contracts outstanding were as follows:
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Depreciation | ||||||||||||||||
| ||||||||||||||||||||
USD | 9,970,006 | GBP | 7,700,000 | State Street Bank and Trust Co. | 01/30/20 | $ | (238,540) | |||||||||||||
USD | 541,102 | SEK | 5,100,000 | State Street Bank and Trust Co. | 01/30/20 | (4,219) | ||||||||||||||
USD | 5,446,825 | EUR | 4,900,000 | State Street Bank and Trust Co. | 01/30/20 | (60,092) | ||||||||||||||
USD | 2,281,882 | CAD | 3,000,000 | State Street Bank and Trust Co. | 01/30/20 | (28,760) | ||||||||||||||
|
| |||||||||||||||||||
$ | (331,611) | |||||||||||||||||||
|
|
As of December 31, 2019, equity contract for difference swap agreements outstanding were as follows:
Market Value Appreciation Received | One Month LIBOR plus Market Value | Counterparty | Payment Frequency | Termination Date | Notional Amount | Value | Upfront Payments/ Receipts | Unrealized Appreciation | ||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Premier Foods plc | Premier Foods plc | | The Goldman Sachs Group, Inc. | | 1 month | 04/01/2020 | $ | 114,224 | $ | 1,089 | — | $1,089 | ||||||||||||||||||
| ||||||||||||||||||||||||||||||
$1,089 | ||||||||||||||||||||||||||||||
|
See accompanying notes to financial statements.
7
The GDL Fund
Statement of Assets and Liabilities
December 31, 2019
Assets: | ||||
Investments, at value (cost $341,692,611) | $ | 340,779,328 | ||
Cash | 1,682,503 | |||
Deposit at broker for securities sold short | 14,270,984 | |||
Receivable for investments sold | 27,342,279 | |||
Dividends and interest receivable | 549,863 | |||
Deferred offering expense | 404,072 | |||
Prepaid expenses | 1,905 | |||
Unrealized appreciation on swap contracts | 1,089 | |||
|
| |||
Total Assets | 385,032,023 | |||
|
| |||
Liabilities: | ||||
Securities sold short, at value | 16,930,174 | |||
Foreign currency overdraft, at value (cost $145,732) | 144,572 | |||
Distributions payable | 72,890 | |||
Payable for Fund shares redeemed | 102,171 | |||
Payable for investments purchased | 59,033,425 | |||
Payable for investment advisory fees | 2,324,505 | |||
Payable for payroll expenses | 91,648 | |||
Payable for accounting fees | 11,250 | |||
Unrealized depreciation on forward foreign exchange contracts | 331,611 | |||
Dividends payable on securities sold short | 3,302 | |||
Series C Cumulative Preferred Shares, callable and mandatory redemption 03/26/25 | 131,201,250 | |||
Other accrued expenses | 99,206 | |||
|
| |||
Total Liabilities | 210,346,004 | |||
|
| |||
Net Assets Attributable to Common Shareholders | $ | 174,686,019 | ||
|
| |||
Net Assets Attributable to Common Shareholders Consist of: | ||||
Paid-in capital | $ | 179,195,191 | ||
Total accumulated loss | (4,509,172 | ) | ||
|
| |||
Net Assets | $ | 174,686,019 | ||
|
| |||
Net Asset Value per Common Share: |
| |||
($174,686,019 ÷ 15,673,285 shares outstanding at $0.001 par value; unlimited number of shares authorized) | $11.15 |
Statement of Operations
For the Year Ended December 31, 2019
Investment Income: | ||||
Dividends (net of foreign withholding taxes of $115,053) | $ | 1,746,206 | ||
Interest | 2,083,015 | |||
|
| |||
Total Investment Income | 3,829,221 | |||
|
| |||
Expenses: | ||||
Investment advisory fees | 3,752,804 | |||
Interest expense on preferred shares | 5,248,050 | |||
Dividend expense on securities sold short | 611,352 | |||
Payroll expenses | 198,146 | |||
Trustees’ fees | 132,909 | |||
Shareholder communications expenses | 113,990 | |||
Service fees for securities sold short (See Note 2) | 100,688 | |||
Offering expense for issuance of preferred shares | 67,667 | |||
Accounting fees | 45,000 | |||
Custodian fees | 33,052 | |||
Shareholder services fees | 25,668 | |||
Legal and audit fees | 6,720 | |||
Interest expense | 1,971 | |||
Miscellaneous expenses | 92,368 | |||
|
| |||
Total Expenses | 10,430,385 | |||
|
| |||
Less: | ||||
Expenses paid indirectly by broker (See Note 3) | (3,649 | ) | ||
Advisory fee reduction on unsupervised assets | (5,864 | ) | ||
Custodian fee credits | (12,285 | ) | ||
|
| |||
Total Credits and Reductions | (21,798 | ) | ||
|
| |||
Net Expenses | 10,408,587 | |||
|
| |||
Net Investment Loss | (6,579,366 | ) | ||
|
| |||
Net Realized and Unrealized Gain/(Loss) on Investments, Securities Sold Short, Swap Contracts, Forward Foreign Exchange Contracts, and Foreign Currency: | ||||
Net realized gain on investments | 8,980,787 | |||
Net realized loss on securities sold short | (2,054,394 | ) | ||
Net realized gain on swap contracts | 16,648 | |||
Net realized gain on forward foreign exchange contracts | 1,073,946 | |||
Net realized loss on foreign currency transactions | (135,727 | ) | ||
|
| |||
Net realized gain on investments, securities sold short, swap contracts, forward foreign exchange contracts, and foreign currency transactions | 7,881,260 | |||
|
| |||
Net change in unrealized appreciation/depreciation: | ||||
on investments | 9,004,346 | |||
on securities sold short | (2,851,734 | ) | ||
on swap contracts | (174 | ) | ||
on forward foreign exchange contracts | (209,094 | ) | ||
on foreign currency translations | (2,014 | ) | ||
|
| |||
Net change in unrealized appreciation/depreciation on investments, securities sold short, swap contracts, forward foreign exchange contracts, and foreign currency translations | 5,941,330 | |||
|
| |||
Net Realized and Unrealized Gain/(Loss) on Investments, Securities Sold Short, Swap Contracts, Forward Foreign Exchange Contracts, and Foreign Currency | 13,822,590 | |||
|
| |||
Net Increase in Net Assets Attributable to Common Shareholders Resulting from Operations | $ | 7,243,224 | ||
|
|
See accompanying notes to financial statements.
8
The GDL Fund
Statement of Changes in Net Assets Attributable to Common Shareholders
Year Ended December 31, 2019 | Year Ended December 31, 2018 | |||||||||
Operations: | ||||||||||
Net investment loss | $ | (6,579,366 | ) | $ | (2,299,869 | ) | ||||
Net realized gain on investments, securities sold short, swap contracts, forward foreign exchange contracts, and foreign currency transactions | 7,881,260 | 7,584,482 | ||||||||
Net change in unrealized appreciation/depreciation on investments, securities sold short, swap contracts, forward foreign exchange contracts, and foreign currency translations | 5,941,330 | (10,680,373 | ) | |||||||
|
|
|
| |||||||
Net Increase/(Decrease) in Net Assets Attributable to Common Shareholders Resulting from Operations | 7,243,224 | (5,395,760 | ) | |||||||
|
|
|
| |||||||
Distributions to Common Shareholders: | ||||||||||
Accumulated earnings | (1,053,427 | ) | (6,393,213 | ) | ||||||
Return of capital | (5,358,221 | ) | (496,010 | ) | ||||||
|
|
|
| |||||||
Total Distributions to Common Shareholders | (6,411,648 | ) | (6,889,223 | ) | ||||||
|
|
|
| |||||||
Fund Share Transactions: | ||||||||||
Decrease from repurchase of common shares | (9,577,023 | ) | (8,381,646 | ) | ||||||
|
|
|
| |||||||
Decrease in Net Assets from Fund Share Transactions | (9,577,023 | ) | (8,381,646 | ) | ||||||
|
|
|
| |||||||
Net Decrease in Net Assets Attributable to Common Shareholders | (8,745,447 | ) | (20,666,629 | ) | ||||||
Net Assets Attributable to Common Shareholders: | ||||||||||
Beginning of year | 183,431,466 | 204,098,095 | ||||||||
|
|
|
| |||||||
End of year | $ | 174,686,019 | $ | 183,431,466 | ||||||
|
|
|
|
See accompanying notes to financial statements.
9
The GDL Fund
Statement of Cash Flows
For the Year Ended December 31, 2019
Net increase in net assets attributable to common shareholders resulting from operations | $ | 7,243,224 | ||
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash from Operating Activities: |
| |||
Purchase of long term investment securities | (879,358,795 | ) | ||
Proceeds from sales of long term investment securities | 866,020,957 | |||
Proceeds from short sales of investment securities | (108,543,236 | ) | ||
Purchase of securities to cover short sales | 87,129,198 | |||
Net purchases of short term investment securities | (389,481 | ) | ||
Net realized gain on investments | (8,980,787 | ) | ||
Net realized loss on securities sold short | 2,054,394 | |||
Net change in unrealized appreciation/depreciation on investments and swap contracts | (9,004,172 | ) | ||
Net amortization of discount | (1,820,794 | ) | ||
Net increase in unrealized depreciation on forward foreign exchange contracts | 209,094 | |||
Net decrease in unrealized appreciation on securities sold short | 2,851,734 | |||
Increase in receivable for investments sold | (23,483,034 | ) | ||
Increase in dividends and interest receivable | (290,636 | ) | ||
Decrease in prepaid expenses | 332 | |||
Decrease in deferred offering expense | 67,668 | |||
Increase in payable for accounting fees | 3,750 | |||
Increase in payable for investments purchased | 39,609,671 | |||
Increase in payable for investment advisory fees | 2,190,984 | |||
Increase in payable for payroll expenses | 22,392 | |||
Decrease in payable for dividends payable on securities sold short | (64,784 | ) | ||
Decrease in other accrued expenses | (65,225 | ) | ||
|
| |||
Net cash provided by operating activities: | (24,597,546 | ) | ||
|
| |||
Net decrease in net assets resulting from financing activities: | ||||
Distributions to Common Shareholders | (6,411,648 | ) | ||
Increase in payable for Fund shares redeemed | 7,049 | |||
Decrease from repurchase of common shares | (9,577,023 | ) | ||
|
| |||
Net cash used in financing activities | (15,981,622 | ) | ||
|
| |||
Net decrease in cash | (40,579,168 | ) | ||
|
| |||
Cash (including foreign currency and restricted cash): | ||||
Beginning of year | 56,388,083 | |||
|
| |||
End of year | $ | 15,808,915 | ||
|
| |||
| ||||
Supplemental disclosure of cash flow information: | ||||
Interest paid on preferred shares | $ | 5,248,050 | ||
Interest paid on bank overdrafts | $ | 1,971 | ||
|
| |||
The following table provides a reconciliation of cash, foreign currency, and restricted cash reported within the Statement of Assets and Liabilities that sum to the total of the same amount above at December 31, 2019: |
| |||
Cash | $ | 1,682,503 | ||
Deposit at broker for securities sold short | 14,270,984 | |||
Foreign currency overdraft, at value | (144,572 | ) | ||
|
| |||
$ | 15,808,915 | |||
|
|
See accompanying notes to financial statements.
10
The GDL Fund
Financial Highlights
Selected data for a common share of beneficial interest outstanding throughout each year:
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||
Operating Performance: | ||||||||||||||||||||||||||||||||||||||||
Net asset value, beginning of year | $ | 10.99 | $ | 11.59 | $ | 11.88 | $ | 11.93 | $ | 12.10 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net investment loss | (0.42 | ) | (0.14 | ) | (0.22 | ) | (0.36 | ) | (0.44 | ) | ||||||||||||||||||||||||||||||
Net realized and unrealized gain/(loss) on investments, securities sold short, swap contracts, forward foreign exchange contracts, and foreign currency transactions | 0.88 | (0.15 | ) | 0.46 | 0.84 | 0.85 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total from investment operations | 0.46 | (0.29 | ) | 0.24 | 0.48 | 0.41 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Distributions to Common Shareholders: | ||||||||||||||||||||||||||||||||||||||||
Net investment income | — | (0.19 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Net realized gain | (0.07 | ) | (0.18 | ) | — | (0.59 | ) | (0.56 | ) | |||||||||||||||||||||||||||||||
Return of capital | (0.33 | ) | (0.03 | ) | (0.58 | ) | (0.05 | ) | (0.08 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total distributions to common shareholders | (0.40 | ) | (0.40 | ) | (0.58 | ) | (0.64 | ) | (0.64 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Common Share Transactions: | ||||||||||||||||||||||||||||||||||||||||
Increase in net asset value from repurchase of common shares | 0.10 | 0.09 | 0.05 | 0.11 | 0.06 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net Asset Value, End of Year | $ | 11.15 | $ | 10.99 | $ | 11.59 | $ | 11.88 | $ | 11.93 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
NAV total return † | 5.15 | % | (1.76 | )% | 2.50 | % | 5.09 | % | 3.95 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Market value, end of year | $ | 9.30 | $ | 9.17 | $ | 9.73 | $ | 9.84 | $ | 10.01 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Investment total return †† | 5.81 | % | (1.62 | )% | 4.70 | % | 4.79 | % | 4.12 | % | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Ratios to Average Net Assets and Supplemental Data: | ||||||||||||||||||||||||||||||||||||||||
Net assets including liquidation value of preferred shares, end of year (in 000’s) | $ | 305,887 | $ | 314,633 | $ | 335,299 | $ | 347,980 | $ | 364,160 | ||||||||||||||||||||||||||||||
Net assets attributable to common shares, end of year (in 000’s) | $ | 174,686 | $ | 183,431 | $ | 204,098 | $ | 216,779 | $ | 232,959 | ||||||||||||||||||||||||||||||
Ratio of net investment loss to average net assets attributable to common shares including interest and offering costs(a) | (3.64 | )% | (1.18 | )% | (1.85 | )% | (2.94 | )% | (2.75 | )% | ||||||||||||||||||||||||||||||
Ratio of operating expenses to average net assets attributable to common shares(b)(c) | 5.76 | %(d) | 4.04 | % | 3.65 | %(e) | 4.72 | %(e)(f) | 4.23 | %(e)(f) | ||||||||||||||||||||||||||||||
Portfolio turnover rate | 380 | % | 390 | % | 233 | % | 284 | % | 268 | % |
See accompanying notes to financial statements.
11
The GDL Fund
Financial Highlights (Continued)
Selected data for a common share of beneficial interest outstanding throughout each year:
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||
Cumulative Preferred Shares | ||||||||||||||||||||||||||||||||||||||||
Series B Preferred | ||||||||||||||||||||||||||||||||||||||||
Liquidation value, end of year (in 000’s) | — | — | $ | 131,201 | $ | 131,201 | $ | 131,201 | ||||||||||||||||||||||||||||||||
Total shares outstanding (in 000’s) | — | — | 2,624 | 2,624 | 2,624 | |||||||||||||||||||||||||||||||||||
Liquidation preference per share | — | — | $ | 50.00 | $ | 50.00 | $ | 50.00 | ||||||||||||||||||||||||||||||||
Average market value(g) | — | — | $ | 50.51 | $ | 50.51 | $ | 50.30 | ||||||||||||||||||||||||||||||||
Asset coverage per share | — | — | $ | 127.78 | $ | 132.61 | $ | 138.78 | ||||||||||||||||||||||||||||||||
Series C Preferred | ||||||||||||||||||||||||||||||||||||||||
Liquidation value, end of year (in 000’s) | $ | 131,201 | $ | 131,201 | — | — | — | |||||||||||||||||||||||||||||||||
Total shares outstanding (in 000’s) | 2,624 | 2,624 | — | — | — | |||||||||||||||||||||||||||||||||||
Liquidation preference per share | $ | 50.00 | $ | 50.00 | — | — | — | |||||||||||||||||||||||||||||||||
Average market value(g) | $ | 50.71 | $ | 51.63 | — | — | — | |||||||||||||||||||||||||||||||||
Asset coverage per share | $ | 116.57 | $ | 119.90 | — | — | — | |||||||||||||||||||||||||||||||||
Asset coverage | 233 | % | 240 | % | 256 | % | 265 | % | 278 | % |
† | Based on net asset value per share, adjusted for reinvestment of distributions at the net asset value per share on theex-dividend dates. |
†† | Based on market value per share, adjusted for reinvestment of distributions at prices determined under the Fund’s dividend reinvestment plan. |
(a) | The Fund incurred interest expense during all periods presented. Interest expense on Preferred Shares relates to the $50 Series B Preferred Shares to May 29, 2018 and the $50 Series C Preferred Shares from March 26, 2018 through December 31, 2019 (see Footnotes 2 and 5). |
(b) | The Fund received credits from a designated broker who agreed to pay certain Fund operating expenses. For the years ended December 31, 2019, 2018, 2017, 2016, and 2015, there was no impact on the expense ratios. |
(c) | The ratio of operating expenses excluding interest, dividends and service fees on securities sold short, and offering costs to average net assets attributable to common shares for the years ended December 31, 2019, 2018, 2017, 2016, and 2015 would have been 2.41%, 1.28%, 1.75%, 2.92%, and 2.87%, respectively. |
(d) | The ratio of operating expenses excluding the custodian fee credit for the year ended December 31, 2019 would have been 5.75% |
(e) | The ratio of operating expenses does not include custodian fee credits. Including such custodian fee credits, the ratio of operating expenses to average net assets for the year ended December 31, 2017 would have been 3.64%. For the years ended December 31, 2016, and 2015, the effect was minimal. |
(f) | For the years ended December 31, 2016 and 2015, the ratio of operating expenses excluded interest, dividends and service fees on securities sold short, and offering costs. Including these expenses, the ratio of operating expenses for the years ended December 31, 2016, and 2015, would have been 4.84%, and 4.43%, respectively. |
(g) | Based on weekly prices. |
See accompanying notes to financial statements.
12
The GDL Fund
Notes to Financial Statements
1. Organization.The GDL Fund currently operates as a diversifiedclosed-end management investment company organized as a Delaware statutory trust on October 17, 2006 and registered under the Investment Company Act of 1940, as amended (the 1940 Act). Investment operations commenced on January 31, 2007.
The Fund’s primary investment objective is to achieve absolute returns in various market conditions without excessive risk of capital. The Fund will seek to achieve its objective by investing primarily in merger arbitrage transactions and, to a lesser extent, in corporate reorganizations involving stubs, spin-offs, and liquidations. The Fund will invest at least 80% of its assets, under normal market conditions, in securities or hedging arrangements relating to companies involved in corporate transactions or reorganizations, giving rise to the possibility of realizing gains upon or within relatively short periods of time after the completion of such transactions or reorganizations.
The principal risk associated with the Fund’s investment strategy is that certain of the proposed reorganizations in which the Fund invests may involve a longer time frame than originally contemplated or be renegotiated or terminated, in which case losses may be realized. The Fund invests all or a portion of its assets to seek short term capital appreciation. This can be expected to increase the portfolio turnover rate and cause increased brokerage commission costs.
The Fund may invest a high percentage of its assets in specific sectors of the market in order to achieve a potentially greater investment return. As a result, the Fund may be more susceptible to economic, political, and regulatory developments in a particular sector of the market, positive or negative, and may experience increased volatility to the Fund’s NAV and a magnified effect in its total return.
2. Significant Accounting Policies.As an investment company, the Fund follows the investment company accounting and reporting guidance, which is part of U.S. generally accepted accounting principles (GAAP) that may require the use of management estimates and assumptions in the preparation of its financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
New Accounting Pronouncements.To improve the effectiveness of fair value disclosure requirements, the Financial Accounting Standards Board recently issued Accounting Standard Update (ASU)2018-13, Fair Value Measurement Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU2018-13), which adds, removes, and modifies certain aspects relating to fair value disclosure. ASU2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption of the additions relating to ASU2018-13 is not required, even if early adoption is elected for the removals and modifications under ASU2018-13. Management has early adopted the removals and modifications set forth in ASU2018-13 in these financial statements and has not early adopted the additions set forth in ASU2018-13.
Security Valuation.Portfolio securities listed or traded on a nationally recognized securities exchange or traded in the U.S.over-the-counter market for which market quotations are readily available are valued at the last quoted sale price or a market’s official closing price as of the close of business on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing bid and asked prices or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or, if the Board of Trustees (the Board) so determines, by such other method as the Board shall determine in good faith to reflect its fair market value. Portfolio securities traded on more than one national
13
The GDL Fund
Notes to Financial Statements (Continued)
securities exchange or market are valued according to the broadest and most representative market, as determined by Gabelli Funds, LLC (the Adviser).
Portfolio securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly after the close of the foreign market, but prior to the close of business on the day the securities are being valued. Debt obligations for which market quotations are readily available are valued at the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the securities are valued using the closing bid price, unless the Board determines such amount does not reflect the securities’ fair value, in which case these securities will be fair valued as determined by the Board. Certain securities are valued principally using dealer quotations. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which the applicable contract is traded. OTC futures and options on futures for which market quotations are readily available will be valued by quotations received from a pricing service or, if no quotations are available from a pricing service, by quotations obtained from one or more dealers in the instrument in question by the Adviser.
Securities and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies and procedures may include, but are not limited to: analysis and review of available financial andnon-financial information about the company; comparisons with the valuation and changes in valuation of similar securities, including a comparison of foreign securities with the equivalent U.S. dollar value American Depositary Receipt securities at the close of the U.S. exchange; and evaluation of any other information that could be indicative of the value of the security.
The inputs and valuation techniques used to measure fair value of the Fund’s investments are summarized into three levels as described in the hierarchy below:
● | Level 1 — quoted prices in active markets for identical securities; |
● | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.); and |
● | Level 3 — significant unobservable inputs (including the Board’s determinations as to the fair value of investments). |
14
The GDL Fund
Notes to Financial Statements (Continued)
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in the aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The summary of the Fund’s investments in securities and other financial instruments by inputs used to value the Fund’s investments as of December 31, 2019 is as follows:
Valuation Inputs | ||||||||||||||||||||
Level 1 Quoted Prices | Level 2 Other Significant Observable Inputs | Level 3 Significant Unobservable Inputs | Total Market Value at 12/31/19 | |||||||||||||||||
INVESTMENTS IN SECURITIES: | ||||||||||||||||||||
ASSETS (Market Value): | ||||||||||||||||||||
Common Stocks: | ||||||||||||||||||||
Computer Software and Services | $ | 9,693,123 | $ | 86,652 | — | $ | 9,779,775 | |||||||||||||
Financial Services | 3,402,281 | 718,750 | — | 4,121,031 | ||||||||||||||||
Health Care | 60,329,649 | 3,435,000 | — | 63,764,649 | ||||||||||||||||
Hotels and Gaming | 16,360,226 | — | $ | 167,194 | 16,527,420 | |||||||||||||||
Transportation | 3,784,287 | — | 290,297 | 4,074,584 | ||||||||||||||||
Other Industries (a) | 140,177,441 | — | — | 140,177,441 | ||||||||||||||||
Total Common Stocks | 233,747,007 | 4,240,402 | 457,491 | 238,444,900 | ||||||||||||||||
Closed-End Funds | — | 8,611,250 | — | 8,611,250 | ||||||||||||||||
Preferred Stocks (a) | 69,244 | — | — | 69,244 | ||||||||||||||||
Convertible Preferred Stocks (a) | 47,500 | — | — | 47,500 | ||||||||||||||||
Rights (a) | 409,360 | 314,250 | 622,530 | 1,346,140 | ||||||||||||||||
U.S. Government Obligations | — | 92,260,294 | — | 92,260,294 | ||||||||||||||||
TOTAL INVESTMENTS IN SECURITIES – ASSETS | $ | 234,273,111 | $ | 105,426,196 | $ | 1,080,021 | $ | 340,779,328 | ||||||||||||
LIABILITIES (Market Value): | ||||||||||||||||||||
Common Stocks Sold Short (a) | $ | (16,930,174 | ) | — | — | $ | (16,930,174 | ) | ||||||||||||
TOTAL INVESTMENTS IN SECURITIES - LIABILITIES | $ | (16,930,174 | ) | — | — | $ | (16,930,174 | ) | ||||||||||||
OTHER FINANCIAL INSTRUMENTS:* | ||||||||||||||||||||
ASSETS (Unrealized Appreciation): | ||||||||||||||||||||
EQUITY CONTRACTS | ||||||||||||||||||||
Contract for Difference Swap Agreements | — | $ | 1,089 | — | $ | 1,089 | ||||||||||||||
LIABILITIES (Unrealized Depreciation): | ||||||||||||||||||||
FORWARD CURRENCY EXCHANGE CONTRACTS | ||||||||||||||||||||
Forward Foreign Exchange Contracts | — | (331,611 | ) | — | (331,611 | ) | ||||||||||||||
TOTAL OTHER FINANCIAL INSTRUMENTS | — | $ | (330,522 | ) | — | $ | (330,522 | ) |
(a) | Please refer to the Schedule of Investments (SOI) for the industry classifications of these portfolio holdings. |
* | Other financial instruments are derivatives reflected in the SOI, such as options, futures, forwards, and swaps, which may be valued at the unrealized appreciation/(depreciation) of the instrument. |
During the year ended December 31, 2019 Fund did not have material transfers into or out of Level 3.
15
The GDL Fund
Notes to Financial Statements (Continued)
Additional Information to Evaluate Qualitative Information.
General.The Fund uses recognized industry pricing services – approved by the Board and unaffiliated with the Adviser – to value most of its securities, and uses broker quotes provided by market makers of securities not valued by these and other recognized pricing sources. Several different pricing feeds are received to value domestic equity securities, international equity securities, preferred equity securities, and fixed income securities. The data within these feeds are ultimately sourced from major stock exchanges and trading systems where these securities trade. The prices supplied by external sources are checked by obtaining quotations or actual transaction prices from market participants. If a price obtained from the pricing source is deemed unreliable, prices will be sought from another pricing service or from a broker/dealer that trades that security or similar securities.
Fair Valuation.Fair valued securities may be common or preferred equities, warrants, options, rights, or fixed income obligations. Where appropriate, Level 3 securities are those for which market quotations are not available, such as securities not traded for several days, or for which current bids are not available, or which are restricted as to transfer. Among the factors to be considered to fair value a security are recent prices of comparable securities that are publicly traded, reliable prices of securities not publicly traded, the use of valuation models, current analyst reports, valuing the income or cash flow of the issuer, or cost if the preceding factors do not apply. A significant change in the unobservable inputs could result in a lower or higher value in Level 3 securities. The circumstances of Level 3 securities are frequently monitored to determine if fair valuation measures continue to apply.
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.
Derivative Financial Instruments.The Fund may engage in various portfolio investment strategies by investing in derivative financial instruments for the purposes of increasing the income of the Fund, hedging against changes in the value of its portfolio securities and in the value of securities it intends to purchase, or hedging against a specific transaction with respect to either the currency in which the transaction is denominated or another currency. Investing in certain derivative financial instruments, including participation in the options, futures, or swap markets, entails certain execution, liquidity, hedging, tax, and securities, interest, credit, or currency market risks. Losses may arise if the Adviser’s prediction of movements in the direction of the securities, foreign currency, and interest rate markets is inaccurate. Losses may also arise if the counterparty does not perform its duties under a contract, or, in the event of default, the Fund may be delayed in or prevented from obtaining payments or other contractual remedies owed to it under derivative contracts. The creditworthiness of the counterparties is closely monitored in order to minimize these risks. Participation in derivative transactions involves investment risks, transaction costs, and potential losses to which the Fund would not be subject absent the use of these strategies. The consequences of these risks, transaction costs, and losses may have a negative impact on the Fund’s ability to pay distributions.
Collateral requirements differ by type of derivative. Collateral requirements are set by the broker or exchange clearing house for exchange traded derivatives, while collateral terms are contract specific for derivatives tradedover-the-counter. Securities pledged to cover obligations of the Fund under derivative contracts are noted in
16
The GDL Fund
Notes to Financial Statements (Continued)
the Schedule of Investments. Cash collateral, if any, pledged for the same purpose will be reported separately in the Statement of Assets and Liabilities.
The Fund’s policy with respect to offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the master agreement does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.
The Fund’s derivative contracts held at December 31, 2019, if any, are not accounted for as hedging instruments under GAAP and are disclosed in the Schedule of Investments together with the related counterparty.
Swap Agreements.The Fund may enter into equity contract for difference swap transactions for the purpose of increasing the income of the Fund. The use of swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an equity contract for difference swap, a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short-term interest rates and the returns on the Fund’s portfolio securities at the time an equity contract for difference swap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction.
Unrealized gains related to swaps are reported as an asset and unrealized losses are reported as a liability in the Statement of Assets and Liabilities. The change in value of swaps, including the accrual of periodic amounts of interest to be paid or received on swaps, is reported as unrealized gain or loss in the Statement of Operations. A realized gain or loss is recorded upon payment or receipt of a periodic payment or termination of swap agreements. Equity contract for difference swap agreements held at December 31, 2019 are reflected within the Schedule of Investments.
The Fund’s volume of activity in equity contract for difference swap agreements during the year ended December 31, 2019 had an average monthly notional amount of approximately $123,293.
At December 31, 2019, the value of equity contract for difference swap agreements can be found in the Statement of Assets and Liabilities under Assets, Unrealized appreciation on swap contracts. For the year ended December 31, 2019, the effect of equity contract for difference swap agreements can be found in the Statement of Operations under Net Realized and Unrealized Gain/(Loss) on Investments, Securities Sold Short, Swap Contracts, Forward Foreign Exchange Contracts, and Foreign Currency; Net realized gain on swap contracts; and Net change in unrealized appreciation/depreciation on swap contracts. For the year ended December 31, 2019, the effect of equity contract for difference swap agreements can be found in the Statement of Cash Flows under Net change in unrealized appreciation/depreciation on investments and swap contracts.
Forward Foreign Exchange Contracts.The Fund may engage in forward foreign exchange contracts for the purpose of hedging a specific transaction with respect to either the currency in which the transaction is denominated or another currency as deemed appropriate by the Adviser. Forward foreign exchange contracts are valued at the forward rate and aremarked-to-market daily. The change in market value is included in unrealized appreciation/depreciation on foreign currency translations. When the contract is closed, the Fund
17
The GDL Fund
Notes to Financial Statements (Continued)
records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations in the underlying prices of the Fund’s portfolio securities, but it does establish a rate of exchange that can be achieved in the future. Although forward foreign exchange contracts limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. Forward foreign exchange contracts at December 31, 2019 are reflected within the Schedule of Investments. The Fund’s monthly volume of activity in forward foreign exchange contracts during the year ended December 31, 2019 had an average monthly notional amount of approximately $34,676,923.
At December 31, 2019, the value of forward foreign exchange contracts can be found in the Statement of Assets and Liabilities under Liabilities, Unrealized depreciation on forward foreign exchange contracts. For the year ended December 31, 2019, the effect of forward foreign exchange contracts can be found in the Statement of Operations under Net Realized and Unrealized Gain/(Loss) on Investments, Securities Sold Short, Swap Contracts, Forward Foreign Exchange Contracts, and Foreign Currency, within Net realized gain on forward foreign exchange contracts and Net change in unrealized appreciation/depreciation on forward foreign currency contracts. For the year ended December 31, 2019, the effect of forward foreign exchange contracts can be found in the Statement of Cash Flows under Net increase in unrealized depreciation on forward foreign exchange contracts.
At December 31, 2019, the Fund’s derivative assets and liabilities (by type) are as follows:
Gross Amounts of Recognized Assets Presented in the Statement of Assets and Liabilities | Gross Amounts Available for Offset in the | Net Amounts of in the Statement of | ||||||||||||||
Assets | ||||||||||||||||
Equity Contract for Difference Swap Agreements | $1,089 | — | $1,089 | |||||||||||||
Gross Amounts of Recognized Liabilities Presented in the Statement of Assets and Liabilities | Gross Amounts Available for Offset in the Statement of Assets and Liabilities | Net Amounts of Liabilities Presented in the Statement of Assets and Liabilities | ||||||||||||||
Liabilities | ||||||||||||||||
Forward Foreign Exchange Contracts | $331,611 | — | $331,611 |
18
The GDL Fund
Notes to Financial Statements (Continued)
The following table presents the Fund’s derivative liabilities by counterparty net of the related collateral segregated by the Fund for the benefit of the counterparty as of December 31, 2019:
Net Amounts Not Offset in the Statement of | ||||||||||||||||||||
Assets and Liabilities | ||||||||||||||||||||
Net Amounts of | ||||||||||||||||||||
Assets Presented in | ||||||||||||||||||||
the Statement of | Securities Pledged as | Cash Collateral | ||||||||||||||||||
Assets and Liabilities | Collateral | Received | Net Amount | |||||||||||||||||
Counterparty | �� | |||||||||||||||||||
The Goldman Sachs Group, Inc. | $1,089 | — | — | $1,089 | ||||||||||||||||
Net Amounts Not Offset in the Statement of | ||||||||||||||||||||
Assets and Liabilities | ||||||||||||||||||||
Net Amounts of | ||||||||||||||||||||
Liabilities Presented in | ||||||||||||||||||||
the Statement of | Securities Pledged as | Cash Collateral | ||||||||||||||||||
Assets and Liabilities | Collateral | Pledged | Net Amount | |||||||||||||||||
Counterparty | ||||||||||||||||||||
State Street Bank and Trust Co. | $331,611 | $331,611 | — | — |
Limitations on the Purchase and Sale of Futures Contracts, Certain Options, and Swaps.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 or other permissible transactions in accordance with the rules and regulations of the Commodity Futures Trading Commission (CFTC). Pursuant to amendments by the CFTC to Rule 4.5 under the Commodity Exchange Act (CEA), the Adviser has filed a notice of exemption from registration as a “commodity pool operator” with respect to the Fund. The Fund and the Adviser are therefore not subject to registration or regulation as a commodity pool operator under the CEA. In addition, certain trading restrictions are now applicable to the Fund which 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 options premiums and(ii) non-bona fide hedging transactions, provided that the Fund does not enter into suchnon-bona fide hedging transactions if, immediately thereafter, either (a) the sum of the amount of initial margin deposits on the Fund’s existing futures positions 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. Therefore, in order to claim the Rule 4.5 exemption, the Fund is limited in its ability to invest in commodity futures, options, and certain types of swaps (including securities futures, broad based stock index futures, and financial futures contracts). As a result, in the future the Fund will be more limited in its ability to use these instruments than in the past, and these limitations may have a negative impact on the ability of the Adviser to manage the Fund, and on the Fund’s performance.
Securities Sold Short.The Fund may enter into short sale transactions. Short selling involves selling securities that may or may not be owned and, at times, borrowing the same securities for delivery to the purchaser, with an obligation to replace such borrowed securities at a later date. The proceeds received from short sales are
19
The GDL Fund
Notes to Financial Statements (Continued)
recorded as liabilities and the Fund records an unrealized gain or loss to the extent of the difference between the proceeds received and the value of an open short position on the day of determination. The Fund records a realized gain or loss when the short position is closed out. By entering into a short sale, the Fund bears the market risk of an unfavorable change in the price of the security sold short. Dividends on short sales are recorded as an expense by the Fund on theex-dividend date and interest expense is recorded on the accrual basis. The broker retains collateral for the value of the open positions, which is adjusted periodically as the value of the position fluctuates. Securities sold short and details of collateral at December 31, 2019 are reflected within the Schedule of Investments. During the year ended December 31, 2019, the Fund incurred $100,688 in service fees related to its investment positions sold short and held by the broker. These amounts are included in the Statement of Operations under Expenses, Service fees for securities sold short.
Series C Cumulative Preferred Shares.For financial reporting purposes only, the liquidation value of preferred shares that have a mandatory call date is classified as a liability within the Statement of Assets and Liabilities and the dividends paid on these preferred shares are included as a component of “Interest expense on preferred shares” within the Statement of Operations. Offering costs are amortized over the life of the preferred shares.
Investments in Other Investment Companies. The Fund may invest, from time to time, in shares of other investment companies (or entities that would be considered investment companies but are excluded from the definition pursuant to certain exceptions under the 1940 Act) (the Acquired Funds) in accordance with the 1940 Act and related rules. Shareholders in the Fund would bear the pro rata portion of the periodic expenses of the Acquired Funds in addition to the Fund’s expenses. For the year ended December 31, 2019, the Fund’s pro rata portion of the periodic expenses charged by the Acquired Funds was less than one basis point.
Foreign Currency Translations.The books and records of the Fund are maintained in U.S. dollars. Foreign currencies, investments, and other assets and liabilities are translated into U.S. dollars at current exchange rates. Purchases and sales of investment securities, income, and expenses are translated at the exchange rate prevailing on the respective dates of such transactions. Unrealized gains and losses that result from changes in foreign exchange rates and/or changes in market prices of securities have been included in unrealized appreciation/depreciation on investments and foreign currency translations. Net realized foreign currency gains and losses resulting from changes in exchange rates include foreign currency gains and losses between trade date and settlement date on investment securities transactions, foreign currency transactions, and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in exchange rates between the initial purchase trade date and subsequent sale trade date is included in realized gain/(loss) on investments.
Foreign Securities.The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible revaluation of currencies, the inability to repatriate funds, less complete financial information about companies, and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than securities of comparable U.S. issuers.
Foreign Taxes.The Fund may be subject to foreign taxes on income, gains on investments, or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it invests.
20
The GDL Fund
Notes to Financial Statements (Continued)
Restricted Securities.The Fund may invest up to 15% of its net assets in securities for which the markets are restricted. Restricted securities include securities whose disposition is subject to substantial legal or contractual restrictions. The sale of restricted securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than the sale of securities eligible for trading on national securities exchanges or in theover-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. Securities freely saleable among qualified institutional investors under special rules adopted by the SEC may be treated as liquid if they satisfy liquidity standards established by the Board. The continued liquidity of such securities is not as well assured as that of publicly traded securities, and, accordingly, the Board will monitor their liquidity. At December 31, 2019, the Fund did not hold restricted securities.
Securities Transactions and Investment Income.Securities transactions are accounted for on the trade date with realized gain or loss on investments determined by using the identified cost method. Interest income (including amortization of premium and accretion of discount) is recorded on an accrual basis. Premiums and discounts on debt securities are amortized using the effective yield to maturity method. Dividend income is recorded on theex-dividend date, except for certain dividends from foreign securities that are recorded as soon after theex-dividend date as the Fund becomes aware of such dividends.
Custodian Fee Credits and Interest Expense.When cash balances are maintained in the custody account, the Fund receives credits which are used to offset custodian fees. The gross expenses paid under the custody arrangement are included in custodian fees in the Statement of Operations with the corresponding expense offset, if any, shown as “Custodian fee credits.” When cash balances are overdrawn, the Fund is charged an overdraft fee equal to 110% of the 90 day U.S. Treasury Bill rate on outstanding balances. This amount, if any, would be included in the Statement of Operations, Interest expense.
Distributions to Shareholders.Distributions to common shareholders are recorded on theex-dividend date. Distributions to shareholders are based on income and capital gains as determined in accordance with federal income tax regulations, which may differ from income and capital gains as determined under GAAP. See Series C Cumulative Preferred Shares above for discussion of GAAP treatment. The distributions on these Preferred Shares are treated as dividends for tax purposes. These differences are also due to differing treatments of income and gains on various investment securities and foreign currency transactions held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Distributions from net investment income for federal income tax purposes include net realized gains on foreign currency transactions. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, adjustments are made to the appropriate capital accounts in the period when the differences arise. Permanent differences were primarily due to short term gain netted against current year net operating loss, tax treatment of currency gains and losses, reclassification of capital gain on passive foreign investment companies and disallowed expenses. These reclassifications have no impact on the NAV of the Fund. For the year ended December 31, 2019, reclassifications were made to decreasepaid-in capital by $67,774, with an offsetting adjustment to total accumulated losses.
Under the Fund’s current common share distribution policy, the Fund declared and paid quarterly distributions from net investment income, capital gains, andpaid-in capital. The actual sources of the distribution are determined after the end of the year. To the extent such distributions were made from current earnings and profits, they
21
The GDL Fund
Notes to Financial Statements (Continued)
are considered ordinary income or long term capital gains. Distributions during the year may be made in excess of required distributions. That portion of a distribution that ispaid-in capital (and is not sourced from net investment income or realized gains) should not be considered as the yield or total return on an investment in the Fund.
Distributions to shareholders of the Fund’s Series C Cumulative Preferred Shares are recorded on a daily basis and are determined as described in Note 5.
The tax character of distributions paid during the years ended December 31, 2019 and 2018 was as follows:
Year Ended | Year Ended | |||||||||
December 31, 2019 | December 31, 2018 | |||||||||
Common | Common | |||||||||
Distributions paid from: | ||||||||||
Ordinary income (inclusive of short term capital gains) | $ | 1,053,427 | $ | 4,414,307 | ||||||
Long term capital gain | — | 1,978,906 | ||||||||
Return of capital | 5,358,221 | 496,010 | ||||||||
|
|
|
| |||||||
Total distributions paid | $ | 6,411,648 | $ | 6,889,223 | ||||||
|
|
|
|
Provision for Income Taxes.The Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). It is the policy of the Fund to comply with the requirements of the Code applicable to regulated investment companies and to distribute substantially all of its net investment company taxable income and net capital gains. Therefore, no provision for federal income taxes is required.
As of December 31, 2019, the components of accumulated earnings/losses on a tax basis were as follows:
Net unrealized appreciation/(depreciation) on investments, swap contracts, forward foreign exchange contracts, and foreign currency translations | $ | (3,662,713 | ) | |
Qualified late year loss deferral. | (773,569 | ) | ||
Other temporary differences* | (72,890 | ) | ||
|
| |||
Total | $ | (4,509,172 | ) | |
|
|
* | Other temporary differences are primarily due to adjustments on preferred share class distribution payables. |
At December 31, 2019, the temporary differences between book basis and tax basis unrealized appreciation/depreciation were primarily due to deferral of losses from qualified late year losses, deferral of losses from wash sales for tax purposes and adjustments on the sale of securities no longer deemed passive foreign investment companies.
The following summarizes the tax cost of investments and the related net unrealized depreciation at December 31, 2019:
Gross | Gross | |||||||||||||||||||
Cost/ | Unrealized | Unrealized | Net Unrealized | |||||||||||||||||
(Proceeds) | Appreciation | Depreciation | Depreciation | |||||||||||||||||
Investments and derivative instruments | $ | 327,508,568 | $ | 5,347,192 | $ | (9,006,606 | ) | $ | (3,659,414 | ) |
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
22
The GDL Fund
Notes to Financial Statements (Continued)
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 themore-likely-than-not threshold. During the year ended December 31, 2019, the Fund did not incur any income tax, interest, or penalties. As of December 31, 2019, the Adviser has reviewed all open tax years and concluded that there was no impact to the Fund’s net assets or results of operations. The Fund’s federal and state tax returns for the prior three years remain open, subject to examination. On an ongoing basis, the Adviser will monitor the Fund’s tax positions to determine if adjustments to this conclusion are necessary.
3. Investment Advisory Agreement and Other Transactions.The Fund has entered into an investment advisory agreement (the Advisory Agreement) with the Adviser which provides that the Fund will pay the Adviser a base fee, computed weekly and paid monthly, equal on an annual basis to 0.50% of the value of the Fund’s average weekly managed assets. Managed assets consist of all of the assets of the Fund without deduction for borrowings, repurchase transactions, and other leveraging techniques, the liquidation value of any outstanding preferred shares, or other liabilities except for certain ordinary course expenses. In addition, the Fund may pay the Adviser an annual performance fee at a calendar year end if the Fund’s total return on its managed assets during the year exceeds the total return of the 3 Month U.S. Treasury Bill Index (theT-Bill Index) during the same period. For every four basis points that the Fund’s total return exceeds theT-Bill Index, the Fund will accrue weekly and pay annually a one basis point performance fee up to a maximum performance fee of 150 basis points. Under the performance fee arrangement, the annual rate of the total fees paid to the Adviser can range from 0.50% to 2.00% of the average weekly managed assets. During the year ended December 31, 2019, the Fund accrued a performance fee of $2,194,836 to the Adviser. In accordance with the Advisory Agreement, the Adviser provides a continuous investment program for the Fund’s portfolio and oversees the administration of all aspects of the Fund’s business and affairs.
During the year ended December 31, 2019, the Fund paid brokerage commissions on security trades of $363,202 to G.research, LLC, an affiliate of the Adviser.
During the year ended December 31, 2019, 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 $3,649.
The cost of calculating the Fund’s NAV per share is a Fund expense pursuant to the Advisory Agreement. Under thesub-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, 2019, 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). For the year ended December 31, 2019, the Fund accrued $198,146 in payroll expenses in the Statement of Operations.
There was a reduction in the advisory fee paid to the Adviser relating to certain portfolio holdings, i.e., unsupervised assets, of the Fund with respect to which the Adviser transferred dispositive and voting control to the Fund’s Proxy Voting Committee. During the year ended December 31, 2019, the Fund’s Proxy Voting Committee
23
The GDL Fund
Notes to Financial Statements (Continued)
exercised control and discretion over all rights to vote or consent with respect to such securities, and the Adviser reduced its fee with respect to such securities by $5,864.
The Fund pays each Trustee who is not considered an affiliated person an annual retainer of $9,000 plus $2,000 for each Board meeting attended. Each Trustee is reimbursed by the Fund for any out of pocket expenses incurred in attending meetings. All Board committee members receive $1,000 per meeting attended, the Audit Committee Chairman receives an annual fee of $3,000, the Nominating Committee Chairman and the Lead Trustee each receives an annual fee of $2,000. A Trustee may receive a single meeting fee, allocated among the participating funds, for participation in certain meetings held on behalf of multiple funds. Trustees who are directors or employees of the Adviser or an affiliated company receive no compensation or expense reimbursement from the Fund.
4. Portfolio Securities.Purchases and sales of securities during the year ended December 31, 2019, other than short term securities and U.S. Government Obligations, aggregated $812,486,008 and $793,278,689, respectively. Purchases and sales of U.S. Government Obligations for the year ended December 31, 2019, aggregated $706,114,709 and $705,725,228, respectively.
5. Capital.The Fund is authorized to issue an unlimited number of common shares of beneficial interest (par value $0.001). The Board has authorized the repurchase of the Fund’s common shares on the open market when its shares are trading at a discount of 7.5% or more (or such other percentage as the Board may determine from time to time) from the NAV per share. During the year ended December 31, 2019, the Fund repurchased and retired 1,022,741 shares in the open market at an investment of $9,574,923 and an average discount of approximately 16.35% from its NAV. During the year ended December 31, 2018, the Fund repurchased and retired 912,392 shares in the open market at an investment of $8,381,646 and an average discount of approximately 18.20% from its NAV.
The Fund has an effective shelf registration authorizing the offering of an additional $200 million of common or preferred shares. As of December 31, 2019, after considering the preferred share rights offering, the Fund has approximately $70 million available for issuance under the current shelf registration.
The Fund’s Declaration of Trust, as amended, authorizes the issuance of an unlimited number of shares of $0.001 par value Preferred Shares. The Preferred Shares are senior to the common shares and result in the financial leveraging of the common shares. Such leveraging tends to magnify both the risks and opportunities to common shareholders.
During the year ended December 31, 2018, the Fund completed a rights offering whereby one transferable right was issued for each Series B Cumulative Puttable and Callable Preferred Share held as of February 14, 2018. On March 26, 2018, the Fund issued 2,624,025 Series C Cumulative Puttable and Callable Preferred Shares (Series C Preferred), liquidation value $50 and $0.001 par value per share, upon the submission of one right and either $50 or one share of Series B Preferred. In this regard, subscribing Series B Preferred shareholders submitted 1,720,681 Series B Preferred at the liquidation value of $50 per share totaling $86,034,050 to acquire the same number Series C Preferred. In total, the Fund issued 2,624,025 Series C Preferred with a liquidation value of $131,201,250 at a cost of $289,011. Other rights totaling 903,344 submitted $50 cash, total $45,167,200, to acquire the same number of Series C Preferred. At December 31, 2019, there were 2,624,025 Series C Preferred outstanding and accrued dividends amounted to $72,890.
24
The GDL Fund
Notes to Financial Statements (Continued)
On March 26, 2018, 652,848 Series B Preferred were put back to the Fund at the liquidation value of $32,642,400, plus accumulated and unpaid dividends. On May 29, 2018, the Fund called all remaining 250,496 outstanding Series B Preferred at the redemption value $50 per share totaling $12,524,800 plus accumulated and unpaid dividends to the redemption date of $0.2625 per share. The Fund retired all Series B Preferred.
The $50 Series B Preferred paid quarterly distributions in March, June, September, and December of each year. On January 23, 2015, the Board reset the annual dividend rate to 3.000% on the Series B Preferred for dividend periods through the call date, May 29, 2018.
The Series C Preferred paid distributions at an annualized rate of 4.000% on the $50 per share liquidation preference for the quarterly dividend periods ended on or prior to March 26, 2019 (Year 1). On February 22, 2019, the Fund’s Board announced a reset fixed dividend rate of 4.000% that will apply for the next eight quarterly dividend periods (Year 2 and Year 3). At least 30 days prior to the end of Year 3, the Fund’s Board will publicly announce a reset fixed dividend rate that will apply for all remaining quarterly dividend periods prior to the mandatory redemption date of March 26, 2025 for the Series C Preferred. The reset dividend rate will be neither less than an annualized rate of 4.000% nor greater than an annualized rate of 6.000%.
Dividends on the Preferred Shares are cumulative. 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 Series C Preferred at the redemption price of $50 per share plus an amount equal to the accumulated and unpaid dividends whether or not declared on such shares in order to meet these requirements. Additionally, failure to meet the foregoing asset coverage requirements could restrict the Fund’s ability to pay dividends to common shareholders and could lead to sales of portfolio securities at inopportune times. The income received on the Fund’s assets may vary in a manner unrelated to the fixed and variable rates, which could have either a beneficial or detrimental impact on net investment income and gains available to common shareholders.
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 shares, voting as a single class, will be required to approve any plan of reorganization adversely affecting the preferred shares, and the approval oftwo-thirds of each class, voting separately, of the Fund’s outstanding voting stock must approve the conversion of the Fund from aclosed-end to anopen-end investment company. The approval of a majority (as defined in the 1940 Act) of the outstanding preferred shares and a majority (as defined in the 1940 Act) of the Fund’s outstanding voting securities are required to approve certain other actions, including changes in the Fund’s investment objectives or fundamental investment policies.
6. Indemnifications.The Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
25
The GDL Fund
Notes to Financial Statements (Continued)
7. Subsequent Events.Management has evaluated the impact on the Fund of all subsequent events occurring through the date the financial statements were issued and has determined that there were no other subsequent events requiring recognition or disclosure in the financial statements.
26
The GDL Fund
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of
The GDL Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of The GDL Fund (the “Fund”), including the schedule of investments, as of December 31, 2019, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets attributable to common shareholders for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (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 at December 31, 2019, 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 then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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 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. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
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 procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the custodians and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Gabelli/GAMCO Funds investment companies since 1992.
Philadelphia, Pennsylvania
February 27, 2020
27
The GDL Fund
Additional Fund Information (Unaudited)
The business and affairs of the Fund are managed under the direction of the Fund’s Board of Trustees. Information pertaining to the Trustees and officers of the Fund is set forth below. The Fund’s Statement of Additional Information includes additional information about the Fund’s Trustees and is available without charge, upon request, by calling800-GABELLI(800-422-3554) or by writing to The GDL Fund at One Corporate Center, Rye, NY 10580-1422.
Name, Position(s) | Term of Office | Number of Funds | ||||||
Address1 | and Length of | in Fund Complex | Principal Occupation(s) | Other Directorships | ||||
and Age | Time Served2 | Overseen by Trustee | During Past Five Years | Held by Trustee3 | ||||
INTERESTED TRUSTEES4: | ||||||||
Mario J. Gabelli, CFA Trustee and Chief Investment Officer Age: 77 | Since 2006** | 33 | Chairman, Chief Executive Officer, and Chief Investment Officer– Value Portfolios of GAMCO Investors, Inc. and Chief Investment Officer– Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc.; Director/Trustee or Chief Investment Officer of other registered investment companies within the Gabelli/GAMCO Fund Complex; Chief Executive Officer of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc. | Director of Morgan Group Holdings, Inc. (holding company) (2001-2019); Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia and communication services company); Director of CIBL, Inc. (broadcasting and wireless communications); Director of ICTC Group Inc. (communications) (2013-2018) | ||||
Edward T. Tokar Trustee Age: 72 | Since 2006*** | 2 | Private investor; Senior Managing Director of Beacon Trust Company (trust services) (2004- 2016); Chief Executive Officer of Allied Capital Management LLC (1977-2004); Vice President of Honeywell International Inc. (1977-2004) | Trustee of William & Mary Business School Foundation; Director of CH Energy Group (energy services) (2009-2013); Director, Teton Advisors, Inc. (financial services) (2008-2010) | ||||
INDEPENDENT TRUSTEES5: | ||||||||
Anthony S. Colavita6,7 | Since 2018*** | 18 | Attorney, Anthony S. Colavita, P.C. | — | ||||
Trustee Age: 58 | ||||||||
James P. Conn6 Trustee Age: 81 | Since 2006* | 24 | Former Managing Director and Chief Investment Officer of Financial Security Assurance Holdings Ltd. (1992-1998) | — | ||||
Clarence A. Davis Trustee Age: 78 | Since 2006* | 3 | Former Chief Executive Officer of Nestor, Inc. (2007-2009); Former Chief Operating Officer (2000- 2005) and Chief Financial Officer (1999-2000) of the American Institute of Certified Public Accountants | Director of Telephone & Data Systems, Inc. (telephone services); Director of Pennichuck Corp. (water supply) (2009-2012) | ||||
Leslie F. Foley8 Trustee Age: 51 | Since 2017** | 9 | Attorney; Serves on the Boards of the Addison Gallery of American Art at Phillips Academy Andover, National Humanities Center, and Greenwich Country Day School; Vice President, Global Ethics & Compliance and Associate General Counsel for News Corporation (2008-2010) | — | ||||
Michael J. Melarkey Trustee Age: 70 | Since 2006** | 21 | Of Counsel in the law firm of McDonald Carano Wilson LLP; Partner in the law firm of Avansino, Melarkey, Knobel, Mulligan & McKenzie (1980- 2015) | Chairman of Southwest Gas Corporation (natural gas utility) | ||||
Salvatore J. Zizza9 Trustee Age: 74 | Since 2006*** | 31 | President of Zizza & Associates Corp. (private holding company); President of Bergen Cove Realty Inc.; Chairman of Harbor Diversified, Inc. (pharmaceuticals) (2009-2018); Chairman of BAM (semiconductor and aerospace manufacturing)(2000-2018); Chairman of Metropolitan Paper Recycling Inc. (recycling) (2005-2014) | Director and Chairman ofTrans-Lux Corporation (business services); Director and Chairman of Harbor Diversified Inc. (pharmaceuticals) (2009-2018) |
28
The GDL Fund
Additional Fund Information (Continued) (Unaudited)
Name, Position(s) Address1 and Age | Term of Office and Length of Time Served2 | Principal Occupation(s) During Past Five Years | ||||
OFFICERS: | ||||||
Bruce N. Alpert President Age: 68 | Since 2006 | Executive Vice President and Chief Operating Officer of Gabelli Funds, LLC since 1988; Officer of registered investment companies within the Gabelli/GAMCO Fund Complex; Senior Vice President of GAMCO Investors, Inc. since 2008 | ||||
John C. Ball Treasurer Age: 43 | Since 2017 | Treasurer of funds within the Gabelli/GAMCO Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds, 2014-2017; Vice President of State Street Corporation, 2007-2014 | ||||
Agnes Mullady Vice President Age: 61 | Since 2006 | Officer of registered investment companies within the Gabelli/GAMCO Fund Complex since 2006; President and Chief Operating Officer of the Fund Division of Gabelli Funds, LLC since 2015; Chief Executive Officer of G.distributors, LLC since 2010; Senior Vice President of GAMCO Investors, Inc. since 2009; Vice President of Gabelli Funds, LLC since 2007; Executive Vice President of Associated Capital Group, Inc. since 2016 | ||||
Andrea R. Mango Secretary and Vice President Age: 47 | Since 2013 | Vice President of GAMCO Investors, Inc. since 2016; Counsel of Gabelli Funds, LLC since 2013; Secretary of registered investment companies within the Gabelli/GAMCO Fund Complex since 2013; Vice President ofclosed-end funds within the Gabelli/GAMCO Fund Complex since 2014 | ||||
Richard J. Walz Chief Compliance Officer Age: 60 | Since 2013 | Chief Compliance Officer of registered investment companies within the Gabelli/GAMCO Fund Complex since 2013 |
29
The GDL Fund
Additional Fund Information (Continued) (Unaudited)
Name, Position(s) Address1 and Age | Term of Office and Length of Time Served2 | Principal Occupation(s) During Past Five Years | ||||
Laurissa M. Martire Vice President and Ombudsman Age: 43 | Since 2018 | Vice President and/or Ombudsman ofclosed-end funds within the Gabelli/GAMCO Fund Complex; Senior Vice President (since 2019) and other positions (2003-2019) of GAMCO Investors, Inc. | ||||
Carter W. Austin Vice President Age: 53 | Since 2006 | Vice President and/or Ombudsman ofclosed-end funds within the Gabelli/GAMCO Fund Complex; Senior Vice President (since 2015) and Vice President (1996-2015) of Gabelli Funds, LLC | ||||
David I. Schachter Vice President Age: 66 | Since 2006 | Vice President and/or Ombudsman ofclosed-end funds within the Gabelli/GAMCO Fund Complex; Senior Vice President (since 2015) and Vice President (1999-2015) of G.research, LLC |
1 | Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise noted. |
2 | The Fund’s Board of Trustees is divided into three classes, each class having a term of three years. Each year the term of office of one class expires and the successor or successors elected to such class serve for a three year term. The three year term for each class expires as follows: |
* | Term expires at the Fund’s 2020 Annual Meeting of Shareholders or until their successors are duly elected and qualified. |
** | Term expires at the Fund’s 2021 Annual Meeting of Shareholders or until their successors are duly elected and qualified. |
*** | Term expires at the Fund’s 2022 Annual Meeting of Shareholders or until their successors are duly elected and qualified. |
For officers, includes time served in prior officer positions with the Fund. Each officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected and qualified. |
3 | This column includes only directorships of companies required to report to the SEC under the Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment companies registered under the 1940 Act. |
4 | “Interested person” of the Fund as defined in the 1940 Act. Mr. Gabelli is considered an “interested person” because of his affiliation with the Gabelli Funds, LLC, which acts as the Fund’s investment adviser. Mr. Tokar is considered an “interested person” because of his son’s employment by an affiliate of the investment adviser. |
5 | Trustees who are not interested persons are considered “Independent” Trustees. |
6 | This Trustee is elected solely by and represents the shareholders of the preferred shares issued by this Fund. |
7 | Mr. Colavita’s father, Anthony J. Colavita, serves as a director of other funds in the Fund Complex. |
8 | Ms. Foley’s father, Frank J. Fahrenkopf, Jr., serves as a director of other funds in the Fund Complex. |
9 | Mr. Zizza is an independent director of Gabelli International Ltd., which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and in that event would be deemed to be under common control with the Fund’s Adviser. On September 9, 2015, Mr. Zizza entered into a settlement with the SEC to resolve an inquiry relating to an alleged violation regarding the making of false statements or omissions to the accountants of a company concerning a related party transaction. The company in question is not an affiliate of, nor has any connection to, the Fund. Under the terms of the settlement, Mr. Zizza, without admitting or denying the SEC’s findings and allegation, paid $150,000 and agreed to cease and desist committing or causing any future violations of Rule13b2-2 of the Securities Exchange Act of 1934, as amended. The Board has discussed this matter and has determined that it does not disqualify Mr. Zizza from serving as an Independent Trustee. |
30
THE GDL FUND
INCOME TAX INFORMATION (Unaudited)
December 31, 2019
Cash Dividends and Distributions
Payable Date | Record Date | Ordinary Investment Income(a) | Long Term Capital Gains | Return of Capital (b) | Total Amount Paid Per Share(c) | Dividend Reinvestment Price | ||||||||||||||||||||||
Common Shares | ||||||||||||||||||||||||||||
03/22/19 | 03/15/19 | $0.01670 | — | $0.08330 | $0.10000 | $9.58820 | ||||||||||||||||||||||
06/21/19 | 06/14/19 | 0.01670 | — | 0.08330 | 0.10000 | 9.26850 | ||||||||||||||||||||||
09/23/19 | 09/16/19 | 0.01670 | — | 0.08330 | 0.10000 | 9.37960 | ||||||||||||||||||||||
12/20/19 | 12/13/19 | 0.01670 | — | 0.08330 | 0.10000 | 9.28210 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
$0.06680 | — | $0.33320 | $0.40000 | |||||||||||||||||||||||||
Series C Cumulative Preferred Shares |
| |||||||||||||||||||||||||||
03/26/19 | 03/19/19 | $0.50000 | — | — | $0.50000 | |||||||||||||||||||||||
06/26/19 | 06/19/19 | 0.50000 | — | — | 0.50000 | |||||||||||||||||||||||
09/26/19 | 09/19/19 | 0.50000 | — | — | 0.50000 | |||||||||||||||||||||||
12/26/19 | 12/18/19 | 0.50000 | — | — | 0.50000 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
$2.00000 | — | — | $2.00000 |
A Form1099-DIV has been mailed to all shareholders of record for the distributions mentioned above, setting forth specific amounts to be included in the 2019 tax returns. Ordinary distributions are composed of realized net short term capital gains. Ordinary income is reported in box 1a of Form1099-DIV.
Corporate Dividends Received Deduction, Qualified Dividend Income, and U.S. Government Securities Income
The Fund paid to Common and Series C Cumulative Preferred shareholders ordinary income dividends composed of short term capital gains of $0.066 and $2.0000, respectively, per share in 2019. For the year ended December 31, 2019, 8.28% of the ordinary dividend qualified for the dividend received deduction available to corporations, 20.98% of the ordinary income distribution was qualified dividend income and 0.00% of the ordinary income distribution was qualified interest income. The Fund designates 100% of the short term capital gain dividends distributed during the year ended December 31, 2019 as qualified short term gain pursuant to the American Jobs creation Act of 2004. The percentage of U.S. Government securities held as of December 31, 2019 was 27.01%.
31
THE GDL FUND
INCOME TAX INFORMATION (Unaudited) (Continued)
December 31, 2019
Historical Distribution Summary
Investment Income (a) | Short Term Capital Gains (a) | Long Term Capital Gains | Return of Capital (b) | Total Distributions (c) | Adjustment to Cost Basis (d) | |||||||||||||||||||
Common Shares | ||||||||||||||||||||||||
2019 | — | $0.06680 | — | $0.33320 | $0.40000 | $0.33320 | ||||||||||||||||||
2018 | $0.26620 | 0.03960 | $0.06540 | 0.02880 | 0.40000 | 0.02880 | ||||||||||||||||||
2017 | — | — | — | 0.58000 | 0.58000 | 0.58000 | ||||||||||||||||||
2016 | 0.01280 | 0.29120 | 0.28200 | 0.05400 | 0.64000 | 0.05400 | ||||||||||||||||||
2015 | 0.09700 | 0.18040 | 0.28120 | 0.08140 | 0.64000 | 0.08140 | ||||||||||||||||||
2014 | 0.16930 | 0.22920 | 0.17540 | 0.22610 | 0.80000 | 0.22160 | ||||||||||||||||||
2013 | — | 0.17300 | 0.11540 | 0.99160 | 1.28000 | 0.99160 | ||||||||||||||||||
2012 | — | 0.08840 | — | 1.19160 | 1.28000 | 1.19160 | ||||||||||||||||||
2011 | 0.00667 | 0.39930 | 0.00102 | 0.87302 | 1.28000 | 0.87302 | ||||||||||||||||||
2010 | — | 0.02364 | — | 1.25636 | 1.28000 | 1.25636 | ||||||||||||||||||
Series B Cumulative Preferred Shares | ||||||||||||||||||||||||
2018 | $0.55500 | $0.08250 | — | — | $0.63750 | — | ||||||||||||||||||
2017 | — | 0.62900 | $0.64780 | $0.22320 | 1.50000 | $0.22320 | ||||||||||||||||||
2016 | 0.03340 | 0.75580 | 0.71080 | — | 1.50000 | — | ||||||||||||||||||
2015 | 0.26220 | 0.48780 | 0.75000 | — | 1.50000 | — | ||||||||||||||||||
2014 | 0.49980 | 0.67680 | 0.32340 | — | 1.50000 | — | ||||||||||||||||||
2013 | — | 1.36280 | 0.13720 | — | 1.50000 | — | ||||||||||||||||||
2012 | — | 2.00000 | — | — | 2.00000 | — | ||||||||||||||||||
2011 | 0.03992 | 2.39135 | 0.00900 | — | 2.44028 | — | ||||||||||||||||||
Series C Cumulative Preferred Shares | ||||||||||||||||||||||||
2019 | — | $2.00000 | — | — | $2.00000 | — | ||||||||||||||||||
2018 | $1.01810 | 0.15130 | $0.33060 | — | 1.50000 | — |
(a) Taxable as ordinary income for Federal tax purposes.
(b)Non-taxable.
(c) Total amounts may differ due to rounding.
(d) Decrease in cost basis.
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
32
The GDL Fund
Annual Approval of Continuance of Investment Advisory Agreement (Unaudited)
During the six months ended December 31, 2019, the Board of Trustees of the Trust approved the continuation of the investment advisory agreement with the Adviser for the Trust on the basis of the recommendation by the trustees (the “Independent Board Members”) who are not “interested persons” of the Trust. The following paragraphs summarize the material information and factors considered by the Independent Board Members as well as their conclusions relative to such factors.
1. Nature, Extent, and Quality of Services.The Independent Board Members considered information regarding the portfolio manager, the depth of the analyst pool available to the Adviser, the scope of services provided by the Adviser, and the absence of significant service problems reported to the Board. The Independent Board Members noted the experience, length of service, and reputation of the portfolio management team in the merger arbitrage area.
2. Investment Performance.The Independent Board Members noted that the performance fulcrum point for the Adviser to either earn incentive compensation or give up a portion of its compensation was the three month Treasury Index plus 300 basis points (the “Fulcrum Point”). The Independent Board Members recognized that the Fund had underperformed the Fulcrum Point for the one year period ended September 30, 2019. The Independent Board Members also reviewed information regarding the investment performance of the Fund over one, three, five, and ten year periods (as of September 30, 2019) in comparison with a group of event driven funds selected by the Adviser, which were primarilyopen-end funds, and noted that there were no closely comparableclosed-end funds. The Fund’s performance was below average for the one, three, five, and ten year periods.
3. Profitability.The Independent Board Members reviewed summary data regarding the profitability of the Fund to the Adviser and also noted that the fulcrum fee was designed so that the Adviser would likely experience higher than average profitability if the Fund substantially outperformed theT-Bill Index and that the performance to date has resulted in fee rates that have varied from the lowest fee under the formula to the highest.
4. Economies of Scale.The Independent Board Members discussed the major elements of the Adviser’s cost structure, the relationship of those elements to potential economies of scale, and reviewed data provided by the Adviser, noting that meaningful economies of scale could not occur in the absence of very substantial secondary offerings.
5. Sharing of Economies of Scale.The Independent Board Members noted that the investment management fee for the Fund did not take into account any potential economies of scale.
6. Service and Cost Comparisons.The Independent Board Members reviewed the Fund’s expense ratios and found them to be below average within the group. The Independent Board Members were presented with, but did not consider to be material to their decision, various information comparing the advisory fee with the fee for other types of accounts managed by the Adviser.
Conclusions.The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services, good ancillary services, and acceptable performance. The Independent Board Members determined that the reference index chosen for the fulcrum fee structure was appropriate inasmuch as arbitrage performance is often measured against risk free returns, that the rate of profit sharing built into the formula was fair, that the maximum fee was not unreasonable (particularly in light of the requirement that the higher returns necessary for higher fee levels must be earned net of the higher fees) and that the one year measuring period was sufficient and consistent with the short term nature of the Fund’s investment program. The Independent
33
The GDL Fund
Annual Approval of Continuance of Investment Advisory Agreement (Unaudited) (Continued)
Board Members concluded that the profitability of the Fund to the Adviser was reasonable in view of the performance necessary to achieve any particular level of profitability and that potential economies of scale and potential additional profit to the Adviser and its affiliates from portfolio execution services were not a significant factor in their thinking. On the basis of the foregoing and without assigning particular weight to any single conclusion, the Independent Board Members determined to recommend approval of the Advisory Agreement to the full Board of Trustees.
Based on a consideration of all these factors in their totality, the Board Members, including all of the Independent Board Members, determined that the Fund’s advisory fee was fair and reasonable with respect to the quality of services provided and in light of the other factors described above that the Board deemed relevant. Accordingly, the Board Members determined to approve the continuation of the Fund’s Advisory Agreement. The Board Members based their decision on evaluations of all these factors as a whole and did not consider any one factor as all important or controlling.
34
THE GDL FUND
One Corporate Center
Rye, NY 10580-1422
Portfolio Management Team Biographies
Mario J. Gabelli, CFA,is Chairman, Chief Executive Officer, and Chief Investment Officer - Value Portfolios of GAMCO Investors, Inc. that he founded in 1977, and Chief Investment Officer - Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive Chairman of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School and Honorary Doctorates from Fordham University and Roger Williams University.
Regina M. Pitarois a Managing Director and Head of Institutional Marketing at GAMCO Investors, Inc. Ms. Pitaro joined the firm in 1984 and coordinates the organization’s focus with consultants and plan sponsors. She also serves as a Managing Director and Director of GAMCO Asset Management, Inc., and serves as a portfolio manager for Gabelli Funds, LLC. Ms. Pitaro holds an MBA in Finance from the Columbia University Graduate School of Business, a Master’s degree in Anthropology from Loyola University of Chicago, and a Bachelor’s degree from Fordham University.
Willis M. Bruckeris a portfolio manager and global merger arbitrage analyst with 15 years’ experience analyzing and investing in global merger transactions and special situations. He joined GAMCO Investors, Inc. in 2004 as a research analyst after graduating from the Boston College Carroll School of Management with a BS in Finance and Corporate Reporting and Analysis.
We have separated the portfolio managers’ commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the content of the portfolio managers’ commentary is unrestricted. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at www.gabelli.com.
The Net Asset Value per share appears in the Publicly Traded Funds column, under the heading “Specialized Equity Funds,” in Monday’s The Wall Street Journal. It is also listed in Barron’s Mutual Funds/Closed End Funds section under the heading “Specialized Equity Funds.”
The Net Asset Value per share may be obtained each day by calling (914)921-5070 or visiting www.gabelli.com.
The NASDAQ symbol for the Net Asset Value is “XGDLX.”
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may from time to time purchase its common shares in the open market when the Fund’s shares are trading at a discount of 7.5% or more from the net asset value of the shares. The Fund may also from time to time purchase its preferred shares in the open market when the preferred shares are trading at a discount to the liquidation value.
THE GDL FUND
One Corporate Center
Rye, NY 10580-1422
t | 800-GABELLI(800-422-3554) |
f | 914-921-5118 |
e | info@gabelli.com |
GABELLI.COM |
TRUSTEES
Mario J. Gabelli, CFA Chairman & Chief Executive Officer, GAMCO Investors, Inc. Executive Chairman, Associated Capital Group Inc.
Anthony S. Colavita Attorney, Anthony S. Colavita, P.C.
James P. Conn Former Managing Director & Chief Investment Officer, Financial Security Assurance Holdings Ltd.
Clarence A. Davis Former Chief Executive Officer, Nestor, Inc.
Leslie F. Foley Attorney
Michael J. Melarkey Of Counsel, McDonald Carano Wilson LLP
Edward T. Tokar Former Chief Executive Officer of AlliedCapital Management, LLC, andVice President of Honeywell
Salvatore J. Zizza Chairman, Zizza & Associates Corp. |
OFFICERS
Bruce N. Alpert President
John C. Ball Treasurer
Agnes Mullady Vice President
Andrea R. Mango Secretary & Vice President
Richard J. Walz Chief Compliance Officer
Laurissa M. Martire Vice President& Ombudsman
Carter W. Austin Vice President
David I. Schachter Vice President
INVESTMENT ADVISER
Gabelli Funds, LLC One Corporate Center Rye, New York 10580-1422
CUSTODIAN
The Bank of New York Mellon
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Company |
GDL Q4/2019
Item 2. Code of Ethics.
(a) | The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
(c) | There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. |
(d) | The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item’s instructions. |
Item 3. Audit Committee Financial Expert.
As of the end of the period covered by the report, the registrant’s Board of Directors has determined that Michael J. Melarkey is qualified to serve as an audit committee financial expert serving on its audit committee and that he is “independent,” as defined by Item 3 of FormN-CSR.
Item 4. Principal Accountant Fees and Services.
Audit Fees
(a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $24,800 for 2018 and $24,800 for 2019. |
Audit-Related Fees
(b) | The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $0 for 2018 and $0 for 2019. |
Tax Fees
(c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $3,800 for 2018 and $3,800 for 2019. Tax fees represent tax compliance services provided in connection with the review of the Registrant’s tax returns. |
All Other Fees
(d) | The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $1,148 for 2018 and $2,439 for 2019. The fees relate to Passive Foreign Investment Company identification database subscription fees billed on an annual basis. |
(e)(1) | Disclose the audit committee’spre-approval policies and procedures described in paragraph (c)(7) of Rule2-01 of RegulationS-X. |
Pre-Approval Policies and Procedures. The Audit Committee (“Committee”) of the registrant is responsible forpre-approving (i) all audit and permissiblenon-audit services to be provided by the independent auditors to the registrant and (ii) all permissiblenon-audit services to be provided by the independent auditors to the Adviser, Gabelli Funds, LLC, and any affiliate of Gabelli Funds, LLC (“Gabelli”) that provides services to the registrant (a “Covered Services Provider”) if the independent auditors’ engagement related directly to the operations and financial reporting of the registrant. The Committee may delegate its responsibility topre-approve any such audit and permissiblenon-audit services to the Chairperson of the Committee, and the Chairperson must report to the Committee, at its next regularly scheduled meeting after the Chairperson’spre-approval of such services, his or her decision(s). The Committee may also establish detailedpre-approval policies and procedures forpre-approval of such services in accordance with applicable laws, including the delegation of some or all of the Committee’spre-approval responsibilities to the other persons (other than Gabelli or the registrant’s officers).Pre-approval by the Committee of any permissiblenon-audit services is not required so long as: (i) the permissiblenon-audit services were not recognized by the registrant at the time of the engagement to benon-audit services; and (ii) such services are promptly brought to the attention of the Committee and approved by the Committee or Chairperson prior to the completion of the audit.
(e)(2) | The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule2-01 of RegulationS-X are as follows: |
(b) N/A
(c) 0%
(d) 0%
(f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
(g) | The aggregatenon-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including anysub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $43,421 for 2018 and $53,598 for 2019. |
(h) | The registrant’s audit committee of the board of directors has considered whether the provision ofnon-audit services that were rendered to the registrant’s investment adviser (not including anysub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were notpre-approved pursuant to paragraph (c)(7)(ii) of Rule2-01 of RegulationS-X is compatible with maintaining the principal accountant’s independence. |
Item 5. Audit Committee of Listed Registrants.
(a) | The registrant has a separately designated audit committee consisting of the following members: Clarence A. Davis, Michael J. Melarkey, Salvatore J. Zizza. |
Item 6. Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable due to no such divestments during the semi-annual period covered since the previous FormN-CSR filing. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures forClosed-End Management Investment Companies. |
The Proxy Voting Policies are attached herewith.
SECTION HH
The Voting of Proxies on Behalf of Clients
(This section pertains to all affiliated SEC registered investment advisers)
Rule206(4)-6 under the Investment Advisers Act of 1940 and Rule30b1-4 under the Investment Company Act of 1940 require investment advisers to adopt written policies and procedures governing the voting of proxies on behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc., Gabelli Funds, LLC, Gabelli & Company Investment Advisers, Inc., and Teton Advisors, Inc. (collectively, the “Advisers”) to determine how to vote proxies relating to portfolio securities held by their clients, including the procedures that the Advisers use when a vote presents a conflict between the interests of the shareholders of an investment company managed by one of the Advisers, on the one hand, and those of the Advisers; the principal underwriter; or any affiliated person of the investment company, the Advisers, or the principal underwriter. These procedures will not apply where the Advisers do not have voting discretion or where the Advisers have agreed to with a client to vote the client’s proxies in accordance with specific guidelines or procedures supplied by the client (to the extent permitted by ERISA).
I. | Proxy Voting Committee |
The Proxy Voting Committee was originally formed in April 1989 for the purpose of formulating guidelines and reviewing proxy statements within the parameters set by the substantive proxy voting guidelines originally published in 1988 and updated periodically, a copy of which are appended as Exhibit A. The Committee will include representatives of Research, Administration, Legal, and the Advisers. Additional or replacement members of the Committee will be nominated by the Chairman and voted upon by the entire Committee.
Meetings are held on an as needed basis to form views on the manner in which the Advisers should vote proxies on behalf of their clients.
In general, the Director of Proxy Voting Services, using the Proxy Guidelines, and the analysts of GAMCO Investors, Inc. (“GBL”), will determine how to vote on each issue. Fornon-controversial matters, the Director of Proxy Voting Services may vote the proxy if the vote is: (1) consistent with the recommendations of the issuer’s Board of Directors and not contrary to the Proxy Guidelines; (2) consistent with the recommendations of the issuer’s Board of Directors and is anon-controversial issue not covered by the Proxy Guidelines; or (3) the vote is contrary to the recommendations of the Board of Directors but is consistent with the Proxy Guidelines. In those instances, the Director of Proxy Voting Services or the Chairman of the Committee may sign and date the proxy statement indicating how each issue will be voted.
Revised: October 23, 2019
| HH-1 | INTERNAL USE ONLY |
All matters identified by the Chairman of the Committee, the Director of Proxy Voting Services or the Legal Department as controversial, taking into account the recommendations of the analysts of GBL, will be presented to the Proxy Voting Committee. If the Chairman of the Committee, the Director of Proxy Voting Services or the Legal Department has identified the matter as one that (1) is controversial; (2) would benefit from deliberation by the Proxy Voting Committee; or (3) may give rise to a conflict of interest between the Advisers and their clients, the Chairman of the Committee will initially determine what vote to recommend that the Advisers should cast and the matter will go before the Committee.
A. | Conflicts of Interest. |
The Advisers have implemented these proxy voting procedures in order to prevent conflicts of interest from influencing their proxy voting decisions. By following the Proxy Guidelines and the analysts of GBL, the Advisers are able to avoid, wherever possible, the influence of potential conflicts of interest. Nevertheless, circumstances may arise in which one or more of the Advisers are faced with a conflict of interest or the appearance of a conflict of interest in connection with its vote. In general, a conflict of interest may arise when an Adviser knowingly does business with an issuer, and may appear to have a material conflict between its own interests and the interests of the shareholders of an investment company managed by one of the Advisers regarding how the proxy is to be voted. A conflict also may exist when an Adviser has actual knowledge of a material business arrangement between an issuer and an affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for example, when a proxy is voted for a company that is a client of one of the Advisers, such as GAMCO Asset Management Inc. A conflict also may arise when a client of one of the Advisers has made a shareholder proposal in a proxy to be voted upon by one or more of the Advisers. The Director of Proxy Voting Services, together with the Legal Department, will scrutinize all proxies for these or other situations that may give rise to a conflict of interest with respect to the voting of proxies.
B. | Operation of Proxy Voting Committee |
For matters submitted to the Committee, each member of the Committee will receive, prior to the meeting, a copy of the proxy statement, a summary of any views provided by the Chief Investment Officer and any recommendations by GBL analysts. The Chief Investment Officer or the GBL analysts may be invited to present their viewpoints. If the Director of Proxy Voting Services or the Legal Department believe that the matter before the committee is one with respect to which a conflict of interest may exist between the Advisers and their clients, counsel may provide an
Revised: October 23, 2019
| HH-2 | INTERNAL USE ONLY |
opinion to the Committee concerning the conflict. If the matter is one in which the interests of the clients of one or more of the Advisers may diverge, counsel may so advise and the Committee may make different recommendations as to different clients. For any matters where the recommendation may trigger appraisal rights, counsel may provide an opinion concerning the likely risks and merits of such an appraisal action.
Each matter submitted to the Committee will be determined by the vote of a majority of the members present at the meeting. Should the vote concerning one or more recommendations be tied in a vote of the Committee, the Chairman of the Committee will cast the deciding vote. The Committee will notify the proxy department of its decisions and the proxies will be voted accordingly.
Although the Proxy Guidelines express the normal preferences for the voting of any shares not covered by a contrary investment guideline provided by the client, the Committee is not bound by the preferences set forth in the Proxy Guidelines and will review each matter on its own merits. The Advisers subscribe to Institutional Shareholder Services Inc (“ISS”) and Glass Lewis & Co., LLC (“Glass Lewis”), which supply current information on companies, matters being voted on, regulations, trends in proxy voting and information on corporate governance issues. The information provided by ISS and GL is for informational purposes only.
If the vote cast either by the analyst or as a result of the deliberations of the Proxy Voting Committee runs contrary to the recommendation of the Board of Directors of the issuer, the matter may be referred to legal counsel to determine whether an amendment to the most recently filed Schedule 13D is appropriate.
II. | Social Issues and Other Client Guidelines |
If a client has provided and the Advisers have accepted special instructions relating to the voting of proxies, they should be noted in the client’s account file and forwarded to the proxy department. This is the responsibility of the investment professional or sales assistant for the client. In accordance with Department of Labor guidelines, the Advisers’ policy is to vote on behalf of ERISA accounts in the best interest of the plan participants with regard to social issues that carry an economic impact. Where an account is not governed by ERISA, the Advisers will vote shares held on behalf of the client in a manner consistent with any individual investment/voting guidelines provided by the client. Otherwise the Advisers may abstain with respect to those shares.
Specific to the Gabelli ESG Fund, the Proxy Voting Committee will rely on the advice of the portfolio managers of the Gabelli ESG Fund to provide voting recommendations on the securities held in the portfolio.
III. | Client Retention of Voting Rights |
Revised: October 23, 2019
| HH-3 | INTERNAL USE ONLY |
If a client chooses to retain the right to vote proxies or if there is any change in voting authority, the following should be notified by the investment professional or sales assistant for the client.
- Operations
- Proxy Department
- Investment professional assigned to the account
In the event that the Board of Directors (or a Committee thereof) of one or more of the investment companies managed by one of the Advisers has retained direct voting control over any security, the Proxy Voting Department will provide each Board Member (or Committee member) with a copy of the proxy statement together with any other relevant information.
IV. | Proxies of CertainNon-U.S. Issuers |
Proxy voting in certain countries requires “share-blocking.” Shareholders wishing to vote their proxies must deposit their shares shortly before the date of the meeting with a designated depository. During the period in which the shares are held with a depository, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares are returned to the clients’ custodian. Absent a compelling reason to the contrary, the Advisers believe that the benefit to the client of exercising the vote is outweighed by the cost of voting and therefore, the Advisers will not typically vote the securities ofnon-U.S. issuers that require share-blocking.
In addition, voting proxies of issuers innon-U.S. markets may also give rise to a number of administrative issues or give rise to circumstances under which voting would impose a cost (real or implied) on its client which may cause the Advisers to abstain from voting such proxies. For example, the Advisers may receive the notices for shareholder meetings without adequate time to consider the proposals in the proxy or after thecut-off date for voting. Other markets require the Advisers to provide local agents with power of attorney prior to implementing their respective voting instructions on the proxy. Other markets may require disclosure of certain ownership information in excess of what is required to vote in the U.S. market. Although it is the Advisers’ policies to vote the proxies for its clients for which they have proxy voting authority, in the case of issuers innon-U.S. markets, we vote client proxies on a best efforts basis.
V. | Voting Records |
The Proxy Voting Department will retain a record of matters voted upon by the Advisers for their clients. The Advisers will supply information on how they voted a client’s proxy upon request from the client.
The complete voting records for each registered investment company (the “Fund”) that is managed by the Advisers will be filed on FormN-PX for the twelve months ended June 30th, no later than August 31st of each year. A description of the
Revised: October 23, 2019
| HH-4 | INTERNAL USE ONLY |
Fund’s proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling800-GABELLI(800-422-3554); (ii) writing to Gabelli Funds, LLC at One Corporate Center, Rye, NY 10580-1422; or (iii) visiting the SEC’s website at www.sec.gov.
The Advisers’ proxy voting records will be retained in compliance with Rule204-2 under the Investment Advisers Act.
VI. | Voting Procedures |
1. Custodian banks, outside brokerage firms and clearing firms are responsible for forwarding proxies directly to the Advisers.
Proxies are received in one of two forms:
● | Shareholder Vote Instruction Forms (“VIFs”) - Issued by Broadridge Financial Solutions, Inc. (“Broadridge”). Broadridge is an outside service contracted by the various institutions to issue proxy materials. |
● | Proxy cards which may be voted directly. |
2. Upon receipt of the proxy, the number of shares each form represents is logged into the proxy system, electronically or manually, according to security.
3. Upon receipt of instructions from the proxy committee, the votes are cast and recorded for each account.
Records have been maintained on the ProxyEdge system.
ProxyEdge records include:
Security Name and CUSIP Number
Date and Type of Meeting (Annual, Special, Contest)
Directors’ Recommendation (if any)
How the Adviser voted for the client on item
4. VIFs are kept alphabetically by security. Records for the current proxy season are located in the Proxy Voting Department office. In preparation for the upcoming season, files are transferred to an offsite storage facility during January/February.
5. If a proxy card or VIF is received too late to be voted in the conventional matter, every attempt is made to vote including:
● | When a solicitor has been retained, the solicitor is called. At the solicitor’s direction, the proxy is faxed or sent electronically. |
Revised: October 23, 2019
| HH-5 | INTERNAL USE ONLY |
● | In some circumstances VIFs can be faxed or sent electronically to Broadridge up until the time of the meeting. |
6. In the case of a proxy contest, records are maintained for each opposing entity.
7. Voting in Person
a) At times it may be necessary to vote the shares in person. In this case, a “legal proxy” is obtained in the following manner:
● | Banks and brokerage firms using the services at Broadridge: |
Broadridge is notified that we wish to vote in person. Broadridge issues individual legal proxies and sends them back via email or overnight (or the Adviser can pay messenger charges). A lead-time of at least two weeks prior to the meeting is needed to do this. Alternatively, the procedures detailed below for banks not using Broadridge may be implemented.
● | Banks and brokerage firms issuing proxies directly: |
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
“Representative of [Adviser name] with full power of substitution.”
b) The legal proxies are given to the person attending the meeting along with the limited power of attorney.
Revised: October 23, 2019
| HH-6 | INTERNAL USE ONLY |
Appendix A
Proxy Guidelines
PROXY VOTING GUIDELINES
General Policy Statement
It is the policy of GAMCO Investors, Inc, and its affiliated advisers (collectively “the Advisers”) to vote in the best economic interests of our clients. As we state in our Magna Carta of Shareholders Rights, established in May 1988, we are neitherfor noragainst management. We are for shareholders.
At our first proxy committee meeting in 1989, it was decided that each proxy statement should be evaluated on its own merits within the framework first established by our Magna Carta of Shareholders Rights. The attached guidelines serve to enhance that broad framework.
We do not consider any issue routine. We take into consideration all of our research on the company, its directors, and their short and long-term goals for the company. In cases where issues that we generally do not approve of are combined with other issues, the negative aspects of the issues will be factored into the evaluation of the overall proposals but will not necessitate a vote in opposition to the overall proposals.
Board of Directors
We do not consider the election of the Board of Directors a routine issue. Each slate of directors is evaluated on acase-by-case basis.
Factors taken into consideration include:
● | Historical responsiveness to shareholders |
This may include such areas as:
-Paying greenmail
-Failure to adopt shareholder resolutions receiving a majority of shareholder votes
● | Qualifications |
● | Nominating committee in place |
● | Number of outside directors on the board |
● | Attendance at meetings |
● | Overall performance |
Selection of Auditors
Revised: October 23, 2019
| HH-7 | INTERNAL USE ONLY |
In general, we support the Board of Directors’ recommendation for auditors.
Blank Check Preferred Stock
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock and establish dividends, voting rights, etc. without further shareholder approval.
Classified Board
A classified board is one where the directors are divided into classes with overlapping terms. A different class is elected at each annual meeting.
While a classified board promotes continuity of directors facilitating long range planning, we feel directors should be accountable to shareholders on an annual basis. We will look at this proposal on acase-by-case basis taking into consideration the board’s historical responsiveness to the rights of shareholders.
Where a classified board is in place we will generally not support attempts to change to an annually elected board.
When an annually elected board is in place, we generally will not support attempts to classify the board.
Increase Authorized Common Stock
The request to increase the amount of outstanding shares is considered on acase-by-case basis.
Factors taken into consideration include:
● | Future use of additional shares |
-Stock split
-Stock option or other executive compensation plan
-Finance growth of company/strengthen balance sheet
-Aid in restructuring
-Improve credit rating
-Implement a poison pill or other takeover defense
● | Amount of stock currently authorized but not yet issued or reserved for stock option plans |
Revised: October 23, 2019
| HH-8 | INTERNAL USE ONLY |
● | Amount of additional stock to be authorized and its dilutive effect |
We will support this proposal if a detailed and verifiable plan for the use of the additional shares is contained in the proxy statement.
Confidential Ballot
We support the idea that a shareholder’s identity and vote should be treated with confidentiality.
However, we look at this issue on acase-by-case basis.
In order to promote confidentiality in the voting process, we endorse the use of independent Inspectors of Election.
Cumulative Voting
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may multiply the number of directors being elected by the number of shares held on record date and cast the total number for one candidate or allocate the voting among two or more candidates.
Where cumulative voting is in place, we will vote against any proposal to rescind this shareholder right.
Cumulative voting may result in a minority block of stock gaining representation on the board. When a proposal is made to institute cumulative voting, the proposal will be reviewed on acase-by-case basis. While we feel that each board member should represent all shareholders, cumulative voting provides minority shareholders an opportunity to have their views represented.
Director Liability and Indemnification
We support efforts to attract the best possible directors by limiting the liability and increasing the indemnification of directors, except in the case of insider dealing.
Revised: October 23, 2019
| HH-9 | INTERNAL USE ONLY |
Equal Access to the Proxy
The SEC’s rules provide for shareholder resolutions. However, the resolutions are limited in scope and there is a 500 word limit on proponents’ written arguments. Management has no such limitations. While we support equal access to the proxy, we would look at such variables as length of time required to respond, percentage of ownership, etc.
Fair Price Provisions
Charter provisions requiring a bidder to pay all shareholders a fair price are intended to preventtwo-tier tender offers that may be abusive. Typically, these provisions do not apply to board-approved transactions.
We support fair price provisions because we feel all shareholders should be entitled to receive the same benefits.
Reviewed on acase-by-case basis.
Golden Parachutes
Golden parachutes are severance payments to top executives who are terminated or demoted after a takeover.
We support any proposal that would assure management of its own welfare so that they may continue to make decisions in the best interest of the company and shareholders even if the decision results in them losing their job. We do not, however, support excessive golden parachutes. Therefore, each proposal will be decided on acase-by- case basis.
Anti-Greenmail Proposals
We do not support greenmail. An offer extended to one shareholder should be extended to all shareholders equally across the board.
Revised: October 23, 2019
| HH-10 | INTERNAL USE ONLY |
Limit Shareholders’ Rights to Call Special Meetings
We support the right of shareholders to call a special meeting.
Reviewed on acase-by-case basis.
Consideration of Nonfinancial Effects of a Merger
This proposal releases the directors from only looking at the financial effects of a merger and allows them the opportunity to consider the merger’s effects on employees, the community, and consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our clients. In general, this proposal does not allow us to do that. Therefore, we generally cannot support this proposal.
Reviewed on acase-by-case basis.
Mergers, Buyouts, Spin-Offs, Restructurings
Each of the above is considered on acase-by-case basis. According to the Department of Labor, we are not required to vote for a proposal simply because the offering price is at a premium to the current market price. We may take into consideration the long term interests of the shareholders.
Military Issues
Shareholder proposals regarding military production must be evaluated on a purely economic set of criteria for our ERISA clients. As such, decisions will be made on acase-by-case basis.
In voting on this proposal for ournon-ERISA clients, we will vote according to the client’s direction when applicable. Where no direction has been given, we will vote in the best economic interests of our clients. It is not our duty to impose our social judgment on others.
Northern Ireland
Shareholder proposals requesting the signing of the MacBride principles for the purpose of countering the discrimination of Catholics in hiring practices must be evaluated on a purely economic set of criteria for our ERISA clients. As such, decisions will be made on acase-by-case basis.
Revised: October 23, 2019
| HH-11 | INTERNAL USE ONLY |
In voting on this proposal for ournon-ERISA clients, we will vote according to client direction when applicable. Where no direction has been given, we will vote in the best economic interests of our clients. It is not our duty to impose our social judgment on others.
Opt Out of State Anti-Takeover Law
This shareholder proposal requests that a company opt out of the coverage of the state’s takeover statutes. Example: Delaware law requires that a buyer must acquire at least 85% of the company’s stock before the buyer can exercise control unless the board approves.
We consider this on acase-by-case basis. Our decision will be based on the following:
● | State of Incorporation |
● | Management history of responsiveness to shareholders |
● | Other mitigating factors |
Poison Pill
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs of shareholders and the stock is very liquid, we will reconsider this position.
Reincorporation
Generally, we support reincorporation for well-defined business reasons. We oppose reincorporation if proposed solely for the purpose of reincorporating in a state with more stringent anti-takeover statutes that may negatively impact the value of the stock.
Stock Incentive Plans
Director and Employee Stock incentive plans are an excellent way to attract, hold and motivate directors and employees. However, each incentive plan must be evaluated on its own merits, taking into consideration the following:
● | Dilution of voting power or earnings per share by more than 10%. |
● | Kind of stock to be awarded, to whom, when and how much. |
● | Method of payment. |
● | Amount of stock already authorized but not yet issued under existing stock plans. |
● | The successful steps taken by management to maximize shareholder value. |
Revised: October 23, 2019
| HH-12 | INTERNAL USE ONLY |
Supermajority Vote Requirements
Supermajority vote requirements in a company’s charter or bylaws require a level of voting approval in excess of a simple majority of the outstanding shares. In general, we oppose supermajority-voting requirements. Supermajority requirements often exceed the average level of shareholder participation. We support proposals’ approvals by a simple majority of the shares voting.
Reviewed on acase-by-case basis.
Limit Shareholders Right to Act by Written Consent
Written consent allows shareholders to initiate and carry on a shareholder action without having to wait until the next annual meeting or to call a special meeting. It permits action to be taken by the written consent of the same percentage of the shares that would be required to effect proposed action at a shareholder meeting.
Reviewed on acase-by-case basis.
“Say-on-Pay” /“Say-When-on-Pay” /“Say-on-Golden-Parachutes”
Required under the Dodd-Frank Act; these proposals arenon-binding advisory votes on executive compensation. We will generally vote with the Board of Directors’ recommendation(s) on advisory votes on executive compensation(“Say-on-Pay”), advisory votes on the frequency of voting on executive compensation(“Say-When-on-Pay”) and advisory votes relating to extraordinary transaction executive compensation(“Say-on-Golden-Parachutes”). In those instances when we believe that it is in our clients’ best interest, we may abstain or vote against executive compensation and/or the frequency of votes on executive compensation and/or extraordinary transaction executive compensation advisory votes.
Proxy Access
Proxy access is a tool used to attempt to promote board accountability by requiring that a company’s proxy materials contain not only the names of management nominees, but also any candidates nominated by long-term shareholders holding at least a certain stake in the company. We will review proposals regarding proxy access on acase-by-case basis taking into account the provisions of the proposal, the company’s current governance structure, the successful steps taken by management to maximize shareholder value, as well as other applicable factors.
Revised: October 23, 2019
| HH-13 | INTERNAL USE ONLY |
Item 8. Portfolio Managers ofClosed-End Management Investment Companies.
PORTFOLIO MANAGER
Mario J. Gabelli, CFA, is Chairman, Chief Executive Officer, and Chief Investment Officer – Value Portfolios of GAMCO Investors, Inc. that he founded in 1977, and Chief Investment Officer – Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc. He is also Executive Chairman of the Board of Directors of Associated Capital Group, Inc. Mr. Gabelli is a summa cum laude graduate of Fordham University and holds an MBA degree from Columbia Business School, and Honorary Doctorates from Fordham University and Roger Williams University.
Willis M. Brucker is a portfolio manager and global merger arbitrage analyst with 15 years’ experience analyzing and investing in global merger transactions and special situations. He joined GAMCO Investors, Inc. in 2004 as a research analyst after graduating from the Boston College Carroll School of Management with a BS in Finance and Corporate Reporting and Analysis.
MANAGEMENT OF OTHER ACCOUNTS
The table below shows the number of other accounts managed by Mario J. Gabelli and the total assets in each of the following categories: registered investment companies, other paid investment vehicles and other accounts as of December 31, 2019. For each category, the table also shows the number of accounts and the total assets in the accounts with respect to which the advisory fee is based on account performance.
Name of Portfolio Manager | Type of Accounts | Total No. of Accounts Managed | Total Assets | No. of Accounts where Advisory Fee is Based on | Total Assets in where Advisory Fee is Based on | |||||
Mario J. Gabelli, CFA | Registered Investment Companies: | 24 | $19.5 billion | 4 | $5.3 billion | |||||
Other Pooled Investment Vehicles: | 11 | $1.1 billion | 8 | $904.3 million | ||||||
Other Accounts: | 985 | $8.1 billion | 1 | $238.5 million | ||||||
Willis M. Brucker | Registered Investment Companies: | 0 | $0 | 0 | $0 | |||||
Other Pooled Investment Vehicles: | 0 | $0 | 0 | $0 | ||||||
Other Accounts: | 1 | $0.5 million | 0 | $0 |
POTENTIAL CONFLICTS OF INTEREST
As reflected above, Mr. Gabelli manages accounts in addition to the Fund. Actual or apparent conflicts of interest may arise when a Portfolio Manager also hasday-to-day management responsibilities with respect to one or more other accounts. These potential conflicts include:
ALLOCATION OF LIMITED TIME AND ATTENTION. As indicated above, Mr. Gabelli manages multiple accounts. As a result, he will not be able to devote all of his time to management of the Fund. Mr. Gabelli, therefore,
may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he were to devote all of his attention to the management of only the Fund.
ALLOCATION OF LIMITED INVESTMENT OPPORTUNITIES. As indicated above, Mr. Gabelli manages managed accounts with investment strategies and/or policies that are similar to the Fund. In these cases, if the he identifies an investment opportunity that may be suitable for multiple accounts, a Fund may not be able to take full advantage of that opportunity because the opportunity may be allocated among all or many of these accounts or other accounts managed primarily by other Portfolio Managers of the Adviser, and their affiliates. In addition, in the event Mr. Gabelli determines to purchase a security for more than one account in an aggregate amount that may influence the market price of the security, accounts that purchased or sold the security first may receive a more favorable price than accounts that made subsequent transactions.
SELECTION OF BROKER/DEALERS. Because of Mr. Gabelli’s indirect majority ownership interest in G.research, LLC, he may have an incentive to use G.research to execute portfolio transactions for a Fund.
PURSUIT OF DIFFERING STRATEGIES. At times, Mr. Gabelli may determine that an investment opportunity may be appropriate for only some of the accounts for which he exercises investment responsibility, or may decide that certain of the funds or accounts should take differing positions with respect to a particular security. In these cases, he may execute differing or opposite transactions for one or more accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment of one or more other accounts.
VARIATION IN COMPENSATION. A conflict of interest may arise where the financial or other benefits available to Mr. Gabelli differ among the accounts that he manages. If the structure of the Adviser’s management fee or the Portfolio Manager’s compensation differs among accounts (such as where certain accounts pay higher management fees or performance-based management fees), the Portfolio Manager may be motivated to favor certain accounts over others. The Portfolio Manager also may be motivated to favor accounts in which he has an investment interest, or in which the Adviser, or their affiliates have investment interests. Similarly, the desire to maintain assets under management or to enhance a Portfolio Manager’s performance record or to derive other rewards, financial or otherwise, could influence the Portfolio Manager in affording preferential treatment to those accounts that could most significantly benefit the Portfolio Manager. For example, as reflected above, if Mr. Gabelli manages accounts which have performance fee arrangements, certain portions of his compensation will depend on the achievement of performance milestones on those accounts. Mr. Gabelli could be incented to afford preferential treatment to those accounts and thereby by subject to a potential conflict of interest.
The Adviser, and the Funds have adopted compliance policies and procedures that are designed to address the various conflicts of interest that may arise for the Adviser and their staff members. However, there is no guarantee that such policies and procedures will be able to detect and prevent every situation in which an actual or potential conflict may arise.
COMPENSATION STRUCTURE FOR MARIO J. GABELLI
Mr. Gabelli receives incentive-based variable compensation based on a percentage of net revenues received by the Adviser for managing the Fund. Net revenues are determined by deducting from gross investment management fees the firm’s expenses (other than Mr. Gabelli’s compensation) allocable to this Fund. Fourclosed-end registered investment companies managed by Mr. Gabelli have arrangements whereby the Adviser will only receive its investment advisory fee attributable to the liquidation value of outstanding preferred stock (and Mr. Gabelli would only receive his percentage of such advisory fee) if certain performance levels are met. Additionally, he receives similar incentive based variable compensation for managing other accounts within the firm and its affiliates. This method of compensation is based on the premise that superior long-term performance in managing a portfolio should be rewarded with higher compensation as a result of growth of assets through appreciation and net investment activity. The level of compensation is not determined with specific reference to the performance of any account against any specific benchmark. This Fund managed by Mr. Gabelli has a performance (fulcrum) fee arrangement for which his compensation is adjusted up or down based on the performance of the investment company relative to an index. Mr. Gabelli manages other accounts with performance fees. Compensation for
managing these accounts has two components. One component is based on a percentage of net revenues to the investment adviser for managing the account. The second component is based on absolute performance of the account, with respect to which a percentage of such performance fee is paid to Mr. Gabelli. As an executive officer of the Adviser’s parent company, GBL, Mr. Gabelli also receives ten percent of the net operating profits of the parent company. He receives no base salary, no annual bonus, and no stock options.
COMPENSATION STRUCTURE FOR THE PORTFOLIO MANAGERS OTHER THAN MR. GABELLI
The compensation for the Portfolio Managers other than Mr. Gabelli for the Trust is structured to enable the Adviser to attract and retain highly qualified professionals in a competitive environment. The Portfolio Managers other than Mr. Gabelli receive a compensation package that includes a minimum draw or base salary, equity-based incentive compensation via awards of restricted stock, and incentive based variable compensation based on a percentage of net revenue received by the Adviser for managing the Trust to the extent that the amount exceeds a minimum level of compensation. Net revenues are determined by deducting from gross investment management fees certain of the firm’s expenses (other than the Portfolio Managers’ compensation) allocable to the Trust (the incentive-based variable compensation for managing other accounts is also based on a percentage of net revenues to the investment adviser for managing the account). This method of compensation is based on the premise that superior long-term performance in managing a portfolio should be rewarded with higher compensation as a result of growth of assets through appreciation and net investment activity. The level of equity-based incentive and incentive-based variable compensation is based on an evaluation by the Adviser’s parent, GBL, of quantitative and qualitative performance evaluation criteria. This evaluation takes into account, in a broad sense, the performance of the accounts managed by the Portfolio Managers, but the level of compensation is not determined with specific reference to the performance of any account against any specific benchmark. Generally, greater consideration is given to the performance of larger accounts and to longer term performance over smaller accounts and short-term performance.
OWNERSHIP OF SHARES IN THE FUND
Mario J. Gabelli owned over $1 million of shares of the Fund and Willis M. Brucker owned $0 of shares of the Fund as of December 31, 2019.
(b) Not applicable.
Item 9. | Purchases of Equity Securities byClosed-End Management Investment Company and Affiliated Purchasers. |
REGISTRANT PURCHASES OF EQUITY SECURITIES
Period
| (a) Total Number of
| (b) Average Price Paid
| (c) Total Number of
| (d) Maximum Number (or
| ||||
Month #1 07/31/2019
|
Common – 25,163 |
Common – $9.33 |
Common – 25,163 | Common – 16,164,485 - 25,163 = 16,139,322 Preferred Series B –2,624,025 | ||||
Month #2 08/31/2019
|
Common – 323,459 |
Common – $9.32 |
Common – 323,459 | Common – 16,139,322 - 323,459 = 15,815,863 Preferred Series B – 2,624,025 | ||||
Month #3
|
Common – N/A |
Common – N/A |
Common – N/A |
Common – 15,815,863 | ||||
Month #4
|
Common – 28,392 |
Common – $9.16 |
Common – 28,392 | Common – 15,815,863 - 28,392 = 15,787,471 Preferred Series B – 2,624,025 | ||||
Month #5
|
Common – 59,025 |
Common – $9.22 |
Common – 59,025 | Common – 15,787,471 - 59,025 = 15,728,446 Preferred Series B – 2,624,025 | ||||
Month #6
|
Common – 55,161 |
Common – $9.25 |
Common – 55,161 | Common – 15,728,446 - 55,161 = 15,673,285 Preferred Series B – 2,624,025 | ||||
Total
| Common – 491,200
| Common – $9.26
| Common – 491,200
|
N/A
|
Footnote columns (c) and (d) of the table, by disclosing the following information in the aggregate for all plans or programs publicly announced:
a. | The date each plan or program was announced – The notice of the potential repurchase of common and preferred shares occurs semiannually in the Fund’s shareholder reports in accordance with Section 23(c) of the Investment Company Act of 1940, as amended. |
b. | The dollar amount (or share or unit amount) approved – Any or all common shares outstanding may be repurchased when the Fund’s common shares are trading at a discount of 7.5% or more |
from the net asset value of the shares. Any or all preferred shares outstanding may be repurchased when the Fund’s preferred shares are trading at a discount to the liquidation value of $50.00. |
c. | The expiration date (if any) of each plan or program – The Fund’s repurchase plans are ongoing. |
d. | Each plan or program that has expired during the period covered by the table – The Fund’s repurchase plans are ongoing. |
e. | Each plan or program the registrant has determined to terminate prior to expiration, or under which the registrant does not intend to make further purchases. – The Fund’s repurchase plans are ongoing. |
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s Board of Directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of RegulationS-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR240.14a-101)), or this Item.
Item 11. Controls and Procedures.
(a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule30a-3(b) under the 1940 Act (17 CFR270.30a-3(b)) and Rules13a-15(b) or15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR240.13a-15(b) or240.15d-15(b)). |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule30a-3(d) under the 1940 Act (17 CFR270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. | Disclosure of Securities Lending Activities forClosed-End Management Investment Companies. |
(a) | If the registrant is aclosed-end management investment company, provide the following dollar amounts of income and fees/compensation related to the securities lending activities of the registrant during its most recent fiscal year: |
(1) Gross income from securities lending activities; $0
(2) All fees and/or compensation for each of the following securities lending activities and related services: any share of revenue generated by the securities lending program paid to the securities lending agent(s) (“revenue split”); fees paid for cash collateral management services (including fees deducted from a pooled cash collateral reinvestment vehicle) that are not included in the revenue split; administrative fees that are not included in the revenue split; fees for indemnification that are not included in the revenue split; rebates paid to borrowers; and any other fees relating to the securities lending program that are not included in the revenue split, including a description of those other fees; $0
(3) The aggregate fees/compensation disclosed pursuant to paragraph (2); and $0
(4) Net income from securities lending activities (i.e., the dollar amount in paragraph (1) minus the dollar amount in paragraph (3)). $0
(b) | If the registrant is aclosed-end management investment company, describe the services provided to the registrant by the securities lending agent in the registrant’s most recent fiscal year. N/A |
Item 13. Exhibits.
(a)(1) | Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. |
(a)(2) | Certifications pursuant to Rule30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(a)(3) | Not applicable. |
(a)(4) | Not applicable. |
(b) | Certifications pursuant to Rule30a-2(b) under the 1940 Act and Section 906 of the Sarbanes- Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | The GDL Fund �� |
By (Signature and Title)* | /s/Bruce N. Alpert | |||
Bruce N. Alpert, Principal Executive Officer |
Date | March 6, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
By (Signature and Title)* | /s/Bruce N. Alpert | |||
Bruce N. Alpert, Principal Executive Officer |
Date | March 6, 2020 |
By (Signature and Title)* | /s/John C. Ball | |||
John C. Ball, Principal Financial Officer and Treasurer |
Date | March 6, 2020 |
* Print the name and title of each signing officer under his or her signature.