As filed with the Securities and Exchange Commission on March 18, 2004
Securities Act File No. 333-
Investment Company Act File No. 811-21423
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM N-2
________________________
[X] Registration Statement under the Securities Act of 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and/or
[X] Registration Statement under the Investment
Company Act of 1940
[X] Amendment No. 5
(Check Appropriate Box or Boxes)
________________________
THE GABELLI DIVIDEND & INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
________________________
One Corporate Center
Rye, New York 10580-1422
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 422-3554
Bruce N. Alpert
The Gabelli Dividend & Income Trust
One Corporate Center
Rye, New York 10580-1422
(914) 921-5100
(Name and Address of Agent for Service)
________________________
Copies to:
Richard T. Prins, Esq
Skadden, Arps, Slate, James E. McKee, Esq.
Meagher & Flom LLP The Gabelli Dividend & Income Trust
Four Times Square One Corporate Center
New York, New York 10036 Rye, New York 10580-1422 [ ]
(212) 735-3000 (914) 921-5100
________________________
Approximate date of proposed public offering: As soon as practicable
after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check
appropriate box) [X] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for
a previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the
Securities Act registration statement number of the earlier effective
registration statement for the same offering is [ ].
________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
==============================================================================================
Proposed
Proposed Maximum
Maximum Aggregate
Amount Being Offering Price Offering Amount of
Title of Securities Registered Per Share Price(1) Registration Fee
------------------- ---------- --------- -------- ----------------
___% Series 40,000 Shares $25 $1,000,000 $126.70
Preferred
Series B AMPS 100 Shares $25,000 $2,500,000 $316.75
(1) Estimated solely for the purpose of calculating the registration fee.
________________________
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
====================--------------============================================================
CROSS-REFERENCE SHEET
N-2 Item Number Location in Part A (Caption)
---------------------------------------------------------------------------------------------------------------------
PART A
1. Outside Front Cover................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover
Page............................................. Outside Front Cover Page; Inside Front Cover Page
3. Fee Table and Synopsis............................. Summary; Summary of Fund Expenses
4. Financial Highlights............................... Not Applicable
5. Plan of Distribution............................... Outside Front Cover Page; Summary; Underwriting
6. Selling Shareholders............................... Not Applicable
7. Use of Proceeds.................................... Use of Proceeds; Investment Objective and Policies
8. General Description of the
Registrant....................................... Outside Front Cover Page; Summary; The Fund;
Investment Objective and Policies; Risk Factors &
Special Considerations; How the Fund Manages Risk;
Description of the Shares; Anti-takeover Provisions
of the Fund's Governing Documents
9. Management......................................... Outside Front Cover Page; Summary; Management of the
Fund; Custodian, Transfer Agent, Dividend-Disbursing
Agent
10. Capital Shares, Long-Term Debt,
and Other Securities............................. Outside Front Cover Page; Summary; Investment
Objective and Policies; Description of the Shares;
Description of Capitalization; Taxation
11. Defaults and Arrears on Senior
Securities....................................... Not Applicable
12. Legal Proceedings.................................. Not Applicable
13. Table of Contents of the Statement
of Additional Information........................ Table of Contents of the Statement of
Additional Information
PART B Location in Statement of
Additional Information
=====================================================================================================================
14. Cover Page......................................... Outside Front Cover Page
15. Table of Contents.................................. Outside Front Cover Page
16. General Information and History.................... Not Applicable
17. Investment Objective and
Policies......................................... Investment
Objective and
Policies;
Investment
Restrictions
18. Management......................................... Management of the Fund
19. Control Persons and Principal
Holders of Securities............................ Not Applicable
20. Investment Advisory and Other
Services......................................... Management of the Fund
21. Brokerage Allocation and Other
Practices........................................ Portfolio Transactions
22. Tax Status......................................... Taxation
23. Financial Statements............................... Not Applicable
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted
================================================================================
Subject to Completion
Preliminary Prospectus dated January , 2004
PROSPECTUS Shares [GABELLI LOGO]
----------
The Gabelli Dividend & Income Trust
[__] Shares, % Series A Cumulative Preferred Shares
(Liquidation Preference $25 per Share)
[__] Shares, Series B Auction Market Preferred Shares
(Liquidation Preference $25,000 per Share)
The Gabelli Dividend & Income Trust, or the Fund, is a,
non-diversified, closed-end management investment company registered under the
Investment Company Act of 1940. The Fund's investment objective is to seek a
high level of total return with an emphasis on dividends and income. The Fund
attempts to achieve its objective by investing at least 80% of its assets in
dividend paying or other income producing securities under normal market
conditions. In addition, under normal market conditions, at least 50% of the
Fund's assets will consist of dividend paying equity securities. In making stock
selections, Gabelli Funds, LLC, which serves as investment adviser to the Fund,
looks for securities that have a superior yield, as well as capital gains
potential. The Fund commenced its investment operations on November 28, 2003. We
cannot assure you that the Fund's objective will be achieved.
This prospectus describes the Fund's _____% Series A Cumulative
Preferred Shares (the "Series A Preferred"), liquidation preference $25 per
share. Dividends on the Series A Preferred are cumulative from their original
issue date at the annual rate of _____% of the liquidation preference of $25 per
share and are payable quarterly on [__], [__], [__]and [__] in each year,
commencing on [__].
This prospectus also describes the Fund's Series B Auction Market
Preferred Shares (the "Series B AMPS"), liquidation preference $25,000 per
share. The dividend rate for the Series B AMPS will vary from dividend period to
dividend period. The annual dividend rate for the initial dividend period for
the Series B AMPS will be [__]% of the liquidation preference of $25,000 per
share. The initial dividend period commences on the date of issuance and
continues through [__]. For subsequent dividend periods, the Series B AMPS will
pay dividends based on a rate set at auction, usually held weekly.
The Fund offers by this prospectus, in the aggregate, $[__] million of
preferred shares of either Series A Preferred or Series B AMPS, or a combination
of both series.
Investing in our Series A Preferred or Series B AMPS involves risks.
See "Risk Factors and Special Considerations" beginning on page [__].
Series A Preferred Series B AMPS
Per Share Total Per Share Total
--------- ----- --------- -----
Public Offering Price(1) $ $ $ $
Underwriting Discount(2) $ $ $ $
Proceeds to the Fund (before $ $ $ $
expenses)(3)
(1) Plus accumulated dividends, if any, from [___], 2003.
(2) The Fund and the Investment Adviser have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1934, as amended.
(3) Offering expenses payable by the Fund are estimated at $[___].
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The Series A Preferred and/or Series B AMPS being offered by this
prospectus are being offered by the underwriters listed in this prospectus,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. The Fund expects that delivery of any Series A Preferred or Series B
AMPS will be made in book-entry form through the facilities of The Depository
Trust Company on or about [__], 2004.
_______________
[____]
Gabelli & Company, Inc.
_______________
The date of this prospectus is [___]
(continued from previous page)
Application is expected to be made to list the Series A Preferred on
the New York Stock Exchange. If offered, trading of the Series A Preferred on
the New York Stock Exchange is expected to commence within 30 days of the date
of this prospectus. Prior to this offering, there has been no public market for
the Series A Preferred. See "Underwriting."
The Series B AMPS will not be listed on an exchange. Investors may only
buy or sell Series B AMPS through an order placed at an auction with or through
a broker-dealer in accordance with the procedures specified in this prospectus
or in a secondary market maintained by certain broker-dealers should those
broker-dealers decide to maintain a secondary market. Broker-dealers are not
required to maintain a secondary market in the Series B AMPS and a secondary
market may not provide you with liquidity.
The net proceeds of the offering, which are expected to be $[__], will
be invested in accordance with the Fund's investment objective and policies. See
"Investment Objective and Policies" beginning on page [__].
The Fund expects that dividends paid on the Series A Preferred and
Series B AMPS will consist of (i) long-term capital gain (gain from the sale of
a capital asset held longer than 12 months), (ii) qualified dividend income
(dividend income from domestic and certain foreign corporations), and (iii)
investment company taxable income (other than qualified dividend income),
including interest income, short-term capital gain and income from certain
hedging and interest rate transactions. For individuals, the maximum federal
income tax rate on long-term capital gain is currently 15%, on qualified
dividend income is 15%, and on ordinary income is 35%. These tax rates are
scheduled to apply through 2008. We cannot assure you, however, as to what
percentage of the dividends paid on the Series A Preferred or Series B AMPS will
consist of long-term capital gains and qualified dividend income, which are
taxed at lower rates for individuals than ordinary income. For a more detailed
discussion, see "Taxation."
Neither the Series A Preferred nor the Series B AMPS may be issued
unless each is rated "[__]" by [__] ("[__]"). In addition, the Series B AMPS may
not be issued unless it is also rated "[__]" by [__] ("[__]"). In order to keep
these ratings, the Fund will be required to maintain a minimum discounted asset
coverage with respect to its outstanding Series A Preferred and Series B AMPS
under guidelines established by each of [__] and [__]. See "Description of the
Series A Preferred and Series B AMPS - Rating Agency Guidelines." The Fund is
also required to maintain a minimum asset coverage by the Investment Company Act
of 1940. If the Fund fails to maintain any of these minimum asset coverage
requirements, the Fund can at its option (and in certain circumstances must)
require, in accordance with its governing documents and the requirements of the
Investment Company Act of 1940, that some or all of its outstanding preferred
shares, including the Series A Preferred and/or Series B AMPS, be sold back to
it (redeemed). Otherwise, prior to [__], the Series A Preferred will be
redeemable at the option of the Fund only to the extent necessary for the Fund
to continue to qualify for tax treatment as a regulated investment company.
Subject to certain notice and other requirements (including those set forth in
Section 23(c) of the Investment Company Act of 1940), the Fund at its option may
redeem (i) the Series A Preferred beginning on [__], and (ii) the Series B AMPS
following the initial dividend period (so long as the Fund has not designated a
non-call period). In the event the Fund redeems Series A Preferred, such
redemption will be for cash at a redemption price equal to $25 per share plus
accumulated but unpaid dividends (whether or not earned or declared). In the
event the Fund redeems Series B AMPS, such redemptions will be for cash,
generally at a redemption price equal to $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared), though in limited
circumstances the Fund's Board of Trustees may also declare a redemption
premium.
This prospectus concisely sets forth important information about the
Fund that you should know before deciding whether to invest in Series A
Preferred or Series B AMPS. You should read this prospectus and retain it for
future reference.
The Fund has also filed with the Securities Exchange Commission a
Statement of Additional Information, dated [__], 2004, which contains additional
information about the Fund. The Statement of Additional Information is
incorporated by reference in its entirety into this prospectus. You can review
the table of contents of the Statement of Additional Information on page [__] of
this prospectus. You may request a free copy of the Statement of Additional
Information by writing to the Fund at its address at One Corporate Center, Rye,
New York 10580-1422 or calling the Fund toll-free at (800) 422-3554. You may
also obtain the Statement of Additional Information as well as reports, proxy
and information statements and other information regarding registrants,
including the Fund, that file electronically with the Securities and Exchange
Commission on the Securities and Exchange Commission's web site
(http://www.sec.gov).
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE SERIES A
PREFERRED, IN THE EVENT ANY ARE OFFERED, MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE SERIES A
PREFERRED, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
TABLE OF CONTENTS
Page
----
SUMMARY........................................................................1
FINANCIAL HIGHLIGHTS..........................................................22
USE OF PROCEEDS...............................................................23
THE FUND 23
CAPITALIZATION................................................................24
INVESTMENT OBJECTIVE AND POLICIES.............................................25
RISK FACTORS AND SPECIAL CONSIDERATIONS.......................................33
HOW THE FUND MANAGES RISK.....................................................42
MANAGEMENT OF THE FUND........................................................43
PORTFOLIO TRANSACTIONS........................................................46
DIVIDENDS AND DISTRIBUTIONS...................................................46
DESCRIPTION OF THE SERIES A PREFERRED AND SERIES B AMPS.......................48
THE AUCTION OF SERIES B AMPS..................................................59
DESCRIPTION OF CAPITAL SHARES AND OTHER SECURITIES............................62
TAXATION......................................................................64
ANTI-TAKEOVER PROVISIONS OF THE FUND'S GOVERNING DOCUMENTS....................66
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND
DIVIDEND-DISBURSING AGENT..................................................67
UNDERWRITING..................................................................69
LEGAL MATTERS.................................................................70
ADDITIONAL INFORMATION........................................................70
PRIVACY PRINCIPLES OF THE FUND................................................70
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................71
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. NEITHER THE FUND NOR THE UNDERWRITERS HAVE
AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE
PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON
IT. NEITHER THE FUND NOR THE UNDERWRITERS ARE MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUMMARY
This is only a summary. You should review the more detailed information
contained in this prospectus and the Statement of Additional Information, dated
[__], 2004 (the "SAI").
The Fund................................ The Fund is a closed-end non-diversified management investment company
organized under the laws of the State of Delaware on August 20, 2003. The
Fund's outstanding common shares, par value $.001 per share, are listed and
traded on the New York Stock Exchange ("NYSE") under the symbol "GDV." As
of [__], the net assets of the Fund were $[__], and the Fund had
outstanding [__] common shares. Prior to the issuance of the Series A
Preferred and/or Series B AMPS offered by this prospectus, the Fund had no
preferred shares outstanding.
The Offering............................ The Fund offers by this prospectus, in the aggregate, $[__] of preferred
shares of either Series A Preferred or Series B AMPS, or a combination of
both such series. The Series A Preferred and/or Series B AMPS are being
offered by [__] and Gabelli & Company, Inc. as underwriters. Upon
issuance, the Series A Preferred and the Series B AMPS will have equal
seniority with respect to dividends and liquidation preference. See
"Description of the Series A Preferred and Series B AMPS."
Series A Preferred. The Fund is offering [__] shares of ____% Series A
Preferred, par value $.001 per share, liquidation preference $25 per share,
at a purchase price of $25 per share. Dividends on the shares of Series A
Preferred will accumulate from the date on which such shares are issued.
Application [will be/has been] made to list the Series A Preferred on the
NYSE and it is anticipated that trading of the Series A Preferred on the
NYSE will commence within 30 days from the date of this prospectus.
Series B AMPS. The Fund is offering [__] shares of Series B AMPS, par
value $.001 per share, liquidation preference $25,000 per share at a
purchase price of $25,000 per share, plus dividends, if any, that have
accumulated from the commencement date of the dividend period during which
such Series B AMPS is issued. The Series B AMPS will not be listed on an
exchange. Instead, investors may buy or sell Series B AMPS in an auction
by submitting orders to broker-dealers that have entered into an agreement
with the auction agent and the Fund.
Generally, investors in Series A Preferred or Series B AMPS will not
receive certificates representing ownership of their shares. The securities
depository (The Depository Trust Company ("DTC") or any successor) or its
nominee for the account of the investor's broker-dealer will maintain
record ownership of the preferred shares in book-entry form. An investor's
broker-dealer, in turn, will maintain records of that investor's beneficial
ownership of preferred shares.
Investment Objective.................... The Fund's investment objective is to provide a high level of total return
on its assets with an emphasis on dividends and income. No assurance can
be given that the Fund will achieve its investment objective. The Fund
will attempt to achieve its investment objective by investing, under normal
market conditions, at least 80% of its assets in dividend paying securities
(such as common and preferred stock) or other income producing securities
(such as fixed income debt securities and securities that are convertible
into common stock). In addition, under normal market conditions, at least
50% of the Fund's assets will consist of dividend paying equity
securities. The Fund may invest up to 35% of its total assets in the
securities of non-U.S. issuers and up to 25% of its total assets in
securities of issuers in a single industry. There is no minimum credit
rating for debt securities in which the Fund may invest, although the Fund
will not invest more than 10% of its total assets in fixed-income
nonconvertible securities rated in the lower rating categories of
recognized statistical rating agencies or non-rated securities of
comparable quality, which are commonly referred to as "junk bonds." See
"Investment Objective and Policies."
The Investment Adviser's investment philosophy with respect to both equity
and debt securities is to identify assets that are selling in the public
market at a discount to their private market value. The Investment Adviser
defines private market value as the value informed purchasers are willing
to pay to acquire assets with similar characteristics. In making stock
selections, the Fund's Investment Adviser looks for securities that have a
superior yield, as well as capital gains potential.
Dividends and Distributions............. Series A Preferred. Dividends on the Series A Preferred, at the annual
rate of ____% of its $25 per share liquidation preference, are cumulative
from the original issue date and are payable, when, as and if declared by
the Board of Trustees of the Fund, out of funds legally available therefor,
quarterly on [__], [__], [__] and [__] in each year, commencing on [__].
Series B AMPS. The holders of Series B AMPS are entitled to receive cash
dividends, stated at annual rates of its $25,000 per share liquidation
preference, that will vary from dividend period to dividend period. The
table below shows the dividend rate, the dividend payment date and the
number of days for the initial dividend period on the Series B AMPS.
Dividend
Initial Payment Date Number of Days
Dividend for Initial of Initial
Rate Dividend Period Dividend Period
---- --------------- ---------------
Series B
AMPS........ [___] [___] [___]
For subsequent dividend periods, the Series B AMPS will pay dividends based
on a rate set at auctions, normally held weekly. In most instances,
dividends are payable weekly, on the first business day following the end
of the dividend period. If the day on which dividends otherwise would be
paid is not a business day, then dividends will be paid on the first
business day that falls after the end of the dividend period. The Fund may,
subject to certain conditions, designate special dividend periods of more
(or less) than seven days. The dividend payment date for any such special
dividend period will be set out in the notice designating the special
dividend period. Dividends on shares of Series B AMPS will be cumulative
from the date such shares are issued and will be paid out of legally
available funds.
In no event will the dividend rate set at auction for the Series B AMPS
exceed the then-maximum rate. The maximum rate for any standard rate period
will be (as set forth in the table below) the greater of (i) the applicable
percentage of the reference rate or (ii) the applicable spread plus the
reference rate. The reference rate is the applicable LIBOR Rate (for a
dividend period or a special dividend period of fewer than 365 days), or
the applicable Treasury Index Rate (for a special dividend period of 365
days or more). The applicable percentage and applicable spread will be
determined based on the lower of the credit ratings assigned to the Series
B AMPS by [__] and [__].
Credit Rating for Series B AMPS
-------------------------------
Applicable
[___] Credit [___] Credit Percentage of Applicable
Rating Rating Reference Rate Spread
------ ------ -------------- ------
See "Description of the Series A Preferred and Series B AMPS Dividends on
the Series B AMPS -- Maximum Rate." For example, calculated as of September
30, 2003 and December 31, 2003, respectively, the maximum rate for the
Series B AMPS (assuming a rating of "[__]" by [__] and "[__]" by [__])
would have been approximately [__]% and [__]%, for dividend periods of 90
days, and approximately [__]% and [__]% for dividend periods of two years.*
There is no minimum rate with respect to any dividend period.
__________________
* Dividend periods presented for illustrative purposes only. Actual
dividend periods may be of greater or lesser duration
Any designation of a special dividend period will be effective only if,
among other things, proper notice has been given, the auction immediately
preceding the special dividend period was not a failed auction and the Fund
has confirmed that it has assets with an aggregate discounted value at
least equal to the Basic Maintenance Amount (as described under
"Description of the Series A Preferred and Series B AMPS -- Rating Agency
Guidelines"). See "Description of the Series A Preferred and Series B AMPS
-- Dividends on the Series B AMPS" and "The Auction of Series B AMPS."
Preferred Share Dividends. Under current law, all preferred shares of the
Fund must have the same seniority as to the payment of dividends.
Accordingly, no full dividend will be declared or paid on any series of
preferred shares of the Fund for any dividend period, or part thereof,
unless full cumulative dividends due through the most recent dividend
payment dates therefor for all series of outstanding preferred shares of
the Fund are declared and paid. If full cumulative dividends due have not
been declared and paid on all outstanding preferred shares of the Fund
ranking on a parity with the Series A Preferred and/or Series B AMPS as to
the payment of dividends, any dividends being paid on such preferred shares
(including any outstanding Series A Preferred and Series B AMPS) will be
paid as nearly pro rata as possible in proportion to the respective amounts
of dividends accumulated but unpaid on each such series of preferred shares
on the relevant dividend payment date.
In the event that for any calendar year the total distributions on the
Fund's preferred shares exceed the Fund's ordinary income and net capital
gain allocable to those shares, the excess distributions will generally be
treated as a tax-free return of capital (to the extent of the shareholder's
tax basis in his or her shares). The amount treated as a tax-free return of
capital will reduce a shareholder's adjusted basis in his or her preferred
shares, thereby increasing the shareholder's potential gain or reducing his
or her potential loss on the sale of the shares.
Common Share Dividends. In order to allow its holders of common shares to
realize a predictable, but not assured, level of cash flow and some
liquidity periodically on their investment without having to sell shares,
the Fund has adopted a policy, which may be changed at any time by the
Board of Trustees, of paying distributions on its common shares of $.30 per
quarter, which is equal to an annual rate of 6% of the offering price per
common share. The Fund anticipates making its first dividend payment on
March 25, 2004, a portion of which may constitute a return of capital.
Auction Procedures...................... You may buy, sell or hold Series B AMPS in the auction. The following is a
brief summary of the auction procedures, which are described in more detail
elsewhere in this prospectus and in the SAI. These auction procedures are
complicated, and there are exceptions to these procedures. Many of the
terms in this section have a special meaning as set forth in this
prospectus or the SAI.
The auctions determine the dividend rate for the Series B AMPS, except that
no dividend rate will be higher than the then-maximum rate. See
"Description of the Series A Preferred and Series B AMPS -- Dividends on
the Series B AMPS."
If you own shares of Series B AMPS, you may instruct your broker-dealer to
enter one of three kinds of order in the auction with respect to your
shares: sell, bid and hold.
If you enter a sell order, you indicate that you want to sell Series B AMPS
at $25,000 per share, no matter what the next dividend period's rate will
be.
If you enter a bid (or "hold at a rate") order, which must specify a
dividend rate, you indicate that you want to sell Series B AMPS only if the
next dividend period's rate is less than the rate you specify.
If you enter a hold order you indicate that you want to continue to own
Series B AMPS, no matter what the next dividend period's rate will be.
You may enter different types of orders for different portions of your
Series B AMPS. You may also enter an order to buy additional Series B AMPS.
All orders must be for whole shares. All orders you submit are irrevocable.
There is a fixed number of Series B AMPS shares, and the dividend rate
likely will vary from auction to auction depending on the number of
bidders, the number of shares the bidders seek to buy, the rating of the
Series B AMPS and general economic conditions including current interest
rates. If you own Series B AMPS and submit a bid order specifying a rate
that is higher than the then-maximum rate, your bid order will be treated
as a sell order. If you do not enter an order, the broker-dealer will
assume that you want to continue to hold your Series B AMPS, but if you
fail to submit an order and the dividend period is longer than 28 days, the
broker-dealer will treat your failure to submit an order as a sell order.
If you do not then own Series B AMPS, or want to buy more shares, you may
instruct a broker-dealer to enter a bid order to buy shares in an auction
at $25,000 per share at or above the dividend rate you specify. If you bid
for shares you do not already own at a rate higher than the then-maximum
rate, your bid will not be considered.
Broker-dealers will submit orders from existing and potential holders of
Series B AMPS to the auction agent. Neither the Fund nor the auction agent
will be responsible for a broker-dealer's failure to submit orders from
existing or potential holders of Series B AMPS. A broker-dealer's failure
to submit orders for Series B AMPS held by it or its customers will be
treated in the same manner as a holder's failure to submit an order to the
broker-dealer. A broker-dealer may submit orders to the auction agent for
its own account. The Fund may not submit an order in any auction.
The auction agent after each auction for the Series B AMPS will pay to each
broker-dealer, from funds provided by the Fund, a service charge equal to,
in the case of any auction immediately preceding a dividend period of less
than one year, the product of (i) a fraction, the numerator of which is the
number of days in such dividend period and the denominator of which is 360,
times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the aggregate number
of Series B AMPS shares placed by such broker-dealer at such auction or, in
the case of any auction immediately preceding a dividend period of one year
or longer, a percentage of the purchase price of the Series B AMPS placed
by the broker-dealers at the auction agreed to by the Fund and the
broker-dealers.
If the number of Series B AMPS shares subject to bid orders by potential
holders with a dividend rate equal to or lower than the then-maximum rate
is at least equal to the number of Series B AMPS shares subject to sell
orders, then the dividend rate for the next dividend period will be the
lowest rate submitted which, taking into account that rate and all lower
rate bids submitted from existing and potential holders, would result in
existing and potential holders owning all the Series B AMPS available for
purchase in the auction.
If the number of Series B AMPS shares subject to bid orders by potential
holders with a dividend rate equal to or lower than the then-maximum rate
is less than the number of Series B AMPS shares subject to sell orders,
then the auction is considered to be a failed auction, and the dividend
rate will be the maximum rate. In that event, existing holders that have
submitted sell orders (or are treated as having submitted sell orders) may
not be able to sell any or all of the Series B AMPS for which they
submitted sell orders.
The auction agent will not consider a bid above the then-maximum rate. The
purpose of the maximum rate is to place an upper limit on dividends with
respect to the Series B AMPS and in so doing to help protect the earnings
available to pay dividends on the Fund's common shares, and to serve as the
dividend rate in the event of a failed auction (that is, an auction where
there are more shares of Series B AMPS offered for sale than there are
buyers for those shares). If broker-dealers submit or are deemed to submit
hold orders for all outstanding Series B AMPS, the auction is considered an
"all hold" auction and the dividend rate for the next dividend period will
be the "all hold rate," which is 90% of the then-current reference rate.
The auction procedures include a pro rata allocation of Series B AMPS
shares for purchase and sale. This allocation process may result in an
existing holder selling, or a potential holder buying, fewer shares than
the number of Series B AMPS shares in its order. If this happens,
broker-dealers that have designated themselves as existing holders or
potential holders in respect of customer orders will be required to make
appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made through DTC on the next
business day after the auction date (which also is a dividend payment
date). Purchasers will pay for their Series B AMPS through broker-dealers
in same-day funds to DTC against delivery to the broker-dealers. DTC will
make payment to the sellers' broker-dealers in accordance with its normal
procedures, which require broker-dealers to make payment against delivery
in same-day funds. As used in this prospectus, a business day is a day on
which the NYSE is open for trading, and which is not a Saturday, Sunday or
any other day on which banks in New York City are authorized or obligated
by law to close.
The first auction for Series B AMPS will be held on [__], the business day
preceding the dividend payment date for the initial dividend period.
Thereafter, except during special dividend periods, auctions for Series B
AMPS normally will be held every Tuesday (or the next preceding business
day if Tuesday is a holiday), and each subsequent dividend period for the
Series B AMPS normally will begin on the following Wednesday.
If an auction is not held because an unforeseen event or unforeseen events
cause a day that otherwise would have been an auction date not to be a
business day, then the length of the then-current dividend period will be
extended by seven days (or a multiple thereof if necessary because of such
unforeseen event or events), the applicable rate for such period will be
the applicable rate for the then-current dividend period so extended and
the dividend payment date for such dividend period will be the first
business day immediately succeeding the end of such period. See "The
Auction of Series B AMPS."
Tax Treatment of Preferred
Share Dividends......................... The Fund expects that dividends paid on the Series A Preferred and Series B
AMPS will consist of (i) long-term capital gain (gain from the sale of a
capital asset held longer than 12 months), (ii) qualified dividend income
(dividend income from domestic and certain foreign corporations), and (iii)
investment company taxable income (other than qualified dividend income),
including interest income, short-term capital gain and income from certain
hedging and interest rate transactions. For individuals, the maximum
federal income tax rate on long-term capital gain is currently 15%, on
qualified dividend income is 15%, and on ordinary income is 35%. These tax
rates are scheduled to apply through 2008. We cannot assure you, however,
as to what percentage of the dividends paid on the Series A Preferred or
Series B AMPS will consist of long-term capital gains and qualified
dividend income, which are taxed at lower rates for individuals than
ordinary income. For a more detailed discussion, see "Taxation."
Rating and Asset
Coverage Requirements................... Series A Preferred. In order to be issued, the Series A Preferred must
receive a rating of "[__]" from [__]. The Fund's Statement of Preferences
setting forth the rights and preferences of the Series A Preferred contains
certain tests that the Fund must satisfy to obtain and maintain a rating of
"[__]" from [__] on the Series A Preferred. See "Description of the Series
A Preferred and Series B AMPS -- Rating Agency Guidelines."
Series B AMPS. In order to be issued, the Series B AMPS must receive both a
rating of "[__]" from [__] and a rating of "[__]" from [__]. As with the
Series A Preferred, the Statement of Preferences setting forth the rights
and preferences of the Series B AMPS contains certain tests that the Fund
must satisfy to obtain and maintain a rating of "[__]" from [__] and "[__]"
from [__]. See "Description of the Series A Preferred and Series B AMPS --
Rating Agency Guidelines."
Asset Coverage Requirements. Under the asset coverage tests to which each
of the Series A Preferred and/or Series B AMPS is subject, the Fund is
required to maintain (i) assets having in the aggregate a discounted value
greater than or equal to a Basic Maintenance Amount (as described under
"Description of the Series A Preferred and Series B AMPS -- Rating Agency
Guidelines") for each such series calculated pursuant to the applicable
rating agency guidelines and (ii) an asset coverage of at least 200% (or
such higher or lower percentage as may be required at the time under the
Investment Company Act of 1940 (the "1940 Act")) with respect to all
outstanding preferred shares of the Fund, including the Series A Preferred
and the Series B AMPS. See "Description of the Series A Preferred and
Series B AMPS -- Asset Maintenance Requirements."
The Fund estimates that if the shares offered hereby had been issued and
sold as of December 31, 2003, the asset coverage under the 1940 Act would
have been approximately [__]% immediately following such issuance and
(after giving effect to the deduction of the underwriting discounts and
estimated offering expenses for such shares of $[__]). The asset coverage
would have been computed as follows:
value of Fund assets less liabilities not
constituting senior securities ($[__]) / senior
securities representing indebtedness plus
liquidation preference of both classes of
preferred shares ($[__]), expressed as a
percentage = [__]%.
The Statement of Preferences for each of the Series A Preferred and the
Series B AMPS, which contain the technical provisions of the various
components of the asset coverage tests, will be filed as exhibits to this
registration statement and may be obtained through the web site of the
Securities and Exchange Commission (http://www.sec.gov).
Mandatory Redemption.................... The Series A Preferred and the Series B AMPS may be subject to mandatory
redemption by the Fund to the extent the Fund fails to maintain the asset
coverage requirements in accordance with the rating agency guidelines or
the 1940 Act described above and does not cure such failure by the
applicable cure date. If the Fund redeems preferred shares mandatorily, it
may, but is not required to, redeem a sufficient number of such shares so
that after the redemption the Fund exceeds the asset coverage required by
the guidelines of each of the applicable rating agencies and the 1940 Act
by 10%.
With respect to the Series A Preferred, any such redemption will be made
for cash at a redemption price equal to $25 per share, plus an amount equal
to accumulated and unpaid dividends (whether or not earned or declared) to
the redemption date.
With respect to the Series B AMPS, any such redemption will be made for
cash at a redemption price equal to $25,000 per share, plus an amount equal
to accumulated but unpaid dividends (whether or not earned or declared) to
the redemption date, plus, in the case of Series B AMPS having a dividend
period of more than one year, any applicable redemption premium determined
by the Board of Trustees. See "Description of the Series A Preferred and
Series B AMPS -- Redemption."
In the event of a mandatory redemption, such redemption will be made from
the Series A Preferred, the Series B AMPS or other preferred shares of the
Fund in such proportions as the Fund may determine, subject to the
limitations of the 1940 Act and Delaware law.
Optional Redemption..................... Subject to the limitations of the 1940 Act and Delaware law, the Fund may,
at its option, redeem the Series A Preferred and/or the Series B AMPS as
follows:
Series A Preferred. Commencing [__] and at any time thereafter, the Fund at
its option may redeem the Series A Preferred, in whole or in part, for cash
at a redemption price per share equal to $25, plus an amount equal to
accumulated and unpaid dividends (whether or not earned or declared) to the
redemption date. If fewer than all of the shares of the Series A Preferred
are to be redeemed, such redemption will be made pro rata in accordance
with the number of such shares held. Prior to [__], the Series A Preferred
will be subject to optional redemption by the Fund at the redemption price
only to the extent necessary for the Fund to continue to qualify for tax
treatment as a regulated investment company. See "Description of the Series
A Preferred and Series B AMPS -- Redemption -- Optional Redemption of the
Series A Preferred."
Series B AMPS. The Fund at its option generally may redeem Series B AMPS,
in whole or in part, at any time other than during a non-call period. The
Fund may declare a non-call period during a dividend period of more than
seven days. If fewer than all of the shares of the Series B AMPS are to be
redeemed, such redemption will be made pro rata in accordance with the
number of such shares held. See "Description of the Series A Preferred and
Series B AMPS -- Redemption -- Optional Redemption of the Series B AMPS."
The redemption price per Series B AMPS share will equal $25,000, plus an
amount equal to any accumulated but unpaid dividends thereon (whether or
not earned or declared) to the redemption date, plus, in the case of Series
B AMPS having a dividend period of more than one year, any redemption
premium applicable during such dividend period. See "Description of the
Series A Preferred and Series B AMPS -- Redemption -- Optional Redemption
of the Series B AMPS."
Voting Rights........................... At all times, holders of the Fund's preferred shares outstanding (including
the Series A Preferred and/or Series B AMPS), voting as a single class,
will be entitled to elect two members of the Fund's Board of Trustees, and
holders of the preferred shares and common shares, voting as a single
class, will elect the remaining trustees. However, upon a failure by the
Fund to pay dividends on any of its preferred shares in an amount equal to
two full years dividends, holders of the preferred shares, voting as a
single class, will have the right to elect additional trustees that would
then constitute a simple majority of the Board of Trustees until all
cumulative dividends on all preferred shares have been paid or provided
for.
Holders of outstanding Series A Preferred, Series B AMPS and any other
preferred shares will vote separately as a class on certain other matters
as required under the applicable Statement of Preferences, the 1940 Act and
Delaware law. Except as otherwise indicated in this prospectus and as
otherwise required by applicable law, holders of Series A Preferred and/or
Series B AMPS will be entitled to one vote per share on each matter
submitted to a vote of shareholders and will vote together with holders of
common shares and any other preferred shares as a single class. See
"Description of the Series A Preferred and Series B AMPS -- Voting Rights."
Liquidation Preference.................. The liquidation preference of each share of Series A Preferred is $25. The
liquidation preference of the Series B AMPS is $25,000 per share. Upon
liquidation, preferred shareholders will be entitled to receive the
liquidation preference with respect to their preferred shares plus an
amount equal to accumulated but unpaid dividends with respect to such
shares (whether or not earned or declared) to the date of distribution.
See "Description of the Series A Preferred and Series B AMPS -- Liquidation
Rights."
Use of Proceeds......................... The Fund will use the net proceeds from the offering to purchase additional
portfolio securities in accordance with its investment objective and
policies. See "Use of Proceeds."
Listing of the
Series A Preferred...................... Prior to this offering, there has been no public market for the Series A
Preferred. Following its issuance (if issued), the Series A Preferred is
expected to be listed on the NYSE. However, during an initial period which
is not expected to exceed 30 days after the date of its initial issuance,
the Series A Preferred will not be listed on any securities exchange and
consequently may be illiquid during that period.
Limitation on Secondary Market Trading of
the Series B AMPS....................... The Series B AMPS will not be listed on an exchange. Broker-dealers may,
but are not obliged to, maintain a secondary trading market in Series B
AMPS outside of auctions. There can be no assurance that a secondary
market will provide owners with liquidity. You may transfer Series B AMPS
outside of auctions only to or through a broker-dealer that has entered
into an agreement with the auction agent and the Fund, or other persons as
the Fund permits.
Special Characteristics
and Risks............................... Risk is inherent in all investing. Therefore, before investing in the
Series A Preferred or the Series B AMPS you should consider the risks
carefully.
Series A Preferred. Primary risks specially associated with an investment
in the Series A Preferred include:
Fluctuations in Market Price. The market price for the Series A Preferred
will be influenced by changes in interest rates, the perceived credit
quality of the Series A Preferred and other factors. See "Risk Factors and
Special Considerations -- Special Risks of the Series A Preferred --
Fluctuations in Market Price."
Illiquidity Risk. Prior to the offering, there has been no public market
for the Series A Preferred. In the event the Series A Preferred is issued,
prior application will have been made to list the Series A Preferred on the
NYSE. However, during an initial period, which is not expected to exceed 30
days after the date of its issuance, the Series A Preferred will not be
listed on any securities exchange. During such period, the underwriters
intend to make a market in the Series A Preferred, however, they have no
obligation to do so. Consequently, the Series A Preferred may be illiquid
during such period. No assurances can be provided that listing on any
securities exchange or market making by the underwriters will result in the
market for Series A Preferred being liquid at any time. See "Risk Factors
and Special Considerations -- Special Risks of the Series A Preferred --
Illiquidity Risk."
Series B AMPS. Primary risks specially associated with an investment in
Series B AMPS include:
Auction Risk. You may not be able to sell your Series B AMPS at an auction
if the auction fails, i.e., if there is more Series B AMPS offered for sale
than there are buyers for those shares. Also, if you place an order at an
auction to retain Series B AMPS only at a specified rate that exceeds the
rate set at the auction, you will not retain your Series B AMPS.
Additionally, if you place a hold order without specifying a rate below
which you would not wish to continue to hold your shares and the auction
sets a below-market rate, you will receive a lower rate of return on your
shares than the market rate. Finally, the dividend period may be changed,
subject to certain conditions and with notice to the holders of the Series
B AMPS, which could also affect the liquidity of your investment. See "Risk
Factors and Special Considerations -- Special Risks of the Series B AMPS --
Auction Risk."
Secondary Market Sale Risk. If you try to sell your Series B AMPS between
auctions, you may not be able to sell them for $25,000 per share or $25,000
per share plus accumulated dividends. If the Fund has designated a special
dividend period of more than seven days, changes in interest rates could
affect the price you would receive if you sold your shares in the secondary
market. Broker-dealers that may maintain a secondary trading market for the
Series B AMPS are not required to maintain this market, and the Fund is not
required to redeem Series B AMPS if either an auction or an attempted
secondary market sale fails because of a lack of buyers. The Series B AMPS
is not registered on a stock exchange or the NASDAQ stock market. If you
sell your Series B AMPS to a broker-dealer between auctions, you may
receive less than the price you paid for them, especially when market
interest rates have risen since the last auction or during a special
dividend period. See "Risk Factors and Special Considerations -- Special
Risks of the Series B AMPS -- Secondary Market Risk."
Both the Series A Preferred and Series B AMPS. An investment in either the
Series A Preferred or Series B AMPS also includes the following primary
risks:
General Risks of Preferred Shares. The market value for the Series A
Preferred and/or Series B AMPS will be influenced by changes in interest
rates, the perceived credit quality of the Series A Preferred or Series B
AMPS and other factors.
The credit rating on the Series A Preferred and/or Series B AMPS could be
reduced or withdrawn while an investor holds shares, and the credit rating
does not eliminate or mitigate the risks of investing in the Series A
Preferred and/or Series B AMPS. A reduction or withdrawal of the credit
rating would likely have an adverse effect on the market value of the
Series A Preferred and Series B AMPS.
The Fund may not meet the asset coverage requirements or earn sufficient
income from its investments to pay dividends on the Series A Preferred
and/or Series B AMPS.
The value of the Fund's investment portfolio may decline, reducing the
asset coverage for the Series A Preferred and/or Series B AMPS. Further, if
an issuer of a common stock in which the Fund invests experiences financial
difficulties or if an issuer's preferred stock or debt security is
downgraded or defaults or if an issuer in which the Fund invests is
affected by other adverse market factors, there may be a negative impact on
the income and/or asset value of the Fund's investment portfolio. In such
circumstances, the Fund may be forced to mandatorily redeem shares of
Series A Preferred and/or Series B AMPS.
In general, the Fund may redeem your Series B AMPS at any time and may
redeem your Series A Preferred at any time after [__], and may at any time
redeem shares of either or both series to meet regulatory or rating agency
requirements. The Series A Preferred and/or Series B AMPS are subject to
redemption under specified circumstances and investors may not be able to
reinvest the proceeds of any such redemption in an investment providing the
same or a better rate than that of the Series A Preferred or Series B AMPS.
Subject to such circumstances, the Series A Preferred and/or Series B AMPS
are perpetual.
The Series A Preferred and the Series B AMPS are not obligations of the
Fund. The Series A Preferred and/or Series B AMPS would be junior in
respect of dividends and liquidation preference to any indebtedness
incurred by the Fund, including any senior securities of the Fund
representing debt. Although unlikely, precipitous declines in the value of
the Fund's assets could result in the Fund having insufficient assets to
redeem all of the Series A Preferred and/or Series B AMPS for the full
redemption price.
Leverage Risk. The Fund intends to use financial leverage for investment
purposes by issuing preferred shares and/or senior securities representing
debt. It is currently anticipated that, taking into account the Series A
Preferred and/or Series B AMPS being offered in this prospectus, the amount
of leverage will represent approximately [__]% of the Fund's managed assets
(as defined below). The Fund's leveraged capital structure creates special
risks not associated with unleveraged funds having a similar investment
objective and policies. These include the possibility of greater loss and
the likelihood of higher volatility of the net asset value of the Fund and
the asset coverage for the Series A Preferred and/or Series B AMPS. Such
volatility may increase the likelihood of the Fund having to sell
investments in order to meet its obligations to make dividend payments on
the preferred shares or principal or interest payments senior debt
securities, or to redeem preferred shares or repay senior debt, when it may
be disadvantageous to do so. Also, if the Fund is utilizing leverage, a
decline in net asset value could affect the ability of the Fund to make
common share dividend payments and such a failure to pay dividends or make
distributions could result in the Fund ceasing to qualify as a regulated
investment company under the Code. See "Taxation."
Because the fee paid to the Investment Adviser will be calculated on the
basis of the Fund's net assets, which includes for this purpose assets
attributable to the aggregate net asset value of the common shares plus
assets attributable to any outstanding preferred shares, with no deduction
for the liquidation preference of such preferred shares, the fee may be
higher when leverage in the form of preferred shares is utilized, giving
the Investment Adviser an incentive to utilize such leverage. However, the
Investment Adviser has agreed not to accept an incremental fee on any
Series A Preferred or Series B AMPS, as the case may be, to the extent the
Fund's total return allocable to the common shares fails to meet certain
hurdles described under "Management of the Fund -- General. See "Risk
Factors and Special Considerations -- Preferred Shares -- Leverage Risk."
Special Risks to Preferred Shares of Senior Securities Representing Debt.
As provided in the 1940 Act, and subject to compliance with the Fund's
investment limitations, the Fund may issue senior securities representing
debt. In the event the Fund were to issue such securities, the Fund's
obligations to pay dividends and, upon liquidation of the Fund, liquidation
payments in respect of its preferred shares would be subordinate to the
Fund's obligations to make any principal and/or interest payments due and
owing with respect to its outstanding senior debt securities. Accordingly,
the Fund's issuance of senior securities representing debt would have the
effect of creating special risks for the Fund's preferred shareholders
(including the holders of Series A Preferred and/or Series B AMPS) that
would not be present in a capital structure that did not include such
securities. See "Risk Factors and Special Considerations -- Preferred
Shares -- Special Risks to Preferred Shares of Senior Securities
Representing Debt."
Restrictions on Dividends and Other Distributions. Restrictions imposed on
the declaration and payment of dividends or other distributions to the
holders of the Fund's common shares and preferred shares, both by the 1940
Act and by requirements imposed by rating agencies, might impair the Fund's
ability to maintain its qualification as a regulated investment company for
federal income tax purposes. While the Fund intends to redeem its preferred
shares (including the Series A Preferred and/or Series B AMPS) to the
extent necessary to enable the Fund to distribute its income as required to
maintain its qualification as a regulated investment company under the
Code, there can be no assurance that such actions can be effected in time
to meet the Code requirements. See "Taxation" in the SAI.
Limited Operating History. The Fund is a non-diversified, closed-end
management investment company with a limited operating history. See "Risk
Factors and Special Considerations -- Limited Operating History."
Common Stock Dividend Policy Risk. The Fund has adopted a policy, which may
be changed at ant time by the Board of Trustees, of paying a dividend on
its common shares of $.30 per quarter, which is equal to an annual rate of
6% of the original issue price of the common shares. In the event
investment returns do not provide sufficient amounts to fund such
distributions, the Fund may be required to return capital as part of such
distribution, which may have the effect of decreasing the asset coverage
per share with respect to the Fund's Series A Preferred and Series B AMPS.
The Fund anticipates making its first dividend payment on March 25, 2004, a
portion of which may constitute a return of capital.
Value Investing Risk. The Fund focuses its investments on dividend-paying
common and preferred stocks that the Investment Adviser believes are
undervalued or inexpensive relative to other investments. These types of
securities may present risks in addition to the general risks associated
with investing in common and preferred stocks. The Fund focuses its
investments on dividend-paying common and preferred stocks that the
Investment Adviser believes are undervalued or inexpensive relative to
other investments. These types of securities may present risks in addition
to the general risks associated with investing in common and preferred
stocks including the risk of mis-estimation of certain fundamental factors.
In addition, during certain time periods market dynamics may strongly favor
"growth" stocks of issuers that do not display strong fundamentals relative
to market price based upon positive price momentum and other factors. See
"Risk Factors and Special Considerations -- Value Investing Risk."
Non-Diversified Status. As a non-diversified investment company under the
1940 Act, the Fund is not limited in the proportion of its assets that may
be invested in securities of a single issuer, and accordingly, an
investment in the Fund may, under certain circumstances, present greater
risk to an investor than an investment in a diversified company. See "Risk
Factors and Special Considerations -- Non-Diversified Status."
Market Value and Net Asset Value. The Fund is a closed-end,
non-diversified, management investment company. Common shares of closed-end
funds are bought and sold in the securities markets and may trade at either
a premium or discount from net asset value. Listed common shares of
closed-end investment companies frequently trade at a discount from net
asset value. This characteristic of common shares of a closed-end fund is a
risk separate and distinct from the risk that the Fund's net asset value
will decrease. See "Risk Factors and Special Considerations -- Market Value
and Net Asset Value."
Industry Concentration Risk. The Fund may invest up to 25% of its assets in
the securities of companies principally engaged in a single industry. In
the event the Fund makes substantial investments in a single industry, the
Fund would become more susceptible to adverse economic or regulatory
occurrences affecting that industry. See "Risk Factors and Special
Considerations -- Industry Concentration Risk."
Illiquid Securities. The Fund has no limit on the amount of its net assets
it may invest in unregistered and otherwise illiquid investments.
Unregistered securities are securities that cannot be sold publicly in the
United States without registration under the Securities Act of 1933.
Unregistered securities generally can be resold only in privately
negotiated transactions with a limited number of purchasers or in a public
offering registered under the Securities Act. Considerable delay could be
encountered in either event and, unless otherwise contractually provided
for, the Fund's proceeds upon sale may be reduced by the costs of
registration or underwriting discounts. The difficulties and delays
associated with such transactions could result in the Fund's inability to
realize a favorable price upon disposition of unregistered securities, and
at times might make disposition of such securities impossible. See "Risk
Factors and Special Considerations -- Illiquid Securities."
Foreign Securities Risk. The Fund may invest up to 35% of its total assets
in foreign securities. Investing in securities of foreign companies (or
foreign governments), which are generally denominated in foreign
currencies, may involve certain risks and opportunities not typically
associated with investing in domestic companies and could cause the Fund to
be affected favorably or unfavorably by changes in currency exchange rates
and revaluation of currencies. See "Risk Factors and Special Considerations
-- Foreign Securities Risk."
Lower Grade Securities. The Fund may invest up to 10% of its total assets
in fixed-income securities rated below investment grade by recognized
statistical rating agencies or unrated securities of comparable quality.
The prices of these lower grade securities are more sensitive to negative
developments, such as a decline in the issuer's revenues or a general
economic downturn, than are the prices of higher grade securities.
Securities of below investment grade quality are predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal
when due and therefore involve a greater risk of default and are commonly
referred to as "junk bonds." See "Risk Factors and Special Considerations
-- Lower Grade Securities."
Special Risks of Derivative Transactions. The Fund may participate in
certain derivative transactions. Such transactions entail certain
execution, market, liquidity, hedging and tax risks. Participation in the
options or futures markets and in currency exchange transactions involves
investment risks and transaction costs to which the Fund would not be
subject absent the use of these strategies. If the Investment Adviser's
prediction of movements in the direction of the securities, foreign
currency and interest rate markets is inaccurate, the consequences to the
Fund may leave the Fund in a worse position than if it had not used such
strategies. See "Risk Factors and Special Considerations -- Special Risks
of Derivative Transactions."
Interest Rate Transactions. The Fund may enter into an interest rate swap
or cap transaction with respect to all or a portion of the Series B AMPS.
The use of interest rate swaps and caps is a highly specialized activity
that involves certain risks to the Fund including, among others,
counterparty risk and early termination risk. See "Risk Factors and Special
Considerations -- Interest Rate Transactions."
Dependence on Key Personnel. The Investment Adviser is dependent upon the
expertise of Mr. Mario J. Gabelli in providing advisory services with
respect to the Fund's investments. If the Investment Adviser were to lose
the services of Mr. Gabelli, its ability to service the Fund could be
adversely affected. There can be no assurance that a suitable replacement
could be found for Mr. Gabelli in the event of his death, resignation,
retirement or inability to act on behalf of the Investment Adviser. See
"Risk Factors and Special Considerations -- Dependence on Key Personnel."
Current Developments. As a result of the terrorist attacks on the World
Trade Center and the Pentagon on September 11, 2001, some of the U.S.
Securities Markets were closed for a four-day period. These terrorists
attacks, the war in Iraq and its aftermath and other geopolitical events
have led to, and may in the future lead to, increased short-term market
volatility and may have long-term effects on U.S. and world economies and
markets. Similar events in the future or other disruptions of financial
markets could affect interest rates, securities exchanges, auctions,
secondary trading, ratings, credit risk, inflation and other factors
relating to the Series A Preferred and/or Series B AMPS. See "Risk Factors
and Special Considerations -- Current Developments."
Anti-takeover Provisions. The Fund's governing documents include provisions
that could limit the ability of other entities or persons to acquire
control of the Fund or convert the Fund to an open-end fund. See
"Anti-takeover Provisions of the Fund's Governing Documents."
Status as a Regulated Investment Company. The Fund has qualified, and
intends to remain qualified, for federal income tax purposes as a regulated
investment company. Qualification requires, among other things, compliance
by the Fund with certain distribution requirements. Statutory limitations
on distributions on the common shares if the Fund fails to satisfy the 1940
Act's asset coverage requirements could jeopardize the Fund's ability to
meet such distribution requirements. The Fund presently intends, however,
to purchase or redeem preferred shares to the extent necessary in order to
maintain compliance with such asset coverage requirements. See "Taxation"
for a more complete discussion of these and other federal income tax
considerations.
Management and Fees..................... Gabelli Funds, LLC serves as the Fund's Investment Adviser and is
compensated for its services and its related expenses at an annual rate of
1.00% of the Fund's average weekly net assets. As used in this prospectus,
net assets means the aggregate net asset value of the commons shares (which
for purposes of the Investment Adviser's compensation also includes assets
attributable to outstanding preferred shares, with no deduction for the
liquidation preference of such preferred shares). Notwithstanding the
foregoing, the Investment Adviser has voluntarily agreed to waive the
portion of its investment advisory fee attributable to an amount of assets
of the Fund equal to the aggregate stated value of the Fund's outstanding
Series A Preferred or Series B AMPS, as the case may be, for any calendar
year in which the net asset value total return of the Fund allocable to the
common shares, including distributions and the advisory fee subject to
potential waiver, is less than (i) in the case of the Series A Preferred,
the stated annual dividend rate of such series and (ii) in the case of the
Series B AMPS, the net cost of capital to the Fund with respect to the
Series B AMPS for such year expressed as a percentage (including, without
duplication, dividends paid by the Fund on the Series B AMPS and the net
cost to the Fund of any associated swap or cap transaction if the Fund
hedges its Series B AMPS dividend obligations). This waiver will apply to
the portion of the Fund's assets attributable to the Series A Preferred and
Series B AMPS, respectively, for so long as any shares of such series
remain outstanding. The Investment Adviser is responsible for
administration of the Fund and currently utilizes and pays the fees of a
third party sub-administrator. See "Management of the Fund."
The Securities and Exchange Commission, the New York Attorney General and
officials of other states have been conducting inquiries into, and bringing
enforcement and other proceedings regarding, trading abuses involving
open-end investment companies. The Investment Adviser has received
information requests from the New York Attorney General in the form of a
subpoena and from the Securities and Exchange Commission in connection with
these inquiries. The Investment Adviser and its affiliates have been
complying with these requests and have been independently reviewing their
mutual fund practices in a variety of areas. For further details regarding
the Investment Adviser's ongoing review in connection with these requests,
see "Management of the Fund -- Regulatory Matters."
Repurchase of Common Shares and
Anti-takeover Provisions................ The Fund's Board of Trustees expects to authorize the Fund to repurchase
its common shares in the open market when the common shares are trading at
a discount of 10% or more from net asset value. Such repurchases are
subject to certain notice and other requirements under the 1940 Act. See
"Repurchase of Common Shares."
Certain provisions of the Fund's Agreement and Declaration of Trust and
By-Laws (collectively, the "Governing Documents") may be regarded as
"anti-takeover" provisions. Pursuant to these provisions, only one of three
classes of trustees is elected each year, and the affirmative vote of the
holders of 75% of the outstanding shares of the Fund are necessary to
authorize the conversion of the Fund from a closed-end to an open-end
investment company. The overall effect of these provisions is to render
more difficult the accomplishment of a merger with, or the assumption of
control by, a principal shareholder. These provisions may have the effect
of depriving Fund common shareholders of an opportunity to sell their
shares at a premium to the prevailing market price. See "Anti-takeover
Provisions of the Fund's Governing Documents."
Custodian, Transfer Agent,
Auction Agent and
Dividend Disbursing Agent............... [State Street Bank and Trust Company (the "Custodian"), located at 150
Royall Street, Canton, MA 02021], serves as the custodian of the Fund's
assets pursuant to a custody agreement. Under the custody agreement, the
Custodian holds the Fund's assets in compliance with the 1940 Act. For its
services, the Custodian will receive a monthly fee based upon, among other
things, the average value of the total assets of the Fund, plus certain
charges for securities transactions.
[EquiServe Trust Company, N.A., located at P.O. Box 43025, Providence, RI
02940-3025], serves as the Fund's dividend disbursing agent, as agent under
the Fund's automatic dividend reinvestment and voluntary cash purchase
plan, and as transfer agent and registrar with respect to the common shares
of the Fund.
Series A Preferred. EquiServe will also serve as the transfer agent,
registrar, dividend paying agent and redemption agent with respect to the
Series A Preferred.
Series B AMPS. The [Bank of New York] will serve as the auction agent,
transfer agent, registrar, dividend paying agent and redemption agent with
respect to the Series B AMPS.
Interest Rate Transactions.............. The Fund may enter into interest rate swap or cap transactions in relation
to all or a portion of the Series B AMPS in order to manage the impact on
its portfolio of changes on the dividend rate of the Series B AMPS. Through
these transactions the Fund may, for example, obtain the equivalent of a
fixed rate for the Series B AMPS that is lower than the Fund would have to
pay if it issued fixed rate preferred shares. The use of interest rate
swaps and caps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary
portfolio security transactions.
In an interest rate swap, the Fund would agree to pay to the other party to
the interest rate swap (which is known as the "counterparty") periodically
a fixed rate payment in exchange for the counterparty agreeing to pay to
the Fund periodically a variable rate payment that is intended to
approximate the Fund's variable rate payment obligation on the Series B
AMPS. In an interest rate cap, the Fund would pay a premium to the
counterparty to the interest rate cap and, to the extent that a specified
variable rate index exceeds a predetermined fixed rate, the Fund would
receive from the counterparty payments of the difference based on the
notional amount of such cap. Interest rate swap and cap transactions
introduce additional risk because the Fund would remain obligated to pay
preferred share dividends when due in accordance with the Statement of
Preferences even if the counterparty defaulted. Depending on the general
state of short-term interest rates and the returns on the Fund's portfolio
securities at that point in time, such a default could negatively affect
the Fund's ability to make dividend payments on its preferred shares. In
addition, at the time an interest rate swap or cap 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. If this occurs, it
could have a negative impact on the Fund's ability to make dividend
payments on its preferred shares.
A sudden and dramatic decline in interest rates may result in a significant
decline in the asset coverage. If the Fund fails to maintain the required
asset coverage on its outstanding preferred shares or fails to comply with
other covenants, the Fund may, at its option (and in certain circumstances
mandatorily) consistent with its Governing Documents and the requirements
of the 1940 Act, redeem some or all of its preferred shares (including the
Series A Preferred or the Series B AMPS). Such redemption likely would
result in the Fund seeking to terminate early all or a portion of any swap
or cap transaction. Early termination of a swap could require the Fund to
make a termination payment to the counterparty.
The Fund intends to segregate cash or liquid securities having a value at
least equal to the value of the Fund's net payment obligations under any
swap transaction, marked to market daily. The Fund does not presently
intend to enter into interest rate swap or cap transactions relating to the
Series B AMPS in a notional amount in excess of the outstanding amount of
the Series B AMPS. The Fund will monitor any such swap with a view to
ensuring that the Fund remains in compliance with all applicable regulatory
investment policy and tax requirements. See "How the Fund Manages Risk--
Interest Rate Transactions."
Use of Leverage......................... As provided in the 1940 Act and subject to certain exceptions, the Fund may
issue senior securities (which may be stock, such as preferred shares, or
securities representing debt) so long as its total assets, less certain
ordinary course liabilities, exceed 300% of the amount of debt
outstanding and exceed 200% of the amount of preferred shares and debt outstanding.
Any such preferred shares may be convertible in accordance with Securities
and Exchange Commission staff guidelines, which may permit each fund to
obtain leverage at attractive rates. See "Investment Objective and
Policies -- Leveraging." The use of leverage magnifies the impact of changes
in net asset value. In addition, if the cost of leverage exceeds the return
on the securities acquired with the proceeds of leverage, the use of
leverage will diminish rather than enhance the return to the Fund. See
"Investment Objective and Policies -- Leveraging."
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a common share
outstanding throughout the period(s) presented. The per share operating
performance and ratios for the fiscal year ended December 31, 2003 have been
audited by PricewaterhouseCoopers LLP, the Fund's independent accountants, as
stated in their report which is incorporated by reference into the SAI. The
following information should be read in conjunction with the Financial
Statements and Notes thereto, which are incorporated by reference into the SAI.
Period Ended
December 31, 2003 (a)
---------------------
OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 19.06 (b)
----------
Net investment loss........................................ ---
Net realized and unrealized gain on investments............ 0.20
----------
Total from investment operations........................... 0.20
----------
$ 19.26
==========
NET ASSET VALUE, END OF PERIOD.............................
Net asset value total return*.............................. 1.0%
==========
Market value, end of period................................ $ 20.00
==========
Total investment return**.................................. 0.0%
==========
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's)....................... $1,451,650
Ratio of net investment loss to average net assets......... (0.04)% (c)
Ratio of operating expenses to average net assets.......... (1.38)% (c)
Portfolio turnover rate.................................... 0.4%
___________________
(a) The Gabelli Dividend & Income Trust commenced investment operations on
November 28, 2003.
(b) The beginning NAV includes a $0.04 reduction for costs associated with the
initial public offering.
(c) Annualized.
* Based on net asset value per share at commencement of operations of $19.06 per
share. Total return for the period of less than one year is not annualized.
**Based on market value per share at initial public offering of $20.00 per
share. Total return for the period of less than one year is not annualized.
USE OF PROCEEDS
The net proceeds of the offering are estimated at approximately $[__],
after deduction of the underwriting discounts and estimated offering expenses
payable by the Fund. The Investment Adviser expects that it will initially
invest the proceeds of the offering in high quality short-term debt securities
and instruments. The Investment Adviser anticipates that the investment of the
proceeds will be made in accordance with the Fund's investment objective and
policies as appropriate investment opportunities are identified, which is
expected to substantially be completed within three months; however, changes in
market conditions could result in the Fund's anticipated investment period
extending to as long as six months.
THE FUND
The Fund is a non-diversified, closed-end management investment company
registered under the 1940 Act. The Fund was organized as a Delaware statutory
trust on August 20, 2003, pursuant to an Agreement and Declaration of Trust
governed by the laws of the State of Delaware. The Fund commenced its investment
operations on November 28, 2003 and, accordingly, has a limited operating
history. The Fund's principal office is located at One Corporate Center, Rye,
New York, 10580-1422.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Fund
as of [__], and its adjusted capitalization assuming the Series A Preferred
and/or Series B AMPS offered in this prospectus had been issued.
As of [__]
Actual As adjusted
------ -----------
Preferred shares, $0.001 par value, unlimited
shares authorized.
(The "Actual" column reflects the
Fund's outstanding capitalization
as of [__]; the "As Adjusted"
column assumes the issuance of an
additional [__] shares of Series A
Preferred and [__] shares of Series
B AMPS, $25 and $25,000 liquidation
preference, respectively)........................ $[___]
----------- -----------
Shareholders' equity applicable to common shares:
Common shares, $.001 par value per share;
[__] shares outstanding............................ $
Paid-in surplus*...................................
Accumulated net realized loss from investment
transactions.......................................
Net unrealized appreciation........................
----------- -----------
Net assets applicable to common shares.............
----------- -----------
Net assets, plus the liquidation preference of
preferred shares...................................
=========== ===========
* As adjusted paid-in surplus reflects a reduction for the sales load and
estimated offering cost of the Series A Preferred and/or Series B AMPS
issuance of $[___].
For financial reporting purposes the Fund is required to deduct the
liquidation preference of its outstanding preferred shares from "net
assets," so long as the preferred shares have redemption features that are
not solely within the control of the Fund. For all regulatory purposes, the
Fund's preferred shares will be treated as equity (rather than as
indebtedness).
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund's investment objective is to provide a high level of total
return on its assets with an emphasis on dividends and income. Under normal
market conditions, the Fund will invest at least 80% of the value of its total
assets in dividend paying or income producing equity or debt securities.
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally
will consider the following factors, among others:
o the Investment Adviser's own evaluations of the private market
value (which is defined below), cash flow, earnings per share
and other fundamental aspects of the underlying assets and
business of the company;
o the interest or dividend income generated by the securities;
o the potential for capital appreciation of the securities;
o the prices of the securities relative to other comparable
securities;
o whether the securities are entitled to the benefits of call
protection or other protective covenants; and
o the existence of any anti-dilution protections or guarantees of
the security.
The Investment Adviser's investment philosophy with respect to debt and
equity securities is to identify assets that are selling in the public market at
a discount to their private market value. The Investment Adviser defines private
market value as the value informed purchasers are willing to pay to acquire
assets with similar characteristics. The Investment Adviser also normally
evaluates an issuer's free cash flow and long-term earnings trends. Finally, the
Investment Adviser looks for a catalyst, something indigenous to the company,
its industry or country that will surface additional value.
Certain Investment Practices
Equity Securities. Under normal market conditions the Fund will
invest at least 50% of its total assets in dividend paying equity securities,
i.e., common stocks and preferred stocks.
Common stocks represent the residual ownership interest in the issuer
and holders of common stock are entitled to the income and increase in the value
of the assets and business of the issuer after all of its debt obligations and
obligations to preferred shareholders are satisfied. Common stocks generally
have voting rights. Common stocks fluctuate in price in response to many factors
including historical and prospective earnings of the issuer, the value of its
assets, general economic conditions, interest rates, investor perceptions and
market liquidity.
Equity securities also include preferred stock (whether or not
convertible into common stock) and debt securities convertible into or
exchangeable for common or preferred stock. Preferred stock has a preference
over common stock in liquidation (and generally dividends as well) but is
subordinated to the liabilities of the issuer in all respects. As a general rule
the market value of preferred stock with a fixed dividend rate and no conversion
element varies inversely with interest rates and perceived credit risk, while
the market price of convertible preferred stock generally also reflects some
element of conversion value. Because preferred stock is junior to debt
securities and other obligations of the issuer, deterioration in the credit
quality of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similarly stated yield
characteristics. The market value of preferred stock will also generally reflect
whether (and if so when) the issuer may force holders to sell their preferred
stock back to the issuer and whether (and if so when) the holders may force the
issuer to buy back their preferred stock. Generally speaking the right of the
issuer to repurchase the preferred stock tends to reduce any premium that the
preferred stock might otherwise trade at due to interest rate or credit factors,
while the right of the holders to require the issuer to repurchase the preferred
stock tend to reduce any discount that the preferred stock might otherwise trade
at due to interest rate or credit factors. In addition, some preferred stocks
are non-cumulative, meaning that the dividends do not accumulate and need not
ever be paid. A portion of the portfolio may include investments in
non-cumulative preferred stocks, whereby the issuer does not have an obligation
to make up any arrearages to its shareholders. There is no assurance that
dividends or distributions on non-cumulative preferred stocks in which the Fund
invests will be declared or otherwise made payable.
Securities that are convertible into or exchangeable for preferred or
common stock are liabilities of the issuer but are generally subordinated to
more senior elements of the issuer's balance sheet. Although such securities
also generally reflect an element of conversion value, their market value also
varies with interest rates and perceived credit risk. Many convertible
securities are not investment grade, that is, not rated BBB or better by
Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors
Service, Inc. ("Moody's") and not considered by the Investment Adviser to be of
similar quality. There is no minimum credit rating or independent investment
limitation for these securities in which the Fund may invest. Preferred stocks
and convertible securities may have many of the same characteristics and risks
as nonconvertible debt securities. See " -- Lower Grade Securities."
The Investment Adviser believes that preferred stock and convertible
securities of certain companies offer the opportunity for capital appreciation
as well as periodic income. This is particularly true in the case of companies
that have performed below expectations. If a company's performance has been poor
enough, its preferred stock and convertible securities may trade more like
common stock than like fixed income securities, which may result in above
average appreciation if the company's performance improves. Even if the credit
quality of such a company is not in question, the market price of its
convertible securities may reflect little or no element of conversion value if
the price of its common stock has fallen substantially below the conversion
price. This can result in the possibility of capital appreciation if the price
of the company's common stock recovers.
Lower Grade Securities. The Fund may invest up to 10% of its total
assets in fixed-income nonconvertible securities rated in the lower rating
categories of recognized statistical rating agencies or non-rated securities of
comparable quality. These securities, which may be preferred stock or debt, are
predominantly speculative and involve major risk exposure to adverse conditions.
Debt securities that are rated lower than "BBB" by S&P or lower than "Baa" by
Moody's (or unrated debt securities of comparable quality) are referred to in
the financial press as "junk bonds."
Generally, such lower grade securities and unrated securities of
comparable quality offer a higher current yield than is offered by higher rated
securities, but also (i) will likely have some quality and protective
characteristics that, in the judgment of the rating organizations, are
outweighed by large uncertainties or major risk exposures to adverse conditions
and (ii) are predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher quality bonds. In addition, such comparable unrated securities generally
present a higher degree of credit risk. The risk of loss due to default by these
issuers is significantly greater because such lower grade securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness. In light of these
risks, the Investment Adviser, in evaluating the creditworthiness of an issue,
whether rated or unrated, will take various factors into consideration, which
may include, as applicable, the issuer's operating history, financial resources
and its sensitivity to economic conditions and trends, the market support for
the facility financed by the issue, the perceived ability and integrity of the
issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories
is more volatile than that of higher quality securities, and the markets in
which such lower rated or unrated securities are traded are more limited than
those in which higher rated securities are traded. The existence of limited
markets may make it more difficult for the Fund to obtain accurate market
quotations for purposes of valuing its portfolio and calculating its net asset
value. Moreover, the lack of a liquid trading market may restrict the
availability of securities for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell securities at their fair value to
respond to changes in the economy or the financial markets.
Lower grade securities and unrated securities of comparable quality
also present risks based on payment expectations. If an issuer calls the
obligation for redemption (often a feature of fixed income securities), the Fund
may have to replace the security with a lower yielding security, resulting in a
decreased return for investors. Also, as the principal value of nonconvertible
bonds and preferred stocks moves inversely with movements in interest rates, in
the event of rising interest rates the value of the securities held by the Fund
may decline proportionately more than a portfolio consisting of higher rated
securities. Investments in zero coupon bonds may be more speculative and subject
to greater fluctuations in value due to changes in interest rates than bonds
that pay interest currently. Interest rates are at historical lows and,
therefore, it is likely that they will rise in the future.
As part of its investments in lower grade securities, the Fund may
invest in securities of issuers in default. The Fund will make an investment in
securities of issuers in default only when the Investment Adviser believes that
such issuers will honor their obligations or emerge from bankruptcy protection
and the value of these securities will appreciate. By investing in securities of
issuers in default, the Fund bears the risk that these issuers will not continue
to honor their obligations or emerge from bankruptcy protection or that the
value of the securities will not otherwise appreciate.
In addition to using recognized rating agencies and other sources, the
Investment Adviser also performs its own analysis of issues in seeking
investments that it believes to be underrated (and thus higher-yielding) in
light of the financial condition of the issuer. Its analysis of issuers may
include, among other things, current and anticipated cash flow and borrowing
requirements, value of assets in relation to historical cost, strength of
management, responsiveness to business conditions, credit standing and current
anticipated results of operations. In selecting investments for the Fund, the
Investment Adviser may also consider general business conditions, anticipated
changes in interest rates and the outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced. In addition, it is possible that
statistical rating agencies might change their ratings of a particular issue to
reflect subsequent events on a timely basis. Moreover, such ratings do not
assess the risk of a decline in market value. None of these events will require
the sale of the securities by the Fund, although the Investment Adviser will
consider these events in determining whether the Fund should continue to hold
the securities.
The market for lower grade and comparable unrated securities has
experienced periods of significantly adverse price and liquidity several times,
particularly at or around times of economic recessions. Past market recessions
have adversely affected the value of such securities as well as the ability of
certain issuers of such securities to repay principal and pay interest thereon
or to refinance such securities. The market for those securities may react in a
similar fashion in the future.
Securities Subject to Reorganization. The Fund may invest without limit
in securities of companies for which a tender or exchange offer has been made or
announced and in securities of companies for which a merger, consolidation,
liquidation or reorganization proposal has been announced if, in the judgment of
the Investment Adviser, there is a reasonable prospect of high total return
significantly greater than the brokerage and other transaction expenses
involved.
In general, securities which are the subject of such an offer or
proposal sell at a premium to their historic market price immediately prior to
the announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
fails adequately to recognize the possibility that the offer or proposal may be
replaced or superseded by an offer or proposal of greater value. The evaluation
of such contingencies requires unusually broad knowledge and experience on the
part of the Investment Adviser which must appraise not only the value of the
issuer and its component businesses as well as the assets or securities to be
received as a result of the contemplated transaction but also the financial
resources and business motivation of the offeror and/or the dynamics and
business climate when the offer or proposal is in process. Since such
investments are ordinarily short-term in nature, they will tend to increase the
turnover ratio of the Fund, thereby increasing its brokerage and other
transaction expenses. The Investment Adviser intends to select investments of
this type which, in its view, have a reasonable prospect of capital appreciation
which is significant in relation to both risk involved and the potential of
available alternative investments.
Temporary Defensive Investments. Under normal market conditions at
least 80% of the Fund's assets will consist of "dividend paying securities"
i.e., common stock and other equity securities of foreign and domestic companies
which have historically paid periodic dividends to holders, or "income
securities," i.e., non-dividend paying equity or debt securities having a
history of regular payments or accrual of income to holders. However, when a
temporary defensive posture is believed by the Investment Adviser to be
warranted ("temporary defensive periods"), the Fund may without limitation hold
cash or invest its assets in money market instruments and repurchase agreements
in respect of those instruments. The money market instruments in which the Fund
may invest are obligations of the U.S. government, its agencies or
instrumentalities; commercial paper rated A-1 or higher by S&P or Prime-1 by
Moody's; and certificates of deposit and bankers' acceptances issued by domestic
branches of U.S. banks that are members of the Federal Deposit Insurance
Corporation. During temporary defensive periods, the Fund may also invest to the
extent permitted by applicable law in shares of money market mutual funds,
which, under current law, in the absence of an exemptive order will not be
affiliated with the Investment Adviser. Money market mutual funds are investment
companies and the investments in those companies by the Fund are in some cases
subject to certain fundamental investment restrictions and applicable law. As a
shareholder in a mutual fund, the Fund will bear its ratable share of its
expenses, including management fees, and will remain subject to payment of the
fees to the Investment Adviser, with respect to assets so invested. See
"Management of the Fund -- General." The Fund may find it more difficult to
achieve it investment objective during temporary defensive periods.
Options. The Fund may purchase or sell, i.e., write, options on
securities, securities indices and foreign currencies which are listed on a
national securities exchange or in the over-the-counter ("OTC") market, as a
means of achieving additional return or of hedging the value of the Fund's
portfolio. A call option is a contract that, in return for a premium, gives the
holder of the option the right to buy from the writer of the call option the
security or currency underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the
obligation, upon exercise of the option, to deliver the underlying security or
currency upon payment of the exercise price during the option period. A put
option is the reverse of a call option, giving the holder the right, in return
for a premium, to sell the underlying security to the writer, at a specified
price, and obligating the writer to purchase the underlying security from the
holder at that price. The Fund may purchase call or put options as long as the
aggregate initial margins and premiums, measured at the time of such investment,
do not exceed 10% of the fair market value of the Fund's total assets.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to predict correctly
the effect of these factors. The use of options cannot serve as a complete hedge
since the price movement of securities underlying the options will not
necessarily follow the price movements of the portfolio securities subject to
the hedge.
An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series or in a private transaction.
Although the Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option. In
such event, it might not be possible to effect closing transactions in
particular options, so that the Fund would have to exercise its options in order
to realize any profit and would incur brokerage commissions upon the exercise of
call options and upon the subsequent disposition of underlying securities for
the exercise of put options.
Although the Investment Adviser will attempt to take appropriate
measures to minimize the risks relating to the Fund's writing of put and call
options, there can be no assurance that the Fund will succeed in any
option-writing program it undertakes.
Futures Contracts and Options on Futures. The Fund may purchase and
sell financial futures contracts and options thereon which are traded on a
commodities exchange or board of trade for certain hedging, yield enhancement
and risk management purposes. A financial futures contract is an agreement to
purchase or sell an agreed amount of securities or currencies at a set price for
delivery in the future. These futures contracts and related options may be on
debt securities, financial indices, securities indices, U.S. government
securities and foreign currencies. The Investment Adviser has claimed an
exclusion from the definition of the term "commodity pool operator" under the
Commodity Exchange Act and therefore is not subject to registration under the
Commodity Exchange Act. Accordingly, the Fund's investments in derivative
instruments described in this Prospectus and the SAI are not limited by or
subject to regulation under the Commodity Exchange Act or otherwise regulated by
the Commodity Futures Trading Commission.
Forward Foreign Currency Exchange Contracts. Subject to guidelines of
the Board of Trustees, the Fund may enter into forward foreign currency exchange
contracts to protect the value of its portfolio against uncertainty in the level
of future currency exchange rates. The Fund may enter into such contracts on a
spot, i.e., cash, basis at the rate then prevailing in the currency exchange
market or on a forward basis, by entering into a forward contract to purchase or
sell currency. A forward contract on foreign currency is an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days agreed upon by the parties from the date of the contract at a
price set on the date of the contract. The Fund expects to invest in forward
currency contracts for hedging or currency risk management purposes and not in
order to speculate on currency exchange rate movements. The Fund will only enter
into forward currency contracts with parties which it believes to be
creditworthy.
When Issued, Delayed Delivery Securities and Forward Commitments. The
Fund may enter into forward commitments for the purchase or sale of securities,
including on a "when issued" or "delayed delivery" basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization or debt
restructuring, i.e., a when, as and if issued security. When such transactions
are negotiated, the price is fixed at the time of the commitment, with payment
and delivery taking place in the future, generally a month or more after the
date of the commitment. While it will only enter into a forward commitment with
the intention of actually acquiring the security, the Fund may sell the security
before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
securities in an aggregate amount at least equal to the amount of its
outstanding forward commitments.
Short Sales. The Fund may make short sales of securities. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. The market
value of the securities sold short of any one issuer will not exceed either 10%
of the Fund's total assets or 5% of such issuer's voting securities. The Fund
also will not make a short sale, if, after giving effect to such sale, the
market value of all securities sold short exceeds 25% of the value of its
assets. The Fund may also make short sales "against the box" without respect to
such limitations. In this type of short sale, at the time of the sale, the Fund
owns, or has the immediate and unconditional right to acquire at no additional
cost, the identical security.
The Fund expects to make short sales both to obtain capital gains from
anticipated declines in securities and as a form of hedging to offset potential
declines in long positions in the same or similar securities. The short sale of
a security is considered a speculative investment technique. Short sales
"against the box" may be subject to special tax rules, one of the effects of
which may be to accelerate income to the Fund.
When the Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.
If the price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss will be increased, by the
transaction costs incurred by the Fund, including the costs associated with
providing collateral to the broker-dealer (usually cash, U.S. government
securities or other highly liquid debt securities) and the maintenance of
collateral with its custodian. Although the Fund's gain is limited to the price
at which it sold the security short, its potential loss is theoretically
unlimited.
Repurchase Agreements. Repurchase agreements may be seen as loans by
the Fund collateralized by an underlying debt securities. Under the terms of a
typical repurchase agreement, the Fund would acquire an underlying debt
obligation for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase, and the Fund to resell,
the obligation at an agreed price and time. This arrangement results in a fixed
rate of return to the Fund that is not subject to market fluctuations during the
holding period. The Fund bears a risk of loss in the event that the other party
to a repurchase agreement defaults on its obligations and the Fund is delayed in
or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period in which it seeks to assert these rights. The
Investment Adviser, acting under the supervision of the Board of Trustees of the
Fund, reviews the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate these risks and monitors on
an ongoing basis the value of the securities subject to repurchase agreements to
ensure that the value is maintained at the required level. The Fund will not
enter into repurchase agreements with the Investment Adviser or any of its
affiliates.
Restricted and Illiquid Securities. The Fund may invest in securities
for which there is no readily available trading market or are otherwise
illiquid. Illiquid securities include securities legally restricted as to
resale, such as commercial paper issued pursuant to Section 4(2) of the
Securities Act of 1933 and securities eligible for resale pursuant to Rule 144A
thereunder. Section 4(2) and Rule 144A securities may, however, be treated as
liquid by the Investment Adviser pursuant to procedures adopted by the Board of
Trustees, which require consideration of factors such as trading activity,
availability of market quotations and number of dealers willing to purchase the
security. If the Fund invests in Rule 144A securities, the level of portfolio
illiquidity may be increased to the extent that eligible buyers become
uninterested in purchasing such securities.
It may be difficult to sell such securities at a price representing the
fair value until such time as such securities may be sold publicly. Where
registration is required, a considerable period may elapse between a decision to
sell the securities and the time when it would be permitted to sell. Thus, the
Fund may not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund may also acquire securities through
private placements under which it may agree to contractual restrictions on the
resale of such securities. Such restrictions might prevent their sale at a time
when such sale would otherwise be desirable.
Foreign Securities. The Fund may invest up to 35% of its total assets
in securities of non-U.S. issuers, which are generally denominated in foreign
currencies. See "Risk Factors and Special Considerations -- Foreign Securities."
The Fund may purchase sponsored American Depository Receipts ("ADRs")
or U.S. dollar-denominated securities of foreign issuers, which will not be
included in this foreign securities limitation. ADRs are receipts issued by
United States banks or trust companies in respect of securities of foreign
issuers held on deposit for use in the United States securities markets.
Industry Concentration. The Fund may invest up to 25% of its total
assets in securities of issuers in a single industry. See "Risk Factors and
Special Considerations -- Industry Concentration Risk."
Leveraging. As provided in the 1940 Act and subject to certain
exceptions, the Fund may issue senior securities (which may be stock, such as
preferred shares, or securities representing debt) so long as its total
assets, less certain ordinary course liabilities, exceed 300% of the amount of
the debt outstanding and exceed 200% of the amount of preferred shares and
debt outstanding. Any such preferred shares may be convertible in accordance
with Securities and Exchange Commission staff guidelines, which may permit
each fund to obtain leverage at attractive rates. The use of leverage
magnifies the impact of changes in net asset value. For example, a fund that
uses 33% leverage will show a 1.5% increase or decline in net asset value for
each 1% increase or decline in the value of its total assets. In addition, if
the cost of leverage exceeds the return on the securities acquired with the
proceeds of leverage, the use of leverage will diminish rather than enhance
the return to the Fund. The use of leverage generally increases the volatility
of returns to the Fund. See "Risk Factors and Special Considerations --
Preferred Shares -- Leverage Risk."
In the event the Fund had both outstanding preferred shares (such as
the Series A Preferred or the Series B AMPS) and senior securities representing
debt at the same time, the Fund's obligations to pay dividends and, upon
liquidation of the Fund, liquidation payments in respect of its preferred shares
would be subordinate to the Fund's obligations to make any principal and/or
interest payments due and owing with respect to its outstanding senior debt
securities. Accordingly, the Fund's issuance of senior securities representing
debt would have the effect of creating special risks for the Fund's preferred
shareholders (including the holders of Series A Preferred and/or Series B AMPS)
that would not be present in a capital structure that did not include such
securities. See "Risk Factors and Special Considerations -- Preferred Shares --
Special Risks to Preferred Shares of Senior Securities Representing Debt."
Further information on the investment objectives and policies of the
Fund are set forth in the SAI.
Investment Restrictions. The Fund has adopted certain investment
restrictions as fundamental policies of the Fund. Under the 1940 Act, a
fundamental policy may not be changed without the vote of a majority, as defined
in the 1940 Act, of the outstanding voting securities of the Fund (voting
together as a single class). In addition, pursuant to the Fund's Statement of
Preferences, a majority, as defined in the 1940 Act, of the outstanding
preferred shares of the Fund (voting separately as a single class) is also
required to change a fundamental policy. The Fund's investment restrictions are
more fully discussed under "Investment Restrictions" in the SAI
Loans of Portfolio Securities. To increase income, the Fund may lend
its portfolio securities to securities broker-dealers or financial institutions
if the loan is collateralized in accordance with applicable regulatory
requirements.
If the borrower fails to maintain the requisite amount of collateral,
the loan automatically terminates and the Fund could use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over the value of the collateral. As with any extension of
credit, there are risks of delay in recovery and in some cases even loss of
rights in collateral should the borrower of the securities violate the terms of
the loan or fail financially. There can be no assurance that borrowers will not
fail financially. On termination of the loan, the borrower is required to return
the securities to the Fund, and any gain or loss in the market price during the
loan would inure to the Fund. If the other party to the loan petitions for
bankruptcy or becomes subject to the United States Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. As a result, under extreme
circumstances, there may be a restriction on the Fund's ability to sell the
collateral and the Fund would suffer a loss. See "Investment Objective and
Policies -- Loans of Portfolio Securities" in the SAI.
Portfolio Turnover. The Fund will buy and sell securities to accomplish
its investment objective. The investment policies of the Fund may lead to
frequent changes in investments, particularly in periods of rapidly fluctuating
interest or currency exchange rates.
Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. The portfolio
turnover rate is computed by dividing the lesser of the amount of the securities
purchased or securities sold by the average monthly value of securities owned
during the year (excluding securities whose maturities at acquisition were one
year or less). Higher portfolio turnover may decrease the after-tax return to
individual investors in the Fund to the extent it results in a decrease of the
long term capital gains portion of distributions to shareholders.
The portfolio turnover rate of the Fund since it commenced operations
on November 28, 2003 was 0.4%. The Fund anticipates that its portfolio
turnover rate will generally not exceed 100%.
Further information on the investment objective and policies of the
Fund are set forth in the SAI.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special
considerations associated with investing in the Fund.
Preferred Shares
Special Risks of the Series A Preferred
Fluctuations in Market Price. The market price for the Series A
Preferred will be influenced by changes in interest rates, the perceived credit
quality of the Series A Preferred and other factors.
Illiquidity Risk. Prior to the offering, there has been no public
market for the Series A Preferred. In the event the Series A Preferred is
issued, prior application will have been made to list the Series A Preferred on
the NYSE. However, during an initial period, which is not expected to exceed 30
days after the date of its issuance, the Series A Preferred will not be listed
on any securities exchange. During such period, the underwriters intend to make
a market in the Series A Preferred, however, they have no obligation to do so.
Consequently, the Series A Preferred may be illiquid during such period. No
assurances can be provided that listing on any securities exchange or market
making by the underwriters will result in the market for Series A Preferred
being liquid at any time.
Special Risks of the Series B AMPS
Auction Risk. You may not be able to sell your Series B AMPS at an
auction if the auction fails, i.e., if there is more Series B AMPS offered for
sale than there are buyers for those shares. Also, if you place an order at an
auction to retain Series B AMPS only at a specified rate that exceeds the rate
set at the auction, you will not retain your Series B AMPS. Additionally, if you
place a hold order without specifying a rate below which you would not wish to
continue to hold your shares and the auction sets a below-market rate, you will
receive a lower rate of return on your shares than the market rate. Finally, the
dividend period may be changed, subject to certain conditions and with notice to
the holders of the Series B AMPS, which could also affect the liquidity of your
investment. See "Description of the Series A Preferred and Series B AMPS" and
"The Auction of Series B AMPS."
Secondary Market Sale Risk. If you try to sell your Series B AMPS
between auctions, you may not be able to sell them for $25,000 per share or
$25,000 per share plus accumulated dividends. If the Fund has designated a
special dividend period of more than seven days, changes in interest rates could
affect the price you would receive if you sold your shares in the secondary
market. Broker-dealers that may maintain a secondary trading market for the
Series B AMPS are not required to maintain this market, and the Fund is not
required to redeem Series B AMPS if either an auction or an attempted secondary
market sale fails because of a lack of buyers. The Series B AMPS is not
registered on a stock exchange or the NASDAQ stock market. If you sell your
Series B AMPS to a broker-dealer between auctions, you may receive less than the
price you paid for them, especially when market interest rates have risen since
the last auction or during a special dividend period.
Risks Associated With Both the Series A Preferred and Series B AMPS
General Risks of Preferred Shares. There are a number of risks
associated with an investment in the Series A Preferred or Series B AMPS.
The market value for the Series A Preferred and/or Series B AMPS will
be influenced by changes in interest rates, the perceived credit quality of the
Series A Preferred or Series B AMPS and other factors.
The credit rating on the Series A Preferred and/or Series B AMPS could
be reduced or withdrawn while an investor holds shares, and the credit rating
does not eliminate or mitigate the risks of investing in the Series A Preferred
and/or Series B AMPS. A reduction or withdrawal of the credit rating would
likely have an adverse effect on the market value of the Series A Preferred and
Series B AMPS.
The Fund may not meet the asset coverage requirements or earn
sufficient income from its investments to pay dividends on the Series A
Preferred and/or Series B AMPS.
The value of the Fund's investment portfolio may decline, reducing the
asset coverage for the Series A Preferred and/or Series B AMPS. Further, if an
issuer of a common stock in which the Fund invests experiences financial
difficulties or if an issuer's preferred stock or debt security is downgraded or
defaults or if an issuer in which the Fund invests is affected by other adverse
market factors, there may be a negative impact on the income and/or asset value
of the Fund's investment portfolio. In such circumstances, the Fund may be
forced to mandatorily redeem shares of Series A Preferred and/or Series B AMPS.
In general, the Fund may redeem your Series B AMPS at any time and may
redeem your Series A Preferred at any time after [__], and may at any time
redeem shares of either or both series to meet regulatory or rating agency
requirements. The Series A Preferred and/or Series B AMPS are subject to
redemption under specified circumstances and investors may not be able to
reinvest the proceeds of any such redemption in an investment providing the same
or a better rate than that of the Series A Preferred or Series B AMPS. Subject
to such circumstances, the Series A Preferred and/or Series B AMPS are
perpetual.
The Series A Preferred and the Series B AMPS are not obligations of the
Fund. The Series A Preferred and/or Series B AMPS would be junior in respect of
dividends and liquidation preference to any indebtedness incurred by the Fund,
including any senior securities of the Fund representing debt. Although
unlikely, precipitous declines in the value of the Fund's assets could result in
the Fund having insufficient assets to redeem all of the Series A Preferred
and/or Series B AMPS for the full redemption price.
Leverage Risk. The Fund intends to use financial leverage for
investment purposes by issuing preferred shares and/or senior securities
representing debt. It is currently anticipated that, taking into account the
Series A Preferred and/or Series B AMPS being offered in this prospectus, the
amount of leverage will represent approximately [__]% of the Fund's managed
assets (as defined below). The Fund's leveraged capital structure creates
special risks not associated with unleveraged funds having a similar investment
objective and policies. These include the possibility of greater loss and the
likelihood of higher volatility of the net asset value of the Fund and the asset
coverage for the Series A Preferred and/or Series B AMPS. Such volatility may
increase the likelihood of the Fund having to sell investments in order to meet
its obligations to make dividend payments on the preferred shares or principal
or interest payments senior debt securities, or to redeem preferred shares or
repay senior debt, when it may be disadvantageous to do so. Also, if the Fund is
utilizing leverage, a decline in net asset value could affect the ability of the
Fund to make common share dividend payments and such a failure to pay dividends
or make distributions could result in the Fund ceasing to qualify as a regulated
investment company under the Code. See "Taxation."
Because the fee paid to the Investment Adviser will be calculated on
the basis of the Fund's net assets, which includes for this purpose assets
attributable to the aggregate net asset value of the common shares plus assets
attributable to any outstanding preferred shares, with no deduction for the
liquidation preference of such preferred shares, the fee may be higher when
leverage in the form of preferred shares is utilized, giving the Investment
Adviser an incentive to utilize such leverage. However, the Investment Adviser
has agreed not to accept an incremental fee on any Series A Preferred or Series
B AMPS, as the case may be, to the extent the Fund's total return allocable to
the common shares fails to meet certain hurdles described under "Management of
the Fund - General.
Special Risks to Preferred Shares of Senior Securities Representing
Debt. As provided in the 1940 Act, and subject to compliance with the Fund's
investment limitations, the Fund may issue senior securities representing debt.
In the event the Fund were to issue such securities, the Fund's obligations to
pay dividends and, upon liquidation of the Fund, liquidation payments in respect
of its preferred shares would be subordinate to the Fund's obligations to make
any principal and/or interest payments due and owing with respect to its
outstanding senior debt securities. Accordingly, the Fund's issuance of senior
securities representing debt would have the effect of creating special risks for
the Fund's preferred shareholders (including the holders of Series A Preferred
and/or Series B AMPS) that would not be present in a capital structure that did
not include such securities.
Restrictions on Dividends and Other Distributions. Restrictions imposed
on the declaration and payment of dividends or other distributions to the
holders of the Fund's common shares and preferred shares, both by the 1940 Act
and by requirements imposed by rating agencies, might impair the Fund's ability
to maintain its qualification as a regulated investment company for federal
income tax purposes. While the Fund intends to redeem its preferred shares
(including the Series A Preferred and/or Series B AMPS) to the extent necessary
to enable the Fund to distribute its income as required to maintain its
qualification as a regulated investment company under the Code, there can be no
assurance that such actions can be effected in time to meet the Code
requirements. See "Taxation" in the SAI.
Limited Operating History
The Fund is a non-diversified, closed-end management investment company
with a limited operating history.
Common Stock Dividend Policy Risk.
The Fund has adopted a policy, which may be changed at ant time by the
Board of Trustees, of paying a dividend on its common shares of $.30 per
quarter, which is equal to an annual rate of 6% of the original issue price of
the common shares. In the event investment returns do not provide sufficient
amounts to fund such distributions, the Fund may be required to return capital
as part of such distribution, which may have the effect of decreasing the asset
coverage per share with respect to the Fund's Series A Preferred and Series B
AMPS. The Fund anticipates making its first dividend payment on March 25, 2004,
a portion of which may constitute a return of capital.
Value Investing Risk
The Fund focuses its investments on dividend-paying common and
preferred stocks that the Investment Adviser believes are undervalued or
inexpensive relative to other investments. These types of securities may present
risks in addition to the general risks associated with investing in common and
preferred stocks. These securities generally are selected on the basis of an
issuer's fundamentals relative to current market price. Such securities are
subject to the risk of mis-estimation of certain fundamental factors. In
addition, during certain time periods market dynamics may strongly favor
"growth" stocks of issuers that do not display strong fundamentals relative to
market price based upon positive price momentum and other factors. Disciplined
adherence to a "value" investment mandate during such periods can result in
significant underperformance relative to overall market indices and other
managed investment vehicles that pursue growth style investments and/or flexible
equity style mandates.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under
the 1940 Act, which means the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. However, the Fund has in the past conducted and intends to conduct its
operations so as to qualify as a "regulated investment company," or RIC, for
purposes of the Code, which will relieve it of any liability for federal income
tax to the extent its earnings are distributed to shareholders. To qualify as a
"regulated investment company," among other requirements, the Fund will limit
its investments so that, with certain exceptions, at the close of each quarter
of the taxable year:
o not more than 25% of the market value of its total assets will
be invested in the securities (other than U.S. government
securities or the securities of other RICs) of a single issuer
or any two or more issuers that the Fund controls and which are
determined to be engaged in the same, similar or related trades
or businesses; and
o at least 50% of the market value of the Fund's assets will be
represented by cash, securities of other regulated investment
companies, U.S. government securities and other securities, with
such other securities limited in respect of any one issuer to an
amount not greater than 5% of the value of the Fund's assets and
not more than 10% of the outstanding voting securities of such
issuer.
As a non-diversified investment company, the Fund may invest in the
securities of individual issuers to a greater degree than a diversified
investment company. As a result, the Fund may be more vulnerable to events
affecting a single issuer and therefore, subject to greater volatility than a
fund that is more broadly diversified. Accordingly, an investment in the Fund
may present greater risk to an investor than an investment in a diversified
company.
[Market Value and Net Asset Value
The Fund is a closed-end, non-diversified, management investment
company. Common shares of closed-end funds are bought and sold in the securities
markets and may trade at either a premium or discount from net asset value.
Listed common shares of closed-end investment companies frequently trade at a
discount from net asset value. This characteristic of common shares of a
closed-end fund is a risk separate and distinct from the risk that the Fund's
net asset value will decrease.]
Industry Concentration Risk
The Fund may invest up to 25% of its total assets in securities of a
single industry. Should the Fund chose to do so, the net asset value of the Fund
will be more susceptible to factors affecting those particular types of
companies, which, depending on the particular industry, may include, among
others: governmental regulation; inflation; cost increases in raw materials,
fuel and other operating expenses; technological innovations that may render
existing products and equipment obsolete; and increasing interest rates
resulting in high interest costs on borrowings needed for capital investment,
including costs associated with compliance with environmental and other
regulations. In such circumstances the Fund's investments may be subject to
greater risk and market fluctuation than a fund that had securities representing
a broader range of industries.
Illiquid Securities
The Fund has no limit on the amount of its net assets it may invest
in unregistered and otherwise illiquid investments. Unregistered securities
are securities that cannot be sold publicly in the United States without
registration under the Securities Act of 1933. Unregistered securities
generally can be resold only in privately negotiated transactions with a
limited number of purchasers or in a public offering registered under the
Securities Act. Considerable delay could be encountered in either event and,
unless otherwise contractually provided for, the Fund's proceeds upon sale may
be reduced by the costs of registration or underwriting discounts. The
difficulties and delays associated with such transactions could result in the
Fund's inability to realize a favorable price upon disposition of unregistered
securities, and at times might make disposition of such securities impossible.
Foreign Securities Risk
The Fund may invest up to 35% of its total assets in the securities of
foreign issuers. Investments in the securities of foreign issuers involve
certain considerations and risks not ordinarily associated with investments in
securities of domestic issuers. Foreign companies are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. companies. Foreign securities exchanges, brokers and
listed companies may be subject to less government supervision and regulation
than exists in the United States. Dividend and interest income may be subject to
withholding and other foreign taxes, which may adversely affect the net return
on such investments. There may be difficulty in obtaining or enforcing a court
judgment abroad. In addition, it may be difficult to effect repatriation of
capital invested in certain countries. In addition, with respect to certain
countries, there are risks of expropriation, confiscatory taxation, political or
social instability or diplomatic developments that could affect assets of the
Fund held in foreign countries.
There may be less publicly available information about a foreign
company than a U.S. company. Foreign securities markets may have substantially
less volume than U.S. securities markets and some foreign company securities are
less liquid than securities of otherwise comparable U.S. companies. A portfolio
of foreign securities may also be adversely affected by fluctuations in the
rates of exchange between the currencies of different nations and by exchange
control regulations. Foreign markets also have different clearance and
settlement procedures that could cause the Fund to encounter difficulties in
purchasing and selling securities on such markets and may result in the Fund
missing attractive investment opportunities or experiencing loss. In addition, a
portfolio that includes foreign securities can expect to have a higher expense
ratio because of the increased transaction costs on non-U.S. securities markets
and the increased costs of maintaining the custody of foreign securities. The
Fund does not have an independent limit on the amount of its assets that it may
invest in the securities of foreign issuers.
The Fund also may purchase sponsored American Depository Receipts
("ADRs") or U.S. dollar-denominated securities of foreign issuers. ADRs are
receipts issued by United States banks or trust companies in respect of
securities of foreign issuers held on deposit for use in the United States
securities markets. While ADRs may not necessarily be denominated in the same
currency as the securities into which they may be converted, many of the risks
associated with foreign securities may also apply to ADRs. In addition, the
underlying issuers of certain depositary receipts, particularly unsponsored or
unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Lower Grade Securities
The Fund may invest up to 10% of its total assets in nonconvertible
preferred stock or debt securities rated in the lower rating categories of
recognized statistical rating agencies or unrated securities of comparable
quality, and an unlimited percentage of it assets in convertible bonds of such
quality. These high yield securities, also sometimes referred to as "junk
bonds," generally pay a premium above the yields of U.S. government securities
or debt securities of investment grade issuers because they are subject to
greater risks than these securities. These risks, which reflect their
speculative character, include the following:
o greater volatility;
o greater credit risk and risk of default;
o potentially greater sensitivity to general economic or industry
conditions;
o potential lack of attractive resale opportunities (illiquidity);
and
o additional expenses to seek recovery from issuers who default.
In addition, the prices of these lower grade securities are more
sensitive to negative developments, such as a decline in the issuer's revenues
or a general economic downturn, than are the prices of higher grade securities.
Lower grade securities tend to be less liquid than investment grade securities.
The market value of lower grade securities may be more volatile than the market
value of investment grade securities and generally tends to reflect the market's
perception of the creditworthiness of the issuer and short-term market
developments to a greater extent than investment grade securities, which
primarily reflect fluctuations in general levels of interest rates.
Ratings are relative and subjective and not absolute standards of
quality. Securities ratings are based largely on the issuer's historical
financial condition and the rating agencies' analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition.
As a part of its investments in lower grade fixed-income securities,
the Fund may invest in the securities of issuers in default. The Fund will
invest in securities of issuers in default only when the Investment Adviser
believes that such issuers will honor their obligations and emerge from
bankruptcy protection and that the value of such issuers' securities will
appreciate. By investing in the securities of issuers in default, the Fund bears
the risk that these issuers will not continue to honor their obligations or
emerge from bankruptcy protection or that the value of these securities will not
otherwise appreciate.
For a further description of lower grade securities and the risks
associated therewith, see "Investment Objective and Policies -- Certain
Investment Practices -- Lower Grade Securities". For a description of the
ratings categories of certain recognized statistical ratings agencies, see
Appendix A to this prospectus.
Special Risks of Derivative Transactions
Participation in the options or futures markets and in currency
exchange transactions involves investment risks and transaction costs to which
the Fund would not be subject absent the use of these strategies. If the
Investment Adviser's prediction of movements in the direction of the securities,
foreign currency and interest rate markets is inaccurate, the consequences to
the Fund may leave the Fund in a worse position than if it had not used such
strategies. Risks inherent in the use of options, foreign currency, futures
contracts and options on futures contracts, securities indices and foreign
currencies include:
o dependence on the Investment Adviser's ability to predict
correctly movements in the direction of interest rates,
securities prices and currency markets;
o imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the
securities or currencies being hedged;
o the fact that skills needed to use these strategies are
different from those needed to select portfolio securities;
o the possible absence of a liquid secondary market for any
particular instrument at any time;
o the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences;
o the possible inability of the Fund to purchase or sell a
security at a time that otherwise would be favorable for it to
do so, or the possible need for the Fund to sell a security at a
disadvantageous time due to a need for the Fund to maintain
"cover" or to segregate securities in connection with the
hedging techniques; and
o the creditworthiness of counterparties.
Futures Transactions. The Fund may invest without limit in futures
contracts. Futures and options on futures entail certain risks, including but
not limited to the following:
o no assurance that futures contracts or options on futures can be
offset at favorable prices;
o possible reduction of the return of the Fund due to the use of
hedging;
o possible reduction in value of both the securities hedged and
the hedging instrument;
o possible lack of liquidity due to daily limits or price
fluctuations;
o imperfect correlation between the contracts and the securities
being hedged; and
o losses from investing in futures transactions that are
potentially unlimited and the segregation requirements for such
transactions.
Forward Currency Exchange Contracts. There is no independent limit on
the Fund's ability to invest in foreign currency exchange contracts. The use of
forward currency contracts may involve certain risks, including the failure of
the counterparty to perform its obligations under the contract and that the use
of forward contracts may not serve as a complete hedge because of an imperfect
correlation between movements in the prices of the contracts and the prices of
the currencies hedged or used for cover.
Counterparty Risk. The Fund will be subject to credit risk with respect
to the counterparties to the derivative contracts purchased by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract due to financial difficulties, the Fund may
experience significant delays in obtaining any recovery under the derivative
contract in bankruptcy or other reorganization proceeding. The Fund may obtain
only a limited recovery or may obtain no recovery in such circumstances.
For a further description of such derivative investments, see "Investment
Objective and Policies -- Additional Investment Practices" in the SAI.
Interest Rate Transactions
The Fund may enter into an interest rate swap or cap transaction with
respect to all or a portion of the Series B AMPS. The use of interest rate swaps
and caps is a highly specialized activity that involves certain risks to the
Fund including, among others, counterparty risk and early termination risk. See
"How the Fund Manages Risk -- Interest Rate Transactions."
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing advisory services with respect to the Fund's investments.
If the Investment Adviser were to lose the services of Mr. Gabelli, its ability
to service the Fund could be adversely affected. There can be no assurance that
a suitable replacement could be found for Mr. Gabelli in the event of his death,
resignation, retirement or inability to act on behalf of the Investment Adviser.
Current Developments
As a result of the terrorist attacks on the World Trade Center and the
Pentagon on September 11, 2001, some of the U.S. Securities Markets were closed
for a four-day period. These terrorists attacks, the war in Iraq and its
aftermath and other geopolitical events have led to, and may in the future lead
to, increased short-term market volatility and may have long-term effects on
U.S. and world economies and markets. Similar events in the future or other
disruptions of financial markets could affect interest rates, securities
exchanges, auctions, secondary trading, ratings, credit risk, inflation and
other factors relating to the Series A Preferred and/or Series B AMPS.
Anti-takeover Provisions
The Fund's Governing Documents include provisions that could limit the
ability of other entities or persons to acquire control of the Fund or convert
the Fund to an open-end fund. See "Anti-takeover Provisions of the Fund's
Governing Documents.
Status as a Regulated Investment Company
The Fund has qualified, and intends to remain qualified, for federal
income tax purposes as a regulated investment company. Qualification requires,
among other things, compliance by the Fund with certain distribution
requirements. Statutory limitations on distributions on the common shares if the
Fund fails to satisfy the 1940 Act's asset coverage requirements could
jeopardize the Fund's ability to meet such distribution requirements. The Fund
presently intends, however, to purchase or redeem preferred shares to the extent
necessary in order to maintain compliance with such asset coverage requirements.
See "Taxation" for a more complete discussion of these and other federal income
tax considerations.
HOW THE FUND MANAGES RISK
Investment Restrictions
The Fund has adopted certain investment limitations, some of which are
fundamental policies of the Fund, designed to limit investment risk and maintain
portfolio diversification. Under the 1940 Act, a fundamental policy may not be
changed without the vote of a majority, as defined in the 1940 Act, of the
outstanding voting securities of the Fund (voting together as a single class).
In, addition, pursuant to the Fund's Statement of Preferences, a majority, as
defined in the 1940 Act, of the outstanding preferred shares of the Fund (voting
separately as a single class) is also required to change a fundamental policy.
The Fund may become subject to guidelines that are more limiting than its
current investment restrictions in order to obtain and maintain ratings from
[__] or [__] on its preferred shares.
Interest Rate Transactions
The Fund may enter into interest rate swap or cap transactions in
relation to all or a portion of the Series B AMPS in order to manage the impact
on its portfolio of changes in the dividend rate of the Series B AMPS. Through
these transactions the Fund may, for example, obtain the equivalent of a fixed
rate for the Series B AMPS that is lower than the Fund would have to pay if it
issued fixed rate preferred shares.
The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. In an interest rate
swap, the Fund would agree to pay to the other party to the interest rate swap
(which is known as the "counterparty") periodically a fixed rate payment in
exchange for the counterparty agreeing to pay to the Fund periodically a
variable rate payment that is intended to approximate the Fund's variable rate
payment obligation on the Series B AMPS. In an interest rate cap, the Fund would
pay a premium to the counterparty to the interest rate cap and, to the extent
that a specified variable rate index exceeds a predetermined fixed rate, would
receive from the counterparty payments of the difference based on the notional
amount of such cap. Interest rate swap and cap transactions introduce additional
risk because the Fund would remain obligated to pay preferred share dividends
when due in accordance with the Statement of Preferences even if the
counterparty defaulted. Depending on the general state of short-term interest
rates and the returns on the Fund's portfolio securities at that point in time,
such a default could negatively affect the Fund's ability to make dividend
payments on the Series B AMPS. In addition, at the time an interest rate swap or
cap 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. If this
occurs, it could have a negative impact on the Fund's ability to make dividend
payments on the Series B AMPS. To the extent there is a decline in interest
rates, the value of the interest rate swap or cap could decline, resulting in a
decline in the asset coverage for the Series B AMPS. A sudden and dramatic
decline in interest rates may result in a significant decline in the asset
coverage. Under the Statement of Preferences, if the Fund fails to maintain the
required asset coverage on the outstanding preferred shares (including the
Series B AMPS) or fails to comply with other covenants, the Fund may be required
to redeem some or all of these shares. The Fund may also choose to redeem some
or all of the Series B AMPS at any time. Such redemption would likely result in
the Fund seeking to terminate early all or a portion of any swap or cap
transaction. Early termination of a swap could result in a termination payment
by the Fund to the counterparty, while early termination of a cap could result
in a termination payment to the Fund.
The Fund will usually enter into swaps or caps on a net basis; that is,
the two payment streams will be netted out in a cash settlement on the payment
date or dates specified in the instrument, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. The Fund intends to
segregate cash or liquid securities having a value at least equal to the value
of the Fund's net payment obligations under any swap transaction, marked to
market daily. The Fund does not presently intend to enter into interest rate
swap or cap transactions relating to Series B AMPS in a notional amount in
excess of the outstanding amount of the Series B AMPS. The Fund will monitor any
such swap with a view to ensuring that the Fund remains in compliance with all
applicable regulatory investment policy and tax requirements.
MANAGEMENT OF THE FUND
General
The Fund's Board of Trustees (who, with the Fund's officers, are
described in the SAI) has overall responsibility for the management of the Fund.
The Board decides upon matters of general policy and reviews the actions of the
Investment Adviser, Gabelli Funds, LLC, located at One Corporate Center, Rye,
New York 10580-1422, and the Sub-Administrator (as defined below). Pursuant to
an investment advisory contract with the Fund, the Investment Adviser, under the
supervision of the Fund's Board, provides a continuous investment program for
the Fund's portfolio; provides investment research and makes and executes
recommendations for the purchase and sale of securities; and provides all
facilities and personnel, including officers required for its administrative
management and pays the compensation of all officers and trustees of the Fund
who are its affiliates. As compensation for its services and the related
expenses borne by the Investment Adviser, the Fund pays the Investment Adviser a
fee, computed daily and payable monthly, equal, on an annual basis, to 1.00% of
the Fund's average weekly net assets. As used in this prospectus, net assets
means the aggregate net asset value of the common shares (which includes for
this purpose assets attributable to outstanding preferred shares, if any, with
no deduction for the liquidation preference of such preferred shares). However,
the Investment Adviser has voluntarily agreed to waive the portion of its
investment advisory fee attributable to an amount of assets of the Fund equal to
the aggregate stated value of, as the case may be, its outstanding Series A
Preferred and/or Series B AMPS for any calendar year in which the net asset
value total return of the Fund allocable to the common shares, including
distributions and the advisory fee subject to potential waiver, is less than (i)
in the case of the Series A Preferred, the stated annual dividend rate of such
series and (ii) in the case of the Series B AMPS, the net cost of capital to the
Fund with respect to the Series B AMPS for such year expressed as a percentage
(including, without duplication, dividends paid by the Fund on the Series B AMPS
and the net cost to the Fund of any associated swap or cap transaction if the
Fund hedges its Series B AMPS dividend obligations). This waiver will apply to
the portion of the Fund's assets attributable to the Series A Preferred and
Series B AMPS Preferred, respectively, for so long as any shares of such series
remain outstanding.
The Investment Adviser
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an
advisory agreement with the Fund. The Investment Adviser is a New York
corporation with principal offices located at One Corporate Center, Rye, New
York 10580. The Investment Adviser was organized in 1999 and is the successor to
Gabelli Funds, Inc., which was organized in 1980. As of September 30, 2003, the
Investment Adviser acted as registered investment adviser to [__] management
investment companies with aggregate net assets of $[__]billion. The Investment
Adviser, together with other affiliated investment advisers noted below had
assets under management totaling approximately $[__]billion as of [__]. GAMCO
Investors, Inc., an affiliate of the Investment Adviser, acts as investment
adviser for individuals, pension trusts, profit sharing trusts and endowments,
and as a sub-adviser to management investment companies having aggregate assets
of $[__] billion under management as of [__]. Gabelli Fixed Income LLC, an
affiliate of the Investment Adviser, acts as investment adviser for The
Treasurer's Funds (money market funds) and separate accounts having aggregate
assets of $[__] billion under management as of [__]. Gabelli Advisers, Inc., an
affiliate of the Investment Adviser, acts as investment manager to the Gabelli
Westwood Funds having aggregate assets of $[__] million under management as of
[__].
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset
Management Inc., a New York corporation, whose Class A Common Stock is traded on
the NYSE under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Investment Adviser on the basis of his ownership of
a majority of the stock of Gabelli Group Capital Partners, Inc., which owns a
majority of the capital stock of Gabelli Asset Management Inc.
Payment of Expenses
The Investment Adviser is obligated to pay expenses associated with
providing the services contemplated by the investment advisory agreement between
the Fund and the Investment Adviser (the "Advisory Agreement"), including
compensation of and office space for its officers and employees connected with
investment and economic research, trading and investment management and
administration of the Fund (but excluding costs associated with the calculation
of the net asset value), as well as the fees of all trustees of the Fund who are
affiliated with the Investment Adviser. The Fund pays all other expenses
incurred in its operation including, among other things, offering expenses,
expenses for legal and independent accountants' services, costs of printing
proxies, share certificates and shareholder reports, charges of the custodian,
any subcustodian, auction agent, transfer agent(s) and dividend paying agent,
expenses in connection with its respective automatic dividend reinvestment and
voluntary cash purchase plan, Security and Exchange Commission fees, fees and
expenses of unaffiliated directors, accounting and pricing costs, including
costs of calculating the net asset value of the Fund, membership fees in trade
associations, fidelity bond coverage for its officers and employees, directors'
and officers' errors and omission insurance coverage, interest, brokerage costs,
taxes, stock exchange listing fees and expenses, expenses of qualifying its
shares for sale in various states, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the Fund.
Selection of Securities Brokers
The Advisory Agreement contains provisions relating to the selection of
securities brokers to effect the portfolio transactions of the Fund. Under those
provisions, the Investment Adviser may (i) direct Fund portfolio brokerage to
Gabelli & Company, Inc. or other broker-dealer affiliates of the Investment
Adviser and (ii) pay commissions to brokers other than Gabelli & Company, Inc.
that are higher than might be charged by another qualified broker to obtain
brokerage and/or research services considered by the Investment Adviser to be
useful or desirable for its investment management of the Fund and/or its other
advisory accounts or those of any investment adviser affiliated with it. The SAI
contains further information about the Advisory Agreement, including a more
complete description of the advisory and expense arrangements, exculpatory and
brokerage provisions, as well as information on the brokerage practices of the
Fund.
Portfolio Manager
Mario J. Gabelli currently leads the investment team responsible for
the day-to-day management of the Fund. Mr. Gabelli has served as Chairman,
President and Chief Investment Officer of the Investment Adviser since 1980.
Mr. Gabelli also serves as Portfolio Manager for a number of other funds in
the Gabelli fund family. Because of the diverse nature of Mr. Gabelli's
responsibilities, he will devote less than all of his time to the day-to-day
management at the Fund. Over the past five years, Mr. Gabelli has served as
Chairman of the Board and Chief Executive Officer of Gabelli Asset Management
Inc.; Chief Investment Officer of GAMCO Investors, Inc.; Vice Chairman of the
Board of Lynch Corporation, a diversified manufacturing company, and Vice
Chairman of the Board and Chief Executive Officer of Lynch Interactive
Corporation, a multimedia and communications services company.
Barbara G. Marcin serves as a senior portfolio manager for the Fund.
Ms. Marcin joined Gabelli Asset Management Inc. in 1999 to manage larger
capitalization value style portfolios. Ms. Marcin currently serves as the
portfolio manager of the Gabelli Blue Chip Value Fund. Prior thereto, she worked
at Citibank Global Asset Management where she was head of value investments and
was a member of the Global Investment Policy Committee and co-Chair of the U.S.
Equity Policy Committee. Prior to joining Citibank, she worked at Fiduciary
Trust Company for ten years as a portfolio manager and as an analyst in the
Personal Financial Management Group at EF Hutton. Ms. Marcin received a M.B.A.
from Harvard University and a B.A. from the University of Virginia.
Non-resident Trustees
Karl Otto Pohl, Anthonie C. van Ekris and Mario d'Urso, trustees of
the Fund, reside outside the United States and all or a significant portion of
their assets are located outside the United States. None of these trustees has
an authorized agent in the United States to receive service of process. As a
result, it may not be possible for investors to effect service of process
within the United States or to enforce against either director in United
States courts judgments predicated upon civil liability provisions of United
States securities laws. It may also not be possible to enforce against either
trustee in foreign courts judgments of United States courts or liabilities in
original actions predicated upon civil liability provisions of the United
States.
Sub-Administrator
The Investment Adviser has entered into a sub-administration agreement
with PFPC Inc. (the "Sub-Administrator") pursuant to which the Sub-Administrator
provides certain administrative services necessary for the Fund's operations
which do not include the investment and portfolio management services provided
by the Investment Adviser. For these services and the related expenses borne by
the Sub-Administrator, the Investment Adviser pays a prorated monthly fee at the
annual rate of .0275% of the first $10.0 billion of the aggregate average net
assets of the Fund and all other funds advised by the Investment Adviser and
administered by the Sub-Administrator, .0125% of the aggregate average net
assets exceeding $10 billion and .01% of the aggregate average net assets in
excess of $15 billion. The Sub-Administrator has its principal office at 760
Moore Road, King of Prussia, Pennsylvania 19406.
Regulatory Matters
The Securities and Exchange Commission, the New York Attorney General
and officials of other states have been conducting inquiries into, and bringing
enforcement and other proceedings regarding, trading abuses involving open-end
investment companies. The Investment Adviser has received information requests
from the Securities and Exchange Commission and a subpoena from the New York
Attorney General in connection with these inquiries. The Investment Adviser and
its affiliates have been complying with these requests and have been
independently reviewing their mutual fund practices in a variety of areas. The
Investment Adviser has not found any information that it believes would be
material to the ability of the Investment Adviser to fulfill its obligations
under the Advisory Agreement. More specifically, the Investment Adviser has not
found any evidence of facilitating trading in the Gabelli mutual funds after the
4:00 p.m. pricing time or of improper short-term trading in these funds by its
investment professionals or senior executives. The Investment Adviser has found
that one investor, which had been engaged in short term trading in one of the
Gabelli mutual funds (the prospectus of which did not at that time impose limits
on short-term trading) and which had subsequently made an investment in a hedge
fund managed by an affiliate of the Investment Adviser, was banned from the
mutual fund only after certain other investors were banned. The Investment
Adviser believes that this relationship was not material to the Investment
Adviser. Inasmuch as both the Investment Adviser's review of its mutual fund
practices and the governmental probes of the mutual fund industry are ongoing,
no assurance can be provided that additional facts will not come to light in the
course of its review that may be material to the Investment Adviser or that the
Investment Adviser will not become the subject of enforcement or other
proceedings by the Securities and Exchange Commission or the New York Attorney
General. In light of the current turmoil in the mutual fund industry arising
from the late trading, improper market timing and employee trading problems,
there can be no assurance that any such action could not have an adverse impact
on the Investment Adviser or on its ability to fulfill its obligations under the
Advisory Agreement.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the
Fund. However, Gabelli & Company, Inc., an affiliate of the Investment Adviser,
may execute portfolio transactions on stock exchanges and in the
over-the-counter markets on an agency basis and receive a stated commission
therefor. For a more detailed discussion of the Fund's brokerage allocation
practices, see "Portfolio Transactions" in the SAI.
DIVIDENDS AND DISTRIBUTIONS
The Fund has a policy, which may be modified at any time by its Board
of Trustees, of paying quarterly distributions on its common shares. The Fund
has adopted a policy, which may be changed at any time by the Board of
Trustees, of paying distributions on each share of $.30 per quarter, which is
equal to an annual rate of 6% of the offering price per common share. This
policy permits holders of common shares to realize a predictable, but not
assured, level of cash flow and some liquidity periodically with respect to
their common shares without having to sell shares. To avoid paying income tax
at the corporate level, the Fund will distribute substantially all of its
investment company taxable income and net capital gains.
The Fund may retain for reinvestment, and pay the resulting federal
income taxes on, its net capital gain, if any, although, as previously
mentioned, the Fund intends to distribute substantially all of its net capital
gain each year. In the event that the Fund's investment company taxable income
and net capital gains exceed the total of the Fund's quarterly distributions
and the amount of distributions on any preferred shares issued by the Fund,
the Fund intends to pay such excess once a year. If, for any calendar year,
the total quarterly distributions and the amount of distributions on any
preferred shares issued by the Fund exceed investment company taxable income
and net capital gain, the excess will generally be treated as a tax-free
return of capital up to the amount of a shareholder's tax basis in his or her
shares. Any distributions to the holders of preferred shares which constitute
tax-free return of capital will reduce a shareholder's tax basis in such
preferred shares, thereby increasing such shareholder's potential gain or
reducing his or her potential loss on the sale of the preferred shares. Any
amounts distributed to a preferred shareholder in excess of the basis in the
preferred shares will generally be taxable to the shareholder as capital gain.
See "Taxation."
In the event the Fund distributes amounts in excess of its investment
company taxable income and net capital gain, such distributions will decrease
the Fund's total assets and, therefore, have the likely effect of increasing the
Fund's expense ratio as the Fund's fixed expenses will become a larger
percentage of the Fund's average net assets. In addition, in order to make such
distributions, the Fund may have to sell a portion of its investment portfolio
at a time when independent investment judgment may not dictate such action.
The Fund, along with other closed-end registered investment companies
advised by the Investment Adviser, is covered by an exemption from Section 19(b)
of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to make periodic
distributions of long-term capital gains provided that any distribution policy
of the Fund with respect to its common shares calls for periodic (e.g.,
quarterly or semi-annually, but in no event more frequently than monthly)
distributions in an amount equal to a fixed percentage of the Fund's average net
asset value over a specified period of time or market price per common share at
or about the time of distribution or pay-out of a fixed dollar amount. The
Fund's current policy is to make quarterly distributions to holders of its
common shares. The exemption also permits the Fund to make such distributions
with respect to its preferred shares, if any, in accordance with such shares'
terms.
DESCRIPTION OF THE SERIES A PREFERRED
AND SERIES B AMPS
The Fund offers by this prospectus, in the aggregate, $[__] million of
preferred shares of either Series A Preferred or Series B AMPS, or a combination
of both such series. The following is a brief description of the terms of each
of the Series A Preferred and the Series B AMPS. This description does not
purport to be complete and is qualified by reference to the Fund's Declaration
of Trust and Statements of Preferences (the Fund's Governing Documents),
including the provisions of the Statement of Preferences establishing each of
the Series A Preferred and the Series B AMPS. For complete terms of the Series A
Preferred or the Series B AMPS, including definitions of terms used in this
prospectus, please refer to the actual terms of such series, which are set forth
in the applicable Statement of Preferences.
General
Under its Governing Documents, the Fund is authorized to issue up to
[__] preferred shares as Series A Preferred and up to [__] preferred shares as
Series B AMPS. No fractional shares of either series will be issued. The Board
of Trustees reserves the right to issue additional preferred shares, including
Series A Preferred or Series B AMPS, or senior securities representing debt from
time to time, subject to the restrictions in the Fund's Governing Documents and
the 1940 Act.
If and when issued, the Series A Preferred will have a liquidation
preference of $25 per share and the Series B AMPS will have a liquidation
preference of $25,000 per share. Upon a liquidation, each holder of Series A
Preferred or Series B AMPS will be entitled to receive out of the assets of the
Fund available for distribution to shareholders (after payment of claims of the
Fund's creditors but before any distributions with respect to the Fund's common
shares or any other shares of the Fund ranking junior to the Series A Preferred
and Series B AMPS as to liquidation payments) an amount per share equal to such
share's liquidation preference plus any accumulated but unpaid dividends
(whether or not earned or declared, excluding interest thereon) to the date of
distribution and such shareholders shall be entitled to no further participation
in any distribution or payment in connection with such liquidation. The Series A
Preferred and the Series B AMPS will rank on a parity with any other series of
preferred shares of the Fund as to the payment of dividends and the distribution
of assets upon liquidation, and will be junior to the Fund's obligations with
respect to any outstanding senior securities representing debt. Series A
Preferred and Series B AMPS each carry one vote per share on all matters on
which such shares are entitled to vote. The Series A Preferred and the Series B
AMPS will, upon issuance, be fully paid and nonassessable and will have no
preemptive, exchange or conversion rights. The Board of Trustees may by
resolution classify or reclassify any authorized but unissued capital shares of
the Fund from time to time by setting or changing the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or terms
or conditions of redemption. The Fund will not issue any class of shares senior
to the Series A Preferred and/or Series B AMPS.
Rating Agency Guidelines
Upon issuance, both the Series A Preferred and the Series B AMPS will
be rated "[__]" by [__]. In addition, the Series B AMPS will also be rated
"[__]" by [__]. The Fund is required under [__] and [__] guidelines to maintain
assets having in the aggregate a discounted value at least equal to the Basic
Maintenance Amount (as defined below) for its outstanding preferred shares,
including any outstanding Series A Preferred or Series B AMPS, with respect to
the separate guidelines [__] and [__] has each established for determining
discounted value. To the extent any particular portfolio holding does not
satisfy the applicable rating agency's guidelines, all or a portion of such
holding's value will not be included in the calculation of discounted value (as
defined by such rating agency). The [__] and [__] guidelines also impose certain
diversification requirements and industry concentration limitations on the
Fund's overall portfolio, and apply specified discounts to securities held by
the Fund (except certain money market securities). The "Basic Maintenance
Amount" is equal to (i) the sum of (a) the aggregate liquidation preference of
the preferred shares then outstanding plus (to the extent not included in the
liquidation preference of such preferred shares) an amount equal to the
aggregate accumulated but unpaid dividends (whether or not earned or declared)
in respect of such preferred shares, (b) the total principal of any debt (plus
accrued and projected interest), (c) certain Fund expenses and (d) certain other
current liabilities (excluding any unpaid dividends on the Fund's common shares)
less (ii) the Fund's (a) cash and (b) assets consisting of indebtedness which
(x) is to mature prior to or on the date of redemption or repurchase of the
preferred shares, (y) are U.S. Government Obligations or evidences of
indebtedness rated at least "[__]", "[__]", "[__]" or "[__]" by [__] or "[__]",
"[__]" or "[__]" by [__], and (z) is held by the Fund for the payment of
dividends or distributions, the amounts needed to redeem or repurchase preferred
shares, or the Fund's liabilities.
If the Fund does not timely cure a failure to maintain a discounted
value of its portfolio equal to the Basic Maintenance Amount in accordance with
the requirements of the applicable rating agency or agencies then rating the
Series A Preferred or the Series B AMPS at the request of the Fund, the Fund
may, and in certain circumstances will be required to, mandatorily redeem
preferred shares, including the Series A Preferred or the Series B AMPS, as
described below under " -- Redemption."
The Fund may, but is not required to, adopt any modifications to the
rating agency guidelines that may hereafter be established by [__] or [__].
Failure to adopt any such modifications, however, may result in a change in the
relevant rating agency's ratings or a withdrawal of such ratings altogether. In
addition, any rating agency providing a rating for the Series A Preferred or the
Series B AMPS at the request of the Fund may, at any time, change or withdraw
any such rating. The Board of Trustees, without further action by the
shareholders, may amend, alter, add to or repeal certain of the definitions and
related provisions that have been adopted by the Fund pursuant to the rating
agency guidelines if the Board determines that such modification is necessary to
prevent a reduction in rating of the preferred shares by [__] and/or [__], as
the case may be, is in the best interests of the holders of common shares and is
not adverse to the holders of preferred shares in view of advice to the Fund by
[__] and/or [__] (or such other rating agency then rating the Series A Preferred
and/or Series B AMPS at the request of the Fund) that such modification would
not adversely affect, as the case may be, its then current rating of the Series
A Preferred and/or the Series B AMPS.
The Board of Trustees may amend the Statement of Preferences definition
of "Maximum Rate" (the "maximum rate" as defined below under " -- Dividends on
the Series B AMPS -- Maximum Rate") to increase the percentage amount by which
the applicable reference rate is multiplied to determine the maximum rate
without the vote or consent of the holders of Series B AMPS or any other
shareholder of the Fund, but only after consultation with the broker-dealers and
with confirmation from each applicable rating agency that the Fund could meet
applicable rating agency asset coverage tests immediately following any such
increase
As described by [__] and [__], the ratings assigned to the Series A
Preferred and the Series B AMPS are assessments of the capacity and willingness
of the Fund to pay the obligations of each of the Series A Preferred and the
Series B AMPS. The ratings on the Series A Preferred and the Series B AMPS are
not recommendations to purchase, hold or sell shares of either series, inasmuch
as the ratings do not comment as to market price or suitability for a particular
investor. The rating agency guidelines also do not address the likelihood that
an owner of Series A Preferred or Series B AMPS will be able to sell such shares
on an exchange, in an auction or otherwise. The ratings are based on current
information furnished to [__] and [__] by the Fund and the Investment Adviser
and information obtained from other sources. The ratings may be changed,
suspended or withdrawn as a result of changes in, or the unavailability of, such
information.
The rating agency guidelines will apply to the Series A Preferred or
Series B AMPS, as the case may be, only so long as such rating agency is rating
such shares at the request of the Fund. The Fund will pay fees to [__] and [__]
for rating the Series A Preferred and the Series B AMPS.
Asset Maintenance Requirements
In addition to the requirements summarized under " -- Rating Agency
Guidelines" above, the Fund must also satisfy asset maintenance requirements
under the 1940 Act with respect to its preferred shares. The 1940 Act
requirements are summarized below.
The Fund will be required under the Statement of Preferences for each
of the Series A Preferred and/or Series B AMPS to determine whether it has, as
of the last business day of each March, June, September and December of each
year, an "asset coverage" (as defined in the 1940 Act) of at least 200% (or such
higher or lower percentage as may be required at the time under the 1940 Act)
with respect to all outstanding senior securities of the Fund that are stock,
including any outstanding Series A Preferred and the Series B AMPS. If the Fund
fails to maintain the asset coverage required under the 1940 Act on such dates
and such failure is not cured within 60 calendar days, in the case of the Series
A Preferred, or 10 business days, in the case of the Series B AMPS, (including
the Series A Preferred or Series B AMPS) the Fund may, and in certain
circumstances will be required to, mandatorily redeem the number of preferred
shares sufficient to satisfy such asset coverage. See " -- Redemption" below.
If the shares of Series A Preferred and/or Series B AMPS offered hereby
had been issued and sold as of [__], the asset coverage required under the 1940
Act (after giving effect to the deduction of the underwriting discounts and
estimated offering expenses for such shares of $[__]), would have been computed
as follows:
value of Fund assets less liabilities not constituting senior
securities ($[__]) / senior securities representing
indebtedness plus liquidation preference of each class of
preferred shares ($[__]) expressed as a percentage = [__]%.
Dividends on the Series A Preferred
Upon issuance of the Series A Preferred (if issued), holders of shares
of Series A Preferred will be entitled to receive, when, as and if declared by
the Board of Trustees of the Fund out of funds legally available therefor,
cumulative cash dividends, at the annual rate of ____% (computed on the basis of
a 360-day year consisting of twelve 30-day months) of the liquidation preference
of $25 per share, payable quarterly on [__],[__],[__]and [__]each year or, if
any such day is not a business day, the immediately succeeding business day.
Such dividends will commence on [__], and will be payable to the persons in
whose names the shares of Series A Preferred are registered at the close of
business on the fifth preceding business day.
Dividends on the shares of Series A Preferred will accumulate from the
date on which such shares are issued.
Dividends on the Series B AMPS
General. Upon issuance of the Series B AMPS (if issued), the holders of
Series B AMPS will be entitled to receive cash dividends stated at annual rates
as a percentage of its $25,000 per share liquidation preference, that will vary
from dividend period to dividend period. The dividend rate for the initial
dividend period for any Series B AMPS offered in this prospectus will be the
rate set out on the cover of this prospectus. For subsequent dividend periods,
the Series B AMPS will pay dividends based on a rate set at the auction,
normally held weekly, but the rates set at the auction will not exceed the
maximum rate. Dividend periods generally will be seven days, and the dividend
periods generally will begin on the first business day after an auction. In most
instances, dividends are also paid weekly, on the business day following the end
of the dividend period. The Fund, subject to some limitations, may change the
length of the dividend periods, designating them as "special dividend periods,"
as described below.
Dividend Payments. Except as described below, the dividend payment date
will be the first business day after the dividend period ends. The dividend
payment dates for special dividend periods of more (or less) than seven days
will be set out in the notice designating a special dividend period. See " --
Designation of Special Dividend Periods" for a discussion of payment dates for a
special dividend period.
Dividends on Series B AMPS will be paid on the dividend payment date to
holders of record as their names appear on the Fund's share ledger or share
records on the business day next preceding the dividend payment date. If
dividends are in arrears, they may be declared and paid at any time to holders
of record as their names appear on the Fund's share ledger or share records on a
date not more than 15 days before the payment date, as the Fund's Board of
Trustees may fix.
The dividend paying agent, in accordance with its current procedures,
is expected to credit in same-day funds on each dividend payment date dividends
received from the Fund to the accounts of broker-dealers who act on behalf of
holders of the Series B AMPS. Such broker-dealers, in turn, are expected to
distribute dividend payments to the person for whom they are acting as agents.
If a broker-dealer does not make dividends available to Series B AMPS holders in
same-day funds, these shareholders will not have funds available until the next
business day.
Dividend Rate Set at Auction. The Series B AMPS pay dividends based on
a rate set at auction at which Series B AMPS may be bought and sold. The auction
usually is held weekly, but may be held more or less frequently. The Bank of New
York, the auction agent, reviews orders from broker-dealers on behalf of
existing holders who wish to sell, hold at the auction rate, or hold only at a
specified dividend rate, and on behalf of potential holders who wish to buy
Series B AMPS. The auction agent then determines the lowest dividend rate that
will result in all of the Series B AMPS continuing to be held. See "The Auction
of Series B AMPS."
If an auction is not held because an unforeseen event, or unforeseen
events cause a day that otherwise would have been an auction date not to be a
business day, then the length of the then-current dividend period will be
extended by seven days (or a multiple thereof if necessary because of such
unforeseen event or events), the applicable rate for such period will be the
applicable rate for the then-current dividend period so extended and the
dividend payment date for such dividend period will be the first business day
immediately succeeding the end of such period.
Determination of Dividend Rates. The Fund computes the dividends per
share by multiplying the applicable rate determined at the auction by a
fraction, the numerator of which normally is the number of days in such dividend
period and the denominator of which is 360. This applicable rate is then
multiplied by $25,000 to arrive at the dividend per share.
Maximum Rate. The dividend rate that results from an auction for the
Series B AMPS will not be greater than the applicable "maximum rate." The
maximum rate for any standard rate period will be (as set forth in the table
below) the greater of (i) the applicable percentage of the reference rate or
(ii) the applicable spread plus the reference rate. The reference rate is the
applicable LIBOR Rate (for a dividend period or a special dividend period of
fewer than 365 days), or the applicable Treasury Index Rate (for a special
dividend period of 365 days or more). The applicable percentage and applicable
spread will be determined based on the lower of the credit ratings assigned to
the Series B AMPS by [__] and [__].
Credit Rating for Series B AMPS
-------------------------------
[__] [__] Applicable Applicable
Credit Rating Credit Rating Percentage Spread
------------- ------------- ---------- ------
[__] [__] [__] [__]
[__] [__] [__] [__]
[__] [__] [__] [__]
[__] [__] [__] [__]
[__] [__] [__] [__]
The "Treasury Index Rate" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities having
the same number of 30-day periods to maturity as the length of the applicable
dividend period, determined, to the extent necessary, by linear interpolation
based upon the yield for such securities having the next shorter and next longer
number of 30-day periods to maturity treating all dividend periods with a length
greater than the longest maturity for such securities as having a length equal
to such longest maturity, in all cases based upon data set forth in the most
recent weekly statistical release published by the Board of Governors of the
Federal Reserve System (currently in H.15 (519)); provided, however, that if the
most recent such statistical release will not have been published during the 15
days preceding the date of computation, the foregoing computations will be based
upon the average of comparable data as quoted to the Fund by at least three
recognized dealers in U.S. government securities selected by the Fund.
There is no minimum dividend rate in respect of any dividend period.
Effect of Failure to Pay Dividends in a Timely Manner. If the Fund
fails to pay the paying agent the full amount of any dividend for the Series B
AMPS in a timely manner, but the Fund cures the failure and pays any late charge
before 12:00 noon, New York City time on the third business day following the
date the failure occurred, no default will be deemed to have occurred and the
dividend rate for the dividend period immediately following the dividend with
respect to which the dividend payment default would otherwise have occurred will
be the applicable rate set at the auction for such dividend period.
However, if the Fund does not effect a timely cure, the dividend rate
for the Series B AMPS for such default period, and any subsequent dividend
period for which such default is continuing, will be the default rate. In the
event the Fund fully pays all default amounts due during a dividend period, the
dividend rate for the remainder of that dividend period will be, as the case may
be, the applicable rate (for the first dividend period following a dividend
default) or the then-maximum rate (for any subsequent dividend period for which
such default is continuing).
The default rate means 300% of the applicable LIBOR Rate for a dividend
period of 364 days or fewer and 300% of the applicable Treasury Index Rate for a
dividend period of longer than 364 days. Late charges are also calculated at the
applicable default rate.
Designation of Special Dividend Periods. The Fund may instruct the
auction agent to hold auctions more or less frequently than weekly and may
designate dividend periods longer or shorter than one week. The Fund may do this
if, for example, the Fund expects that short-term rates might increase or market
conditions otherwise change, in an effort to optimize the effect of the Fund's
leverage on holders of its common shares. The Fund does not currently expect to
hold auctions and pay dividends less frequently than weekly or establish
dividend periods longer or shorter than one week. If the Fund designates a
special dividend period, changes in interest rates could affect the price
received if shares of Series B AMPS are sold in the secondary market.
Any designation of a special dividend period will be effective only if
(i) notice thereof will have been given as provided for in the Governing
Documents, (ii) any failure to pay in a timely matter to the auction agent the
full amount of any dividend on, or the redemption price of, the Series B AMPS
will have been cured as provided for in the Governing Documents, (iii) the
auction immediately preceding the special dividend period was not a failed
auction, (iv) if the Fund will have mailed a notice of redemption with respect
to Series B AMPS, the Fund will have deposited with the paying agent all funds
necessary for such redemption, and (v) the Fund has confirmed that as of the
auction date next preceding the first day of such special dividend period, it
has assets with an aggregate discounted value at least equal to the Basic
Maintenance Amount (as defined below), and the Fund has consulted with the
broker-dealers for the Series B AMPS and has provided notice of such designation
and a Basic Maintenance Report to each rating agency then rating the Series B
AMPS at the request of the Fund.
The dividend payment date for any special dividend period will be the
first business day after the end of the special dividend period. In addition,
for special dividend periods of (x) at least 91 days but not more than one year,
dividend payment dates will occur on the 91st, 181st and 271st days within such
dividend period, if applicable, and on the business day following the last day
of such dividend period and (y) of more than one year, dividend payment dates
will occur on each March 26, June 26, September 26 and December 26 during the
special dividend period.
Before the Fund designates a special dividend period: (i) at least
seven business days (or two business days in the event the duration of the
dividend period prior to such special dividend period is less than eight days)
and not more than 30 business days before the first day of the proposed special
dividend period, the Fund will issue a press release stating its intention to
designate a special dividend period and inform the auction agent of the proposed
special dividend period by telephonic or other means and confirm it in writing
promptly thereafter and (ii) the Fund must inform the auction agent of the
proposed special dividend period by 3:00 p.m., New York City time on the second
business day before the first day of the proposed special dividend period.
See the SAI for more information.
Restrictions on Dividends and Other Distributions
for the Series A Preferred and the Series B AMPS
So long as any Series A Preferred or Series B AMPS is outstanding, the
Fund may not pay any dividend or distribution (other than a dividend or
distribution paid in common shares or in options, warrants or rights to
subscribe for or purchase common shares) in respect of the common shares or call
for redemption, redeem, purchase or otherwise acquire for consideration any
common shares (except by conversion into or exchange for shares of the Fund
ranking junior to the Series A Preferred and/or Series B AMPS as to the payment
of dividends and the distribution of assets upon liquidation), unless:
o the Fund has declared and paid (or provided to the relevant
dividend paying agent) all cumulative dividends on the Fund's
preferred shares, including the Series A Preferred and/or Series
B AMPS, due on or prior to the date of such common share
dividend or distribution;
o the Fund has redeemed the full number of shares of Series A
Preferred and/or Series B AMPS to be redeemed pursuant to any
mandatory redemption provision in the Fund's Governing
Documents; and
o after paying the dividend, the Fund meets applicable asset
coverage requirements described under " -- Rating Agency
Guidelines" and " -- Asset Maintenance Requirements."
No full dividend will be declared or paid on the Series A Preferred or
Series B AMPS for any dividend period, or part thereof, unless full cumulative
dividends due through the most recent dividend payment dates therefor for all
outstanding series of preferred shares of the Fund ranking on a parity with the
Series A Preferred and Series B AMPS as to the payment of dividends have been or
contemporaneously are declared and paid. If full cumulative dividends due have
not been paid on all outstanding preferred shares of the Fund ranking on a
parity with the Series A Preferred and/or Series B AMPS as to the payment of
dividends, any dividends being paid on the preferred shares (including the
Series A Preferred and/or Series B AMPS) will be paid as nearly pro rata as
possible in proportion to the respective amounts of dividends accumulated but
unpaid on each such series of preferred shares on the relevant dividend payment
date. The Fund's obligation to pay dividends on the Series A Preferred and/or
Series B AMPS will be subordinate to its obligations to pay interest and
principal, when due, on any of the Fund's senior securities representing debt.
Redemption
Mandatory Redemption Relating to Asset Coverage Requirements. The Fund
may, at its option, consistent with its Governing Documents and the 1940 Act,
and in certain circumstances will be required to, mandatorily redeem preferred
shares (including, at its discretion, the Series A Preferred or Series B AMPS)
in the event that:
o the Fund fails to maintain the asset coverage requirements
specified under the 1940 Act and such failure is not cured on or
before 60 days, in the case of the Series A Preferred, or 10
business days in the case of the Series B AMPS following such
failure; or
o the Fund fails to maintain the asset coverage requirements as
calculated in accordance with the applicable rating agency
guidelines as of any monthly valuation date, and such failure is
not cured on or before 10 business days after such valuation
date.
The redemption price for shares of each of the Series A Preferred and
Series B AMPS subject to mandatory redemption will be, respectively, $25 per
share and $25,000 per share, in each case plus an amount equal to any
accumulated but unpaid dividends (whether or not earned or declared) to the date
fixed for redemption, plus (in the case of Series B AMPS having a dividend
period of more than one year) any applicable redemption premium determined by
the Board of Trustees.
The number of preferred shares that will be redeemed in the case of a
mandatory redemption will equal the minimum number of outstanding preferred
shares, the redemption of which, if such redemption had occurred immediately
prior to the opening of business on the applicable cure date, would have
resulted in the relevant asset coverage requirement having been met or, if the
required asset coverage cannot be so restored, all of the preferred shares. In
the event that preferred shares are redeemed due to a failure to satisfy the
1940 Act asset coverage requirements, the Fund may, but is not required to,
redeem a sufficient number of preferred shares so that the Fund's assets exceed
the asset coverage requirements under the 1940 Act after the redemption by 10%
(that is, 220% asset coverage). In the event that preferred shares are redeemed
due to a failure to satisfy applicable rating agency guidelines, the Fund may,
but is not required to, redeem a sufficient number of preferred shares so that
the Fund's discounted portfolio value (as determined in accordance with the
applicable rating agency guidelines) after redemption exceeds the asset coverage
requirements of each applicable rating agency by up to 10% (that is, 110% rating
agency asset coverage). In addition, as discussed under " -- Optional
Redemption" below, the Fund generally may exercise its optional redemption
rights with respect to the Series B AMPS at any time.
If the Fund does not have funds legally available for the redemption
of, or is otherwise unable to redeem, all the preferred shares to be redeemed on
any redemption date, the Fund will redeem on such redemption date that number of
shares for which it has legally available funds, or is otherwise able to redeem,
from the holders whose shares are to be redeemed ratably on the basis of the
redemption price of such shares, and the remainder of those shares to be
redeemed will be redeemed on the earliest practicable date on which the Fund
will have funds legally available for the redemption of, or is otherwise able to
redeem, such shares upon written notice of redemption.
If fewer than all of the Fund's outstanding preferred shares are to be
redeemed, the Fund, at its discretion and subject to the limitations of the 1940
Act and Delaware law, will select the one or more series of preferred shares
from which shares will be redeemed and the amount of preferred shares to be
redeemed from each such series. If less than all preferred shares of a series
are to be redeemed, such redemption will be made as among the holders of that
series pro rata in accordance with the respective number of shares of such
series held by each such holder on the record date for such redemption (or by
such other equitable method as the Fund may determine). If fewer than all the
preferred shares held by any holder are to be redeemed, the notice of redemption
mailed to such holder will specify the number of shares to be redeemed from such
holder, which may be expressed as a percentage of shares held on the applicable
record date.
Optional Redemption of the Series A Preferred. Prior to [__], the
shares of Series A Preferred are not subject to optional redemption by the Fund
unless such redemption is necessary, in the judgment of the Fund, to maintain
the Fund's status as a regulated investment company under the Code. Commencing
on [__], and thereafter, the Fund may at any time redeem shares of Series A
Preferred in whole or in part for cash at a redemption price per share equal to
$25 per share plus accumulated and unpaid dividends (whether or not earned or
declared) to the redemption date. Such redemptions are subject to the notice
requirements set forth under " -- Redemption Procedures" and the limitations of
the 1940 Act and Delaware law.
Optional Redemption of the Series B AMPS. The Fund may, at its option,
redeem the Series B AMPS, in whole or in part, at any time following the initial
dividend period so long as the Fund has not designated a non-call period. The
Fund may designate a non-call period during a dividend period of more than seven
days. In the case of Series B AMPS having a dividend period of one year or less,
the redemption price per share will equal $25,000 plus an amount equal to any
accumulated but unpaid dividends thereon (whether or not earned or declared) to
the redemption date, and in the case of Series B AMPS having a dividend period
of more than one year, for the redemption price plus any redemption premium
applicable during such dividend period. Such redemptions are subject to the
notice requirements set forth under " -- Redemption Procedures" and the
limitations of the 1940 Act and Delaware law.
Redemption Procedures. A notice of redemption with respect to an
optional redemption will be given to the holders of record of preferred shares
selected for redemption not less than 15 days (subject to NYSE requirements), in
the case of the Series A Preferred, and not less than 7 days in the case of the
Series B AMPS, nor, in both cases, more than 40 days prior to the date fixed for
redemption. Preferred shareholders may receive shorter notice in the event of a
mandatory redemption. Each notice of redemption will state (i) the redemption
date, (ii) the number or percentage of preferred shares to be redeemed (which
may be expressed as a percentage of such shares outstanding), (iii) the CUSIP
number(s) of such shares, (iv) the redemption price (specifying the amount of
accumulated dividends to be included therein), (v) the place or places where
such shares are to be redeemed, (vi) that dividends on the shares to be redeemed
will cease to accumulate on such redemption date, (vii) the provision of the
Statement of Preferences under which the redemption is being made and (viii) any
conditions precedent to such redemption. No defect in the notice of redemption
or in the mailing thereof will affect the validity of the redemption
proceedings, except as required by applicable law.
The holders of Series A Preferred or Series B AMPS will not have the
right to redeem their shares of the Fund at their option.
Liquidation Rights
Upon a liquidation, dissolution or winding up of the affairs of the
Fund (whether voluntary or involuntary), holders of Series A Preferred or Series
B AMPS then outstanding will be entitled to receive out of the assets of the
Fund available for distribution to shareholders, after satisfying claims of
creditors but before any distribution or payment of assets is made to holders of
the common shares or any other class of shares of the Fund ranking junior to the
Series A Preferred or Series B AMPS as to liquidation payments, a liquidation
distribution in the amount of $25 per share, in the case of the Series A
Preferred, or $25,000 per share, in the case of the Series B AMPS, in either
case plus an amount equal to all unpaid dividends accumulated to and including
the date fixed for such distribution or payment (whether or not earned or
declared by the Fund but excluding interest thereon), and such holders will be
entitled to no further participation in any distribution or payment in
connection with any such liquidation, dissolution or winding up. If, upon any
liquidation, dissolution or winding up of the affairs of the Fund, whether
voluntary or involuntary, the assets of the Fund available for distribution
among the holders of all outstanding preferred shares of the Fund ranking on a
parity with the Series A Preferred and/or Series B AMPS as to payment upon
liquidation will be insufficient to permit the payment in full to such holders
of the Series A Preferred and/or Series B AMPS and other parity preferred shares
of the amounts due upon liquidation with respect to such shares, then such
available assets will be distributed among the holders of the Series A
Preferred, the Series B AMPS and such other parity preferred shares ratably in
proportion to the respective preferential amounts to which they are entitled.
Unless and until the liquidation payments due to holders of the Series A
Preferred and/or Series B AMPS and such other parity preferred shares have been
paid in full, no dividends or distributions will be made to holders of the
common shares or any other shares of the Fund ranking junior to the Series A
Preferred and/or Series B AMPS and other parity preferred shares as to
liquidation and junior to any senior securities representing debt.
Voting Rights
Except as otherwise stated in this prospectus, specified in the Fund's
Governing Documents or resolved by the Board of Trustees or as otherwise
required by applicable law, holders of the Series A Preferred and/or Series B
AMPS shall be entitled to one vote per share held on each matter submitted to a
vote of the shareholders of the Fund and will vote together with holders of
common shares and of any other preferred shares then outstanding as a single
class.
In connection with the election of the Fund's trustees, holders of the
outstanding Series A Preferred, Series B AMPS and the other series of preferred
shares, voting together as a single class, will be entitled at all times to
elect two of the Fund's trustees, and the remaining trustees will be elected by
holders of common shares and holders of the Series A Preferred, Series B AMPS
and other series of preferred shares, voting together as a single class. In
addition, if (i) at any time dividends on the outstanding Series A Preferred,
Series B AMPS and/or any other preferred shares are unpaid in an amount equal to
at least two full years dividends thereon and sufficient cash or specified
securities have not been deposited with the applicable paying agent for the
payment of such accumulated dividends or (ii) at any time holders of any other
series of preferred shares are entitled to elect a majority of the trustees of
the Fund under the 1940 Act or the Statements of Preferences creating such
shares, then the number of trustees constituting the Board of Trustees will be
increased such that, when added to the two trustees elected exclusively by the
holders of the Series A Preferred, Series B AMPS and other series of preferred
shares as described above, would then constitute a simple majority of the Board
as so adjusted. Such additional trustees will be elected by the holders of the
Series A Preferred, Series B AMPS and the other series of preferred shares,
voting together as a single class, at a special meeting of shareholders which
will be called as soon as practicable and will be held not less than 10 or more
than 20 days after the mailing date of the meeting notice. If the Fund fails to
send such meeting notice or to call such a special meeting, the meeting may be
called by any preferred shareholder on like notice. The terms of office of the
persons who are trustees at the time of that election will continue. If the Fund
thereafter pays or declares and sets apart for payment in full all dividends
payable on all outstanding preferred shares for all past dividend periods or the
holders of other series of preferred shares are no longer entitled to elect such
additional trustees, the additional voting rights of the holders of the
preferred shares as described above will cease, and the terms of office of all
of the additional trustees elected by the holders of the preferred shares (but
not of the trustees with respect to whose election the holders of common shares
were entitled to vote or the two trustees the holders of preferred shares have
the right to elect as a separate class in any event) will terminate.
In the event the Fund issues senior securities representing debt,
preferred shareholders may not be able to exercise certain of their special
voting rights under certain circumstances when they would otherwise be entitled
to do so. Under the 1940 Act the holders of senior securities representing debt
are entitled to special voting rights under certain circumstances and
these special voting rights would take precedence over the special voting rights
of the preferred shares. Specifically, under the 1940 Act the terms of any
senior securities representing debt must provide either (i) for an event of
default to be deemed to have occurred with respect to such senior debt in the
event the issuer has had asset coverage of less than 100% for 24 consecutive
months or (ii) for the senior debt holders to be entitled to elect a majority of
the issuer's board in the event such senior debt has had asset coverage of less
than 100% for 12 consecutive calendar months, with such voting right to continue
until the senior debt has had asset coverage of 110% or more for three
consecutive calendar months.
In the event the Fund were to issue senior securities representing debt
with the special voting rights described in (ii) above, it is possible that
preferred shareholders would not be entitled to exercise their right to elect a
majority of the board despite all predicate events for such rights having
occurred.
So long as shares of Series A Preferred or Series B AMPS are
outstanding, the Fund will not, without the affirmative vote of the holders of a
majority (as defined in the 1940 Act) of the preferred shares outstanding at the
time (including the Series A Preferred or Series B AMPS, as applicable) and
present and voting on such matter, voting separately as one class, amend, alter
or repeal the provisions of the Fund's Governing Documents, whether by merger,
consolidation or otherwise, so as to materially adversely affect any of the
contract rights expressly set forth in the Governing Documents with respect to
such preferred shares. Also, to the extent permitted under the 1940 Act, in the
event preferred shares of more than one series are outstanding, the Fund will
not approve any of the actions set forth in the preceding sentence which
materially adversely affect the contract rights expressly set forth in the
Governing Documents with respect to such shares of a series of preferred shares
(such as the Series A Preferred or Series B AMPS) differently than those of a
holder of any other series of preferred shares without the affirmative vote of
the holders of at least a majority of the preferred shares of each series
materially adversely affected and outstanding at such time (each such adversely
affected series voting separately as a class to the extent its rights are
affected differently). The Fund's issuance of senior securities representing
debt will not be deemed to materially adversely affect the contract rights of
any series of preferred shares.
Under the Governing Documents, and applicable provisions of the
Delaware Statutory Trust Act or the 1940 Act, the affirmative vote of a majority
of the votes entitled to be cast by holders of outstanding preferred shares
(including the Series A Preferred and/or Series B AMPS), voting together as a
single class, will be required to approve any plan of reorganization adversely
affecting the preferred shares. The approval of 66 2/3% of each class, voting
separately, of the Fund's outstanding voting shares must approve the conversion
of the fund from a closed-end to an open-end investment company. The approval of
a majority (as that term is defined in the 1940 Act) of the Fund's outstanding
preferred shares and a majority (as that term is defined in the 1940 Act) of the
Fund's outstanding voting securities are required to approve any action
requiring a vote of security holders under Section 13(a) of the 1940 Act (other
than a conversion of the Fund from a closed-end to open-end investment company),
including, among other things, changes in the Fund's investment objective or
changes in the investment restrictions described as fundamental policies under
"Investment Objective and Policies" in this prospectus and "Investment
Restrictions" in the SAI.
The calculation of the elements and definitions of certain terms of the rating
agency guidelines may be modified by action of the Board of Trustees without
further action by the shareholders if the Board determines that such
modification is necessary to prevent a reduction in rating of the preferred
shares by [__] and/or [__] (or any other rating agency then rating the Series A
Preferred or Series B AMPS at the request of the Fund), as the case may be, or
is in the best interests of the holders of common shares and is not adverse to
the holders of preferred shares in view of advice to the Fund by the relevant
rating agencies that such modification would not adversely affect its
then-current rating of the preferred shares.
The foregoing voting provisions will not apply to any Series A
Preferred or Series B AMPS if, at or prior to the time when the act with respect
to which such vote otherwise would be required will be effected, such shares
will have been redeemed or called for redemption and sufficient cash or cash
equivalents provided to the applicable paying agent to effect such redemption.
The holders of Series A Preferred and/or Series B AMPS will have no preemptive
rights or rights to cumulative voting.
Limitation on Issuance of Preferred Shares
So long as the Fund has preferred shares outstanding, subject to
receipt of approval from the rating agencies of each series of preferred
shares outstanding, and subject to compliance with the Fund's investment
objective, policies and restrictions, the Fund may issue and sell shares of
one or more other series of preferred shares or senior debt, provided that the
Fund will, immediately after giving effect to the issuance of such additional
preferred shares or senior debt and to its receipt and application of the
proceeds thereof (including, without limitation, to the redemption of
preferred shares to be redeemed out of such proceeds) have an "asset coverage"
for all senior debt outstanding of at least 300% and an "asset coverage" for
senior securities of the Fund which are stock and debt, as defined in the 1940
Act, of at least 200% of the sum of the liquidation preference of the
preferred shares of the Fund then outstanding and all indebtedness of the Fund
constituting senior securities and no such additional preferred shares will
have any preference or priority over any other preferred shares of the Fund
upon the distribution of the assets of the Fund or in respect of the payment
of dividends. Any issued senior securities representing debt, however, may
have certain voting preferences and dividend and liquidation priority over any
preferred shares outstanding.
The Fund does not currently intend to offer additional preferred shares
or senior securities representing indebtedness. However, the Fund will monitor
market conditions, including, among other things, interest rates and the asset
levels of the Fund, and will consider from time to time whether to offer
additional preferred shares or securities representing indebtedness and may
issue such additional securities if the Board of Trustees concludes that such an
offering would be consistent with the Fund's Governing Documents and applicable
law and in the best interest of existing common shareholders.
Repurchase of Series A Preferred and Series B AMPS
The Fund is a closed-end investment company and, as such, holders of
the Series A Preferred or Series B AMPS do not and will not have the right to
require the Fund to repurchase their shares. The Fund, however, may repurchase
Series A Preferred or, outside of an auction, Series B AMPS when it is deemed
advisable by the Board of Trustees in compliance with the requirements of the
1940 Act and regulations thereunder and other applicable requirements. Unlike a
redemption of the Series A Preferred and/or the Series B AMPS, where
shareholders are subject to the redemption terms, in a repurchase offer the Fund
is purchasing shares on an exchange (with respect to the Series A Preferred
only) or otherwise (through private transactions or tender offers ) soliciting
repurchases, and shareholders may choose whether or not to sell. The Fund will
not repurchase Series B AMPS at Auction. See "The Auction of Series B AMPS."
This Prospectus will serve as notice that the Fund may from time to
time purchase Series A Preferred shares when such shares are trading below the
$25 per share liquidation preference.
Book-Entry
Shares of Series A Preferred will initially be held in the name of Cede
& Co. as nominee for DTC. The Fund will treat Cede & Co. as the holder of record
of the Series A Preferred for all purposes. In accordance with the procedures of
DTC, however, purchasers of Series A Preferred will be deemed the beneficial
owners of shares purchased for purposes of dividends, voting and liquidation
rights. Purchasers of Series A Preferred may obtain registered certificates by
contacting the Transfer Agent.
Shares of Series B AMPS will initially be held by the auction agent as
custodian for Cede & Co., in whose name the shares of the Series B AMPS shall be
registered. The Fund will treat Cede & Co. as the holder of record of the Series
B AMPS for all purposes.
THE AUCTION OF SERIES B AMPS
Summary of Auction Procedures
The following is a brief summary of the auction procedures for the
Series B AMPS, which are described in more detail in the SAI. These auction
procedures are complicated, and there are exceptions to these procedures. Many
of the terms in this section have a special meaning. Accordingly, this
description does not purport to be complete and is qualified, in its entirety,
by reference to the Fund's Governing Documents, including the provisions of the
Statement of Preferences establishing the Series B AMPS.
o The auctions determine the dividend rate for the Series B AMPS,
but each dividend rate will not be higher than the maximum rate.
See "Description of the Series A Preferred and Series B AMPS --
Dividends on the Series B AMPS." If you own shares of Series B
AMPS, you may instruct your broker-dealer to enter one of three
kinds of order in the auction with respect to your shares: sell,
bid and hold.
o If you enter a sell order, you indicate that you want to sell
Series B AMPS at $25,000 per share, no matter what the next
dividend period's rate will be.
o If you enter a bid (or "hold at a rate") order, which must
specify a dividends rate, you indicate that you want to sell
Series B AMPS only if the next dividend period's rate is less
than the rate you specify.
o If you enter a hold order you indicate that you want to continue
to own Series B AMPS, no matter what the next dividend period's
rate will be.
You may enter different types of orders for different portions of your
Series B AMPS. You may also enter an order to buy additional Series B AMPS. All
orders must be for whole shares. All orders you submit are irrevocable. There is
a fixed number of Series B AMPS shares, and the dividend rate likely will vary
from auction to auction depending on the number of bidders, the number of shares
the bidders seek to buy, the rating of the Series B AMPS and general economic
conditions including current interest rates. If you own Series B AMPS and submit
a bid for them higher than the then-maximum rate, your bid will be treated as a
sell order. If you do not enter an order, the broker-dealer will assume that you
want to continue to hold Series B AMPS, but if you fail to submit an order and
the dividend period is longer than 28 days, the broker-dealer will treat your
failure to submit a bid as a sell order.
If you do not then own Series B AMPS, or want to buy more shares, you
may instruct a broker-dealer to enter a bid order to buy shares in an auction at
$25,000 per share at or above the dividend rate you specify. If your bid for
shares you do not own specifies a rate higher than the then-maximum rate, your
bid will not be considered.
Broker-dealers will submit orders from existing and potential holders
of Series B AMPS to the auction agent. Neither the Fund nor the auction agent
will be responsible for a broker-dealer's failure to submit orders from existing
or potential holders of Series B AMPS. A broker-dealer's failure to submit
orders for Series B AMPS held by it or its customers will be treated in the same
manner as a holder's failure to submit an order to the broker-dealer. A
broker-dealer may submit orders to the auction agent for its own account. The
Fund may not submit an order in any auction.
The auction agent after each auction for the Series B AMPS will pay to
each broker-dealer, from funds provided by the Fund, a service charge equal to,
in the case of any auction immediately preceding a dividend period of less than
365 days, the product of (i) a fraction, the numerator of which is the number of
days in such dividend period and the denominator of which is 360, times (ii) 1/4
of 1%, times (iii) $25,000, times (iv) the aggregate number of Series B AMPS
shares placed by such broker-dealer at such auction or, in the case of any
auction immediately preceding a dividend period of one year or longer, a
percentage of the purchase price of the Series B AMPS placed by the
broker-dealers at the auction agreed to by the Fund and the broker-dealers.
If the number of Series B AMPS shares subject to bid orders by
potential holders with a dividend rate equal to or lower than the then-maximum
rate is at least equal to the number of Series B AMPS shares subject to sell
orders, then the dividend rate for the next dividend period will be the lowest
rate submitted which, taking into account that rate and all lower rates
submitted in order from existing and potential holders, would result in existing
and potential holders owning all the Series B AMPS available for purchase in the
auction.
If the number of Series B AMPS shares subject to bid orders by
potential holders with a dividend rate equal to or lower than the then-maximum
rate is less than the number of Series B AMPS shares subject to sell orders,
then the auction is considered to be a failed auction, and the dividend rate
will be the maximum rate. In that event, existing holders that have submitted
sell orders (or are treated as having submitted sell orders) may not be able to
sell any or all of the Series B AMPS for which they submitted sell orders.
The auction agent will not consider a bid above the then-maximum rate.
The purpose of the maximum rate is to place an upper limit on dividends with
respect to the Series B AMPS and in so doing to help protect the earnings
available to pay dividends on common shares, and to serve as the dividend rate
in the event of a failed auction (that is, an auction where there are more
Series B AMPS offered for sale than there are buyers for those shares).
If broker-dealers submit or are deemed to submit hold orders for all
outstanding Series B AMPS, the auction is considered an "all hold" auction and
the dividend rate for the next dividend period will be the "all hold rate,"
which is 90% of the reference rate, as determined in accordance with procedures
set forth in the Statement of Preferences establishing the Series B AMPS. See
"Description of the Series A Preferred and Series B AMPS -- Dividends on the
Series B AMPS -- Maximum Rate."
The auction procedures include a pro rata allocation of Series B AMPS
shares for purchase and sale. This allocation process may result in an existing
holder continuing to hold or selling, or a potential holder buying, fewer shares
than the number of Series B AMPS shares in its order. If this happens,
broker-dealers will be required to make appropriate pro rata allocations among
their respective customers.
Settlement of purchases and sales will be made on the next business day
(which also is a dividend payment date) after the auction date through DTC.
Purchasers will pay for their Series B AMPS through broker-dealers in same-day
funds to DTC against delivery to the broker-dealers. DTC will make payment to
the sellers' broker-dealers in accordance with its normal procedures, which
require broker-dealers to make payment against delivery in same-day funds. As
used in this prospectus, a business day is a day on which the NYSE is open for
trading, and which is not a Saturday, Sunday or any other day on which banks in
New York City are authorized or obligated by law to close.
The first auction for Series B AMPS will be held on [___], the business
day preceding the dividend payment date for the initial dividend period.
Thereafter, except during special dividend periods, auctions for Series B AMPS
normally will be held every Tuesday (or the next preceding business day if
Tuesday is a holiday), and each subsequent dividend period for the Series B AMPS
normally will begin on the following Wednesday.
If an auction is not held because an unforeseen event or unforeseen
events cause a day that otherwise would have been an auction date not to be a
business day, then the length of the then-current dividend period will be
extended by seven days (or a multiple thereof if necessary because of such
unforeseen event or events), the applicable rate for such period will be the
applicable rate for the then-current dividend period so extended and the
dividend payment date for such dividend period will be the first business day
immediately succeeding the end of such period.
The following is a simplified example of how a typical auction works.
Assume that the Fund has 1,000 outstanding Series B AMPS shares and three
current holders. The three current holders and three potential holders submit
orders through broker-dealers at the auction:
Current Holder A Owns 500 shares, wants to sell all Bid order at 1.6% rate for all 500
500 shares if auction rate is less shares
than 1.6%
Current Holder B Owns 300 shares, wants to hold Hold order - will take the auction
rate
Current Holder C Owns 200 shares, wants to sell all Bid order at 1.4% rate for all 200
200 shares if auction rate is less shares
than 1.4%
Potential Holder D Wants to buy 200 shares Places order to buy at or above 1.5%
Potential Holder E Wants to buy 300 shares Places order to buy at or above 1.4%
Potential Holder F Wants to buy 200 shares Places order to buy at or above 1.6%
The lowest dividend rate that will result in all 1,000 Series B AMPS
shares continuing to be held is 1.5% (the offer by D). Therefore, the dividend
rate will be 1.5%. Current holders B and C will continue to own their shares.
Current holder A will sell its shares because A's dividend rate bid was higher
than the dividend rate. Potential holder D will buy 200 shares and potential
holder E will buy 300 shares because their bid rates were at or below the
dividend rate. Potential holder F will not buy any shares because its bid rate
was above the dividend rate.
Secondary Market Trading and Transfer of Series B AMPS
The underwriters are not required to make a market in the Series B
AMPS. The broker-dealers (including the underwriters) may maintain a secondary
trading market for outside of auctions, but they are not required to do so.
There can be no assurance that a secondary trading market for the Series B AMPS
will develop or, if it does develop, that it will provide owners with liquidity
of investment. The Series B AMPS will not be registered on any stock exchange or
on the NASDAQ market. Investors who purchase Series B AMPS in an auction for a
special dividend period should note that because the dividend rate on such
shares will be fixed for the length of that dividend period, the value of such
shares may fluctuate in response to the changes in interest rates, and may be
more or less than their original cost if sold on the open market in advance of
the next auction thereof, depending on market conditions.
You may sell, transfer, or otherwise dispose of the Series B AMPS only
in whole shares and only pursuant to a bid or sell order placed with the auction
agent in accordance with the auction procedures, to the Fund or its affiliates
or to or through a broker-dealer that has been selected by the Fund or to such
other persons as may be permitted by the Fund. However, if you hold your Series
B AMPS in the name of a broker-dealer, a sale or transfer of your Series B AMPS
to that broker-dealer, or to another customer of that broker-dealer, will not be
considered a sale or transfer for purposes of the foregoing if the shares remain
in the name of the broker-dealer immediately after your transaction. In
addition, in the case of all transfers other than through an auction, the
broker-dealer (or other person, if the Fund permits) receiving the transfer must
advise the auction agent of the transfer.
Further description of the auction procedures can be found in the SAI.
DESCRIPTION OF CAPITAL SHARES AND OTHER SECURITIES
Common Shares
The Fund is a statutory trust organized under the laws of Delaware
pursuant to a Certificate of Trust dated as of August 20, 2003. The Fund is
authorized to issue an unlimited number of common shares of beneficial interest,
par value $.001 per share. Each share has one vote and, when issued and paid for
in accordance with the terms of this offering, will be fully paid and
non-assessable. Though the Fund expects to pay distributions quarterly on the
common shares, it is not obligated to do so. All common shares are equal as to
distributions, assets and voting privileges and have no conversion, preemptive
or other subscription rights. The Fund will send annual and semi-annual reports,
including financial statements, to all holders of its shares.
The common shares are listed and traded on the NYSE under the symbol
"GDV." The average weekly trading volume of the common shares on the NYSE for
the period commencing November 25, 2003 and ending [__]was [__] shares. The
Fund's common shares have traded in the market at both a premium to and a
discount from net asset value.
The Fund is authorized, subject to maintaining required asset coverage
on its preferred shares, to repurchase its common shares in the open market when
the common shares are trading at a discount of 10% or more (or such other
percentage as the Fund's Board of Trustees may determine from time to time) from
net asset value.
Shareholders whose common shares are registered in their own name will
have all distributions reinvested pursuant to the Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plan. For a more detailed discussion of
the Fund's reinvestment plan, see "Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan" in the SAI.
Preferred Shares
Currently, [__] of the Fund's shares have been classified by the Board
of Trustees as preferred shares, par value $.001 per share. The terms of such
preferred shares may be fixed by the Board and would materially limit and/or
qualify the rights of the holders of the Fund's common shares. For a description
of these terms and limitations, with respect to liquidation rights, dividends,
the rights of holders of the Fund's preferred shares to receive distributions,
and selection of trustees to the Fund's Board of Trustees, see "Description of
the Series A Preferred and Series B AMPS." As of December 31, 2003, the Fund had
no preferred shares outstanding.
The following table shows the number of shares authorized, their
classification and the shares outstanding for each class of authorized shares of
the Fund as of June 30, 2003.
Amount Held by
Company or for its Amount
Title of Class Amount Authorized Own Account Outstanding
Common Shares unlimited None 15,282,735
------------------ ------------------- ---------------
Preferred Shares unlimited** None 0*
------------------ ------------------- ---------------
* Does not include the Series A Preferred or Series B AMPS being offered
pursuant to this prospectus.
** Of these authorized shares, 2,000,000 are classified as ____% Series A
Cumulative Preferred Shares and 5,000 are classified as Series B AMPS.
TAXATION
The following discussion is a brief summary of certain U.S. federal
income tax considerations affecting the Fund and its shareholders. The
discussion reflects applicable tax laws of the United States as of the date of
this prospectus, which tax laws may be changed or subject to new interpretations
by the courts or the Internal Revenue Service (the "IRS") retroactively or
prospectively. No attempt is made to present a detailed explanation of all U.S.
federal, state, local and foreign tax concerns affecting the Fund and its
shareholders (including shareholders owning large positions in the Fund), and
the discussion set forth herein does not constitute tax advice. Investors are
urged to consult their own tax advisers to determine the tax consequences to
them of investing in the Fund.
Taxation of the Fund
The Fund has elected to be treated and has qualified as, and intends to
continue to qualify as, a regulated investment company under Subchapter M of the
Code. Accordingly, the Fund must, among other things, (i) derive in each taxable
year at least 90% of its gross income (including tax-exempt interest) from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including but not limited to gain from options,
futures and forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (ii) diversify its holdings so
that, at the end of each quarter of each taxable year (a) at least 50% of the
market value of the Fund's total assets is represented by cash and cash items,
U.S. government securities, the securities of other regulated investment
companies and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the value of the Fund's
total assets and not more than 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the market value of the Fund's total assets
is invested in the securities of any issuer (other than U.S. government
securities and the securities of other regulated investment companies) or of any
two or more issuers that the Fund controls and that are determined to be engaged
in the same business or similar or related trades or businesses.
As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes each taxable
year to shareholders, if it distributes at least 90% of the sum of the Fund's
(i) investment company taxable income (which includes, among other items,
dividends, interest and the excess of any net short-term capital gains over net
long-term capital losses and other taxable income other than any net capital
gain (as defined below) reduced by deductible expenses) determined without
regard to the deduction for dividends paid and (ii) its net tax-exempt interest
(the excess of its gross tax-exempt interest over certain disallowed
deductions). The Fund intends to distribute at least annually substantially all
of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount at least equal to the sum of (i) 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (ii) 98%
of its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for a one-year period generally ending on October 31 of the
calendar year (unless an election is made to use the Fund's fiscal year), and
(iii) certain undistributed amounts from previous years on which the Fund paid
no U.S. federal income tax. While the Fund intends to distribute any income and
capital gains in the manner necessary to minimize imposition of the 4% excise
tax, there can be no assurance that sufficient amounts of the Fund's taxable
income and capital gains will be distributed to avoid entirely the imposition of
the tax. In that event, the Fund will be liable for the tax only on the amount
by which it does not meet the foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders.
Taxation of Shareholders
Distributions paid to you by the Fund from its investment company
taxable income which includes the excess of net short-term capital gains over
net long-term capital losses (together referred to hereinafter as "ordinary
income dividends") are generally taxable to you as ordinary income to the
extent of the Fund's earning and profits. Such distributions (if designated by
the Fund) may, however, qualify (provided holding periods and other
requirements are met) (i) for the dividends received deduction in the case of
corporate shareholders to the extent that the Fund's income consists of
dividend income from U.S. corporations, and (ii) under the Jobs and Growth Tax
Relief Reconciliation Act of 2003 (effective for taxable years after December
31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend
income eligible for the reduced maximum rate to individuals of generally 15%
(5% for individuals in lower tax brackets) to the extent that the Fund
receives qualified dividend income. Qualified dividend income is, in general,
dividend income from taxable domestic corporations and certain foreign
corporations (e.g., generally, foreign corporations incorporated in a
possession of the United States or in certain countries with a comprehensive
tax treaty with the United States, or the stock of which is readily tradable
on an established securities market in the United States). Distributions made
to you from an excess of net long-term capital gains over net short-term
capital losses ("capital gain dividends"), including capital gain dividends
credited to you but retained by the Fund, are taxable to you as long-term
capital gains if they have been properly designated by the Fund, regardless of
the length of time you have owned Fund shares. Under the 2003 Tax Act, the
maximum tax rate on net long-term capital gain of individuals is reduced
generally from 20% to 15% (5% for individuals in lower brackets) for such gain
realized after May 6, 2003 and before January 1, 2009. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of
your shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to you (assuming the shares are held as a capital
asset). Generally, not later than 60 days after the close of its taxable year,
the Fund will provide you with a written notice designating the amount of any
qualified dividend income or capital gain dividends and other distributions.
The sale or other disposition of shares of the Fund will generally
result in capital gain or loss to you, and will be long-term capital gain or
loss if the shares have been held for more than one year at the time of sale.
Any loss upon the sale or exchange of Fund shares held for six months or less
will be treated as long-term capital loss to the extent of any capital gain
dividends received (including amounts credited as an undistributed capital
gain dividend) by you. A loss realized on a sale or exchange of shares of the
Fund will be disallowed if other substantially identical Fund shares are
acquired (whether through the automatic reinvestment of dividends or
otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of. In such case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss. Present law
taxes both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income.
If the Fund pays you a dividend in January that was declared in the
previous October, November or December to shareholders of record on a specified
date in one of such months, then such dividend will be treated for tax purposes
as being paid by the Fund and received by you on December 31 of the year in
which the dividend was declared.
The Fund is required in certain circumstances to backup withhold on
taxable dividends and certain other payments paid to non-corporate holders of
the Fund's shares who do not furnish the Fund with their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld from payments
made to you may be refunded or credited against your U.S. federal income tax
liability, if any, provided that the required information is furnished to the
IRS.
Based in part on a lack of present intention on the part of the Fund to
voluntarily redeem the Series B AMPS at any time in the future, the Fund intends
to take the position that under present law the Series B AMPS will constitute
equity, rather than debt of the Fund. It is possible, however, that the IRS
could take a contrary position asserting, for example, that the Series B AMPS
constitutes debt of the Fund. If that position were upheld, distributions on the
Series B AMPS would be considered interest, taxable as ordinary income
regardless of the taxable income of the Fund. The Fund believes this position,
if asserted, would be unlikely to prevail.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE PROVISIONS OF
THE CODE AND THE TREASURY REGULATIONS IN EFFECT AS THEY DIRECTLY GOVERN THE
TAXATION OF THE FUND AND ITS SHAREHOLDERS. THESE PROVISIONS ARE SUBJECT TO
CHANGE BY LEGISLATIVE OR ADMINISTRATIVE ACTION, AND ANY SUCH CHANGE MAY BE
RETROACTIVE. A MORE COMPLETE DISCUSSION OF THE TAX RULES APPLICABLE TO THE FUND
AND ITS SHAREHOLDERS CAN BE FOUND IN THE STATEMENT OF ADDITIONAL INFORMATION
THAT IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. SHAREHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISERS REGARDING SPECIFIC QUESTIONS AS TO U.S. FEDERAL,
FOREIGN, STATE, LOCAL INCOME OR OTHER TAXES.
ANTI-TAKEOVER PROVISIONS OF THE FUND'S GOVERNING DOCUMENTS
The Fund presently has provisions in its Agreement and Declaration of
Trust and By-Laws (together, its "Governing Documents") which could have the
effect of limiting, in each case:
o the ability of other entities or persons to acquire control of
the Fund;
o the Fund's freedom to engage in certain transactions; or
o the ability of the Fund's trustees or shareholders to amend the
Governing Documents or effectuate changes in the Fund's
management.
These provisions of the Governing Documents of the Fund may be regarded
as "anti-takeover" provisions. The Board of Trustees of the Fund is divided into
three classes, each having a term of no more than three years (except, to ensure
that the term of a class of the Fund's trustees expires each year, one class of
the Fund's trustees will serve an initial one-year term and three-year terms
thereafter and another class of its trustees will serve an initial two-year term
and three-year terms thereafter). Each year the term of one class of trustees
will expire. Accordingly, only those trustees in one class may be changed in any
one year, and it would require a minimum of two years to change a majority of
the Board. Such system of electing trustees may have the effect of maintaining
the continuity of management and, thus, make it more difficult for the
shareholders of the Fund to change the majority of trustees. See "Management of
the Fund -- Trustees and Officers" in the SAI. A trustee of the Fund may be
removed with cause by a majority of the remaining trustees and, without cause,
by two-thirds of the remaining trustees or by two-thirds of the votes entitled
to be cast for the election of such trustees.
In addition, the affirmative vote of the holders of 75% of the
outstanding voting shares (in addition to any required class votes) apply to
mergers into or a sale of all or substantially all of the Fund's assets,
liquidation, conversion of the Fund into an open-end fund or interval fund and
amendments to several provisions of the Declaration of Trust, including the
foregoing provisions. In addition, 80% of the holders of the outstanding voting
securities of the Fund voting as a class is generally required in order to
authorize any of the following transactions:
o merger or consolidation of the Fund with or into any other
entity;
o issuance of any securities of the Fund to any person or entity
for cash, other than pursuant to the Dividend and Reinvestment
Plan or any offering if such person or entity acquires no
greater percentage of the securities offered than the percentage
beneficially owned by such person or entity immediately prior to
such offering or, in the case of a class or series not then
beneficially owned by such person or entity, the percentage of
common shares beneficially owned by such person or entity
immediately prior to such offering;
o sale, lease or exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having
an aggregate fair market value of less than $5,000,000);
o sale, lease or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except
assets having an aggregate fair market value of less than
$5,000,000); or
o the purchase of the Fund's common shares by the Fund from any
person or entity other than pursuant to a tender offer equally
available to other shareholders in which such person or entity
tenders no greater percentage of common shares than are tendered
by all other shareholders;
if such person or entity is directly, or indirectly through affiliates, the
beneficial owner of more than 5% of the outstanding shares of the Fund. However,
such vote would not be required when, under certain conditions, the Board of
Trustees approves the transaction. In addition, shareholders have no authority
to adopt, amend or repeal By-Laws. The trustees have authority to adopt, amend
and repeal By-Laws consistent with the Declaration of Trust (including to
require approval by the holders of a majority of the outstanding shares for the
election of trustees). Reference is made to the Governing Documents of the Fund,
on file with the Securities and Exchange Commission, for the full text of these
provisions.
The provisions of the Governing Documents described above could have
the effect of depriving the owners of shares in the Fund of opportunities to
sell their shares at a premium over prevailing market prices, by discouraging a
third party from seeking to obtain control of the Fund in a tender offer or
similar transaction. The overall effect of these provisions is to render more
difficult the accomplishment of a merger or the assumption of control by a
principal shareholder.
The Governing Documents of the Fund are on file with the Securities and
Exchange Commission. For the full text of these provisions see "Additional
Information."
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND
DIVIDEND-DISBURSING AGENT
[State Street Bank and Trust Company (the "Custodian"), located at 150
Royall Street, Canton, MA 02021,] serves as the custodian of the Fund's assets
pursuant to a custody agreement. Under the custody agreement, the Custodian
holds the Fund's assets in compliance with the 1940 Act. For its services, the
Custodian will receive a monthly fee based upon, among other things, the average
value of the total assets of the Fund, plus certain charges for securities
transactions.
[EquiServe Trust Company, N.A., located at P.O. Box 43025, Providence,
RI 02940-3025], serves as the Fund's dividend disbursing agent, as agent under
the Fund's automatic dividend reinvestment and voluntary cash purchase plan and
as transfer agent and registrar for the common shares of the Fund.
Series A Preferred. [EquiServe will also serve as the Fund's transfer
agent, registrar, dividend paying agent and redemption agent with respect to the
Series A Preferred.]
Series B AMPS. [The Bank of New York, located at 100 Church Street, New
York, NY 10286, will serve as the Fund's auction agent, transfer agent,
registrar, dividend paying agent and redemption agent with respect to the Series
B AMPS.]
UNDERWRITING
[ ]
LEGAL MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, counsel to the Fund in connection with
the offering of the common shares, and by [__], New York, New York, counsel to
the underwriters. [__] may rely on the opinion of Skadden, Arps, Slate, Meagher
& Flom LLP as to matters of Delaware law.
EXPERTS
The audited financial statements of the Fund as of December 31, 2003
have been incorporated by reference into the SAI in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing. The report of
PricewaterhouseCoopers LLP is incorporated by reference into the SAI.
PricewaterhouseCoopers LLP is located 1177 Avenue of the Americas, New York,
New York 10036.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith
files reports and other information with the Securities and Exchange Commission.
Reports, proxy statements and other information filed by the Fund with the
Securities and Exchange Commission pursuant to the informational requirements of
such Acts can be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Securities and Exchange Commission maintains a web
site at http://www.sec.gov containing reports, proxy and information statements
and other information regarding registrants, including the Fund, that file
electronically with the Securities and Exchange Commission.
The Fund expects the common shares to be listed on the New York Stock
Exchange, subject to notice of issuance, under the symbol "GDV." Reports, proxy
statements and other information concerning the Fund and filed with the
Securities and Exchange Commission by the Fund will be available for inspection
at the New York Stock Exchange, 20 Broad Street, New York, New York 10005, as
the case may be.
This prospectus constitutes part of a Registration Statement filed by
the Fund with the Securities and Exchange Commission under the Securities Act of
1933 and the 1940 Act. This prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and related exhibits for further information with respect
to the Fund and the common shares offered hereby. Any statements contained
herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Securities
and Exchange Commission. Each such statement is qualified in its entirety by
such reference. The complete Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed by its
rules and regulations or free of charge through the Security and Exchange
Commission's web site (http://www.sec.gov).
PRIVACY PRINCIPLES OF THE FUND
The Fund is committed to maintaining the privacy of its shareholders
and to safeguarding their non-public personal information. The following
information is provided to help you understand what personal information the
Fund collects, how the Fund protects that information and why, in certain cases,
the Fund may share information with select other parties.
Generally, the Fund does not receive any non-public personal
information relating to its shareholders, although certain non-public personal
information of its shareholders may become available to the Fund. The Fund does
not disclose any non-public personal information about its shareholders or
former shareholders to anyone, except as permitted by law or as is necessary in
order to service shareholder accounts (for example, to a transfer agent or third
party administrator).
The Fund restricts access to non-public personal information about its
shareholders to employees of the Fund's investment adviser and its affiliates
with a legitimate business need for the information. The Fund maintains
physical, electronic and procedural safeguards designed to protect the
non-public personal information of its shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, levels of activity, performance or
achievements of the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors and Special Considerations" and elsewhere in this
prospectus. As a result of the foregoing and other factors, no assurance can be
given as to the future results, levels of activity or achievements, and neither
the Fund nor any other person assumes responsibility for the accuracy and
completeness of such statements.
TABLE OF CONTENTS OF SAI
An SAI dated as of [__], has been filed with the Securities and
Exchange Commission and is incorporated by reference in this prospectus. An SAI
may be obtained without charge by writing to the Fund at its address at One
Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at
(800) GABELLI (422-3554). The Table of Contents of the SAI is as follows:
Page
THE FUND .............................................................. B-3
INVESTMENT OBJECTIVE AND POLICIES ..................................... B-3
INVESTMENT RESTRICTIONS................................................ B-11
MANAGEMENT OF THE FUND................................................. B-11
PORTFOLIO TRANSACTIONS ................................................ B-18
REPURCHASE OF COMMON SHARES............................................ B-19
PORTFOLIO TURNOVER .................................................... B-19
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN....................................... B-23
TAXATION .............................................................. B-25
ADDITIONAL INFORMATION CONCERNING
AUCTIONS FOR SERIES B AMPS ......................................... B-32
ADDITIONAL INFORMATION CONCERNING THE SERIES A
PREFERRED AND SERIES B AMPS ........................................ B-32
[__] AND [__] GUIDELINES .............................................. B-37
NET ASSET VALUE........................................................ B-39
BENEFICIAL OWNERS...................................................... B-39
GENERAL INFORMATION.................................................... B-40
FINANCIAL STATEMENTS................................................... B-43
GLOSSARY............................................................... B-44
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this prospectus in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser or the underwriters.
Neither the delivery of this prospectus nor any sale made hereunder will, under
any circumstances, create any implication that there has been no change in the
affairs of the Fund since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the securities to which it relates. This prospectus does
not constitute an offer to sell or the solicitation of an offer to buy such
securities in any circumstance in which such an offer or solicitation is
unlawful.
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
------------ -------------------------------------------------------------------
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
------------ -------------------------------------------------------------------
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than in Aaa Securities.
------------ -------------------------------------------------------------------
A Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to
impairment some time in the future.
------------ -------------------------------------------------------------------
Baa Bonds that are rated Baa are considered as medium-grade obligations
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
------------ -------------------------------------------------------------------
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
------------ -------------------------------------------------------------------
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small. Moody's applies numerical modifiers
(1, 2, and 3) with respect to the bonds rated Aa through B. The
modifier 1 indicates that the company ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
------------ -------------------------------------------------------------------
Caa Bonds that are rated Caa are of poor standing. These issues may be
in default or there may be present elements of danger with respect
to principal or interest.
------------ -------------------------------------------------------------------
Ca Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
------------ -------------------------------------------------------------------
C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
------------ -------------------------------------------------------------------
STANDARD & POOR'S RATINGS SERVICES
------------ -------------------------------------------------------------------
AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
------------ -------------------------------------------------------------------
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
------------ -------------------------------------------------------------------
A Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
------------ -------------------------------------------------------------------
BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
------------ -------------------------------------------------------------------
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation, and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse conditions. Debt rated C 1 is
reserved for income bonds on which no interest is being paid and debt rated D is
in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r"
symbol is attached to derivatives, hybrids and certain other obligations that
S&P believes may experience high variability in expected returns due to
noncredit risks created by the terms of the obligations.
AA to CCC may be modified by the addition of a plus or minus sign to
show relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
[Gabelli Logo]
THE GABELLI DIVIDEND & INCOME TRUST
Shares, % Series A Cumulative Preferred Shares
(Liquidation Preference $25 per Share)
Shares, Series B Auction Market Preferred Shares ("AMPS")
(Liquidation Preference $25,000 per Share)
-----------------------
PROSPECTUS
-----------------------
[ ]
Gabelli & Company, Inc.
Dated [__],
==============================================================================
The information in this statement of additional information is not complete
and may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
statement of additional information is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.
==============================================================================
THE GABELLI DIVIDEND & INCOME TRUST
__________________________
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Dividend & Income Trust (the "Fund") is a
non-diversified, closed-end management investment company that seeks to provide
a high level of total return on its assets with an emphasis on dividends and
income. The Fund will attempt to achieve its investment objective by investing,
under normal market conditions, at least 80% of its assets in dividend paying or
other income producing securities. In addition, under normal market conditions,
at least 50% of its assets will consist of dividend paying equity securities.
This Statement of Additional Information ("SAI") is not a
prospectus, but should be read in conjunction with the Prospectus for the Fund
dated [__], 2003 (the "Prospectus"). Investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge, by calling the Fund at 800-GABELLI (800-422-3554) or (914)
921-5070. This SAI incorporates by reference the entire Prospectus.
The Prospectus and this SAI omit certain of the information
contained in the registration statement filed with the Securities and Exchange
Commission, Washington, D.C. The registration statement may be obtained from the
Securities and Exchange Commission (the "SEC") upon payment of the fee
prescribed, or inspected at the SEC's office or via its website (www.sec.gov) at
no charge.
This Statement of Additional Information is dated [__], 2003.
TABLE OF CONTENTS
Page
THE FUND.................................................................. B-3
INVESTMENT OBJECTIVE AND POLICIES..........................................B-3
INVESTMENT RESTRICTIONS....................................................B-11
MANAGEMENT OF THE FUND.....................................................B-12
PORTFOLIO TRANSACTIONS.....................................................B-18
PORTFOLIO TURNOVER.........................................................B-19
TAXATION...................................................................B-19
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN...........B-24
ADDITIONAL INFORMATION CONCERNING AUCTIONS FOR SERIES B AMPS...............B-25
ADDITIONAL INFORMATION CONCERNING THE SERIES A PREFERRED
AND SERIES B AMPS......................................................B-33
[__] AND [__] GUIDELINES...................................................B-37
NET ASSET VALUE............................................................B-39
BENEFICIAL OWNERS..........................................................B-40
GENERAL INFORMATION........................................................B-40
FINANCIAL STATEMENTS.......................................................B-43
GLOSSARY...................................................................B-44
The Prospectus and this SAI omit certain information contained in the
registration statement filed with the SEC, Washington D.C. The registration
statement may be obtained from the SEC upon payment of the fee prescribed, or
inspected at the SEC's office at no charge. This Statement of Additional
Information is dated [__].
THE FUND
The Gabelli Dividend & Income Trust is a recently organized closed-end
non-diversified management investment company organized under the laws of the
State of Delaware. The Fund's investment operations commenced on November 28,
2003. The Fund's common shares are listed on the New York Stock Exchange under
the symbol "GDV."
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The objective of the Fund is to provide a high level of total return on
its assets with an emphasis on dividends and income. No assurance can be given
that the Fund will achieve its investment objective. The Fund will attempt to
achieve its investment objective by investing, under normal market conditions,
at least 80% of its assets in dividend paying or other income producing
securities. In addition, under normal market conditions, at least 50% of the
Fund's assets will consist of dividend paying equity securities. In making stock
selections, the Fund's Investment Adviser (as hereinafter defined) looks for
securities that have a superior yield, as well as capital gains potential.
Additional Investment Policies
Options. The Fund may purchase or sell, i.e., write, options on
securities, securities indices and foreign currencies which are listed on a
national securities exchange or in the OTC market, as a means of achieving
additional return or of hedging the value of the Fund's portfolio. The Fund my
purchase call or put options as long as the aggregate initial margins and
premiums, measured at the time of such investment, do not exceed 10% of the fair
market value of the Fund's total assets.
A call option is a contract that gives the holder of the option the
right to buy from the writer of the call option, in return for a premium, the
security or currency underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the
obligation, upon exercise of the option, to deliver the underlying security or
currency upon payment of the exercise price during the option period.
A put option is a contract that gives the holder of the option the
right, in return for a premium, to sell to the seller the underlying security at
a specified price. The seller of the put option has the obligation to buy the
underlying security upon exercise at the exercise price.
A call option is "covered" if the Fund owns the underlying instrument
covered by the call or has an absolute and immediate right to acquire that
instrument without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other instruments held in its portfolio. A call option is also
covered if the Fund holds a call on the same instrument as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written or (ii) greater than the exercise price of
the call written if the difference is maintained by the Fund in cash, U.S.
government securities or other high-grade short-term obligations in a segregated
account with its custodian. A put option is "covered" if the Fund maintains cash
or other high grade short-term obligations with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same instrument as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the holder of an option
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price
of the transaction is less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to predict correctly
the effect of these factors. The use of options cannot serve as a complete hedge
since the price movement of securities underlying the options will not
necessarily follow the price movements of the portfolio securities subject to
the hedge.
An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series or in a private transaction.
Although the Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or otherwise will exist for any
particular option. In such event it might not be possible to effect closing
transactions in particular options, so that the Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of call options and upon the subsequent disposition of
underlying securities for the exercise of put options. If the Fund, as a covered
call option writer, is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise or otherwise
covers the position.
Options on Securities Indices. The Fund may purchase and sell
securities index options. One effect of such transactions may be to hedge all or
part of the Fund's securities holdings against a general decline in the
securities market or a segment of the securities market. Options on securities
indices are similar to options on stocks except that, rather than the right to
take or make delivery of stock at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.
The Fund's successful use of options on indices depends upon its
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the index and the price
of the securities being hedged against is imperfect and the risk from imperfect
correlation increases as the composition of the Fund diverges from the
composition of the relevant index. Accordingly, a decrease in the value of the
securities being hedged against may not be wholly offset by a gain on the
exercise or sale of a securities index put option held by the Fund.
Options on Foreign Currencies. Instead of purchasing or selling
currency futures (as described below), the Fund may attempt to accomplish
similar objectives by purchasing put or call options on currencies or by writing
put options or call options on currencies either on exchanges or in
over-the-counter ("OTC") markets. A put option gives the Fund the right to sell
a currency at the exercise price until the option expires. A call option gives
the Fund the right to purchase a currency at the exercise price until the option
expires. Both types of options serve to insure against adverse currency price
movements in the underlying portfolio assets designated in a given currency. The
Fund's use of options on currencies will be subject to the same limitations as
its use of options on securities, described above and in the Prospectus.
Currency options may be subject to position limits which may limit the ability
of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest rate futures contracts and options thereon,
described below, the Fund may hedge against the risk of a decrease or increase
in the U.S. dollar value of a foreign currency denominated debt security which
the Fund owns or intends to acquire by purchasing or selling options contracts,
futures contracts or options thereon with respect to a foreign currency other
than the foreign currency in which such debt security is denominated, where the
values of such different currencies (vis-a-vis the U.S. dollar) historically
have a high degree of positive correlation.
Futures Contracts and Options on Futures. The Fund may, without limit,
enter into futures contracts or options on futures contracts. It is anticipated
that these investments, if any, will be made by the Fund primarily for the
purpose of hedging against changes in the value of its portfolio securities and
in the value of securities it intends to purchase. Such investments will only be
made if they are economically appropriate to the reduction of risks involved in
the management of the Fund. In this regard, the Fund may enter into futures
contracts or options on futures for the purchase or sale of securities indices
or other financial instruments including but not limited to U.S. government
securities.
A "sale" of a futures contract (or a "short" futures position) means
the assumption of a contractual obligation to deliver the securities underlying
the contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the securities underlying the contract at a
specified price at a specified future time. Certain futures contracts, including
stock and bond index futures, are settled on a net cash payment basis rather
than by the sale and delivery of the securities underlying the futures
contracts.
No consideration will be paid or received by the Fund upon the purchase
or sale of a futures contract. Initially, the Fund will be required to deposit
with the broker an amount of cash or cash equivalents equal to approximately 1%
to 10% of the contract amount (this amount is subject to change by the exchange
or board of trade on which the contract is traded and brokers or members of such
board of trade may charge a higher amount). This amount is known as the "initial
margin" and is in the nature of a performance bond or good faith deposit on the
contract. Subsequent payments, known as "variation margin," to and from the
broker will be made daily as the price of the index or security underlying the
futures contract fluctuates. At any time prior to the expiration of the futures
contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate its existing position in the contract.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time prior to the expiration of the option. Upon
exercise of an option, the delivery of the futures position by the writer of the
option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account attributable to that
contract, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. The potential loss
related to the purchase of an option on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of the
option purchased is fixed at the point of sale, there are no daily cash payments
by the purchaser to reflect changes in the value of the underlying contract;
however, the value of the option does change daily and that change would be
reflected in the net assets of the Fund.
Futures and options on futures entail certain risks, including but not
limited to the following: no assurance that futures contracts or options on
futures can be offset at favorable prices, possible reduction of the yield of
the Fund due to the use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of liquidity due to
daily limits on price fluctuations, imperfect correlation between the contracts
and the securities being hedged, losses from investing in futures transactions
that are potentially unlimited and the segregation requirements described below.
In the event the Fund sells a put option or enters into long futures
contracts, under current interpretations of the Investment Company Act of 1940
(the "1940 Act"), an amount of cash, U.S. government securities or other liquid
securities equal to the market value of the contract must be deposited and
maintained in a segregated account with the custodian of the Fund to
collateralize the positions, in order for the Fund to avoid being treated as
having issued a senior security in the amount of its obligations. For short
positions in futures contracts and sales of call options, the Fund may establish
a segregated account (not with a futures commission merchant or broker) with
cash, U.S. government securities or other high grade debt securities that, when
added to amounts deposited with a futures commission merchant or a broker as
margin, equal the market value of the instruments or currency underlying the
futures contracts or call options, respectively (but are no less than the stock
price of the call option or the market price at which the short positions were
established).
Interest Rate Futures Contracts and Options Thereon. The Fund may
purchase or sell interest rate futures contracts to take advantage of or to
protect the Fund against fluctuations in interest rates affecting the value of
debt securities which the Fund holds or intends to acquire. For example, if
interest rates are expected to increase, the Fund might sell futures contracts
on debt securities, the values of which historically have a high degree of
positive correlation to the values of the Fund's portfolio securities. Such a
sale would have an effect similar to selling an equivalent value of the Fund's
portfolio securities. If interest rates increase, the value of the Fund's
portfolio securities will decline, but the value of the futures contracts to the
Fund will increase at approximately an equivalent rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. The
Fund could accomplish similar results by selling debt securities with longer
maturities and investing in debt securities with shorter maturities when
interest rates are expected to increase. However, since the futures market may
be more liquid than the cash market, the use of futures contracts as a risk
management technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when
it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of
debt securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will maintain in a segregated asset account with
the Fund's custodian, assets sufficient to cover the Fund's obligations with
respect to such futures contracts, which will consist of cash or other liquid
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial margin deposited by the Fund with its custodian with respect to such
futures contracts.
The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities that are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of debt securities that the Fund intends
to purchase. If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.
Currency Futures and Options Thereon. Generally, foreign currency
futures contracts and options thereon are similar to the interest rate futures
contracts and options thereon discussed previously. By entering into currency
futures and options thereon, the Fund will seek to establish the rate at which
it will be entitled to exchange U.S. dollars for another currency at a future
time. By selling currency futures, the Fund will seek to establish the number of
dollars it will receive at delivery for a certain amount of a foreign currency.
In this way, whenever the Fund anticipates a decline in the value of a foreign
currency against the U.S. dollar, the Fund can attempt to "lock in" the U.S.
dollar value of some or all of the securities held in its portfolio that are
denominated in that currency. By purchasing currency futures, the Fund can
establish the number of dollars it will be required to pay for a specified
amount of a foreign currency in a future month. Thus, if the Fund intends to buy
securities in the future and expects the U.S. dollar to decline against the
relevant foreign currency during the period before the purchase is effected, the
Fund can attempt to "lock in" the price in U.S. dollars of the securities it
intends to acquire.
The purchase of options on currency futures will allow the Fund, for
the price of the premium and related transaction costs it must pay for the
option, to decide whether or not to buy (in the case of a call option) or to
sell (in the case of a put option) a futures contract at a specified price at
any time during the period before the option expires. If the Investment Adviser,
in purchasing an option, has been correct in its judgment concerning the
direction in which the price of a foreign currency would move as against the
U.S. dollar, the Fund may exercise the option and thereby take a futures
position to hedge against the risk it had correctly anticipated or close out the
option position at a gain that will offset, to some extent, currency exchange
losses otherwise suffered by the Fund. If exchange rates move in a way the Fund
did not anticipate, however, the Fund will have incurred the expense of the
option without obtaining the expected benefit; any such movement in exchange
rates may also thereby reduce rather than enhance the Fund's profits on its
underlying securities transactions.
Securities Index Futures Contracts and Options Thereon. Purchases or
sales of securities index futures contracts are used for hedging purposes to
attempt to protect the Fund's current or intended investments from broad
fluctuations in stock or bond prices. For example, the Fund may sell securities
index futures contracts in anticipation of or during a market decline to attempt
to offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When the Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase securities index futures contracts
in order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in securities index futures
contracts will be closed out. The Fund may write put and call options on
securities index futures contracts for hedging purposes.
Forward Foreign Currency Exchange Contracts. The Fund may enter into
forward foreign currency exchange contracts to protect the value of its
portfolio against uncertainty in the level of future currency exchange rates
between a particular foreign currency and the U.S. dollar or between foreign
currencies in which its securities are or may be denominated. The Fund may enter
into such contracts on a spot, i.e., cash, basis at the rate then prevailing in
the currency exchange market or on a forward basis, by entering into a forward
contract to purchase or sell currency. A forward contract on foreign currency is
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days agreed upon by the parties from the date of the
contract at a price set on the date of the contract. Forward currency contracts
(i) are traded in a market conducted directly between currency traders
(typically, commercial banks or other financial institutions) and their
customers, (ii) generally have no deposit requirements and (iii) are typically
consummated without payment of any commissions. The Fund, however, may enter
into forward currency contracts requiring deposits or involving the payment of
commissions. To assure that its forward currency contracts are not used to
achieve investment leverage, the Fund will segregate liquid assets consisting of
cash, U.S. government securities or other liquid securities with its custodian,
or a designated sub-custodian, in an amount at all times equal to or exceeding
its commitment with respect to the contracts.
The dealings of the Fund in forward foreign exchange are limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of one forward foreign currency for
another currency with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities or
its payment of distributions. Position hedging is the purchase or sale of one
forward foreign currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to offset the effect of
an anticipated substantial appreciation or depreciation, respectively, in the
value of the currency relative to the U.S. dollar. In this situation, the Fund
also may, for example, enter into a forward contract to sell or purchase a
different foreign currency for a fixed U.S. dollar amount where it is believed
that the U.S. dollar value of the currency to be sold or bought pursuant to the
forward contract will fall or rise, as the case may be, whenever there is a
decline or increase, respectively, in the U.S. dollar value of the currency in
which its portfolio securities are denominated (this practice being referred to
as a "cross-hedge").
In hedging a specific transaction, the Fund may enter into a forward
contract with respect to either the currency in which the transaction is
denominated or another currency deemed appropriate by the Investment Adviser.
The amount the Fund may invest in forward currency contracts is limited to the
amount of its aggregate investments in foreign currencies.
The use of forward currency contracts may involve certain risks,
including the failure of the counterparty to perform its obligations under the
contract, and such use may not serve as a complete hedge because of an imperfect
correlation between movements in the prices of the contracts and the prices of
the currencies hedged or used for cover. The Fund will only enter into forward
currency contracts with parties which it believes to be creditworthy
institutions.
Securities of Investment Companies. To the extent permitted by law, the
Fund may invest in investment company securities, including preferred shares and
the common equity of such companies. Investments in the common equity of
investment companies will cause the Fund to bear a ratable share of any such
investment company's expenses, including management fees. The Fund will also
remain obligated to pay management fees to the Investment Adviser with respect
to the assets invested in any securities of another investment company. In these
circumstances, holders of the Fund's common shares will be subject to
duplicative investment expenses.
Warrants and Rights. The Fund may invest without limit in warrants or
rights (including those acquired in units or attached to other securities) that
entitle the holder to buy equity securities at a specific price for a specific
period of time but will do so only if such equity securities are deemed
appropriate by the Investment Adviser for inclusion in the Fund's portfolio.
Asset-Backed and Mortgage-Backed Securities. The Fund may invest in
asset-backed and mortgage-backed securities. Mortgage-backed securities
represents ownership of an undivided interest in a pool of mortgages. Aggregate
principal and interest payments received from the pool are used to pay principal
and interest on a mortgage-backed security. Asset-backed securities are similar
to mortgage-backed securities except they represent ownership in a pool of notes
or receivables on assets other than real estate, such as loans, leases, credit
card receivables or royalties. The Fund does not currently anticipate
investments in mortgage or asset-backed securities constituting a substantial
part of its investment portfolio.
The Investment Adviser is Not Registered as a Commodity Pool Operator.
The Investment Adviser has claimed an exclusion from the definition of the term
"commodity pool operator" under the Commodity Exchange Act. Accordingly, the
Fund's investments in derivative instruments described in the prospectus and
this SAI are not limited by or subject to regulation under the Commodity
Exchange Act or otherwise regulated by the Commodity Futures Trading Commission.
Special Risk Considerations Relating to Futures and Options Thereon.
The Fund's ability to establish and close out positions in futures contracts and
options thereon will be subject to the development and maintenance of liquid
markets. Although the Fund generally will purchase or sell only those futures
contracts and options thereon for which there appears to be a liquid market,
there is no assurance that a liquid market on an exchange will exist for any
particular futures contract or option thereon at any particular time. In the
event no liquid market exists for a particular futures contract or option
thereon in which the Fund maintains a position, it will not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option thereon which the Fund has written and which the Fund is unable to close,
the Fund would be required to maintain margin deposits on the futures contract
or option thereon and to make variation margin payments until the contract is
closed.
Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the Investment Adviser to
predict correctly movements in the direction of interest and foreign currency
rates. If the Investment Adviser's expectations are not met, the Fund will be in
a worse position than if a hedging strategy had not been pursued. For example,
if the Fund has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and the
price of such securities increases instead, the Fund will lose part or all of
the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash to meet daily variation margin requirements, it
may have to sell securities to meet the requirements. These sales may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to do
so.
Additional Risks of Foreign Options, Futures Contracts, Options on
Futures Contracts and Forward Contracts. Options, futures contracts and options
thereon and forward contracts on securities and currencies may be traded on
foreign exchanges. Such transactions may not be regulated as effectively as
similar transactions in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
positions also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the U.S.
of data on which to make trading decisions, (iii) delays in the Fund's ability
to act upon economic events occurring in the foreign markets during non-business
hours in the U.S., (iv) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the U.S. and (v) lesser
trading volume.
Exchanges on which options, futures and options on futures are traded
may impose limits on the positions that the Fund may take in certain
circumstances.
Risks of Currency Transactions. Currency transactions are also subject
to risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be adversely affected by government exchange controls,
limitations or restrictions on repatriation of currency, and manipulation, or
exchange restrictions imposed by governments. These forms of governmental action
can result in losses to the Fund if it is unable to deliver or receive currency
or monies in settlement of obligations and could also cause hedges it has
entered into to be rendered useless, resulting in full currency exposure as well
as incurring transaction costs.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements and the Fund's investment restrictions, the Fund may lend its
portfolio securities to securities broker-dealers or financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earns
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations. The Fund will not lend its portfolio securities if such
loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale. The Fund's loans of portfolio securities will be
collateralized in accordance with applicable regulatory requirements.
A loan may generally be terminated by the borrower on one business day
notice, or by the Fund on five business days notice. If the borrower fails to
deliver the loaned securities within five days after receipt of notice, the Fund
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities
violate the terms of the loan or fail financially. However, these loans of
portfolio securities will only be made to firms deemed by the Fund's management
to be creditworthy and when the income which can be earned from such loans
justifies the attendant risks. The Board of Trustees will oversee the
creditworthiness of the contracting parties on an ongoing basis. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan period would
inure to the Fund. The risks associated with loans of portfolio securities are
substantially similar to those associated with repurchase agreements. Thus, if
the counter party to the loan petitions for bankruptcy or becomes subject to the
United States Bankruptcy Code, the law regarding the rights of the Fund is
unsettled. As a result, under extreme circumstances, there may be a restriction
on the Fund's ability to sell the collateral and the Fund would suffer a loss.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. The Fund will pay reasonable finder's, administrative
and custodial fees in connection with a loan of its securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute
fundamental policies that, except as otherwise noted, cannot be changed without
the affirmative vote of the holders of a majority of the outstanding voting
securities of the Fund voting together as a single class. In the event the Fund
were to issue any preferred shares, the approval of a majority of such shares
(as defined under the 1940 Act) voting as a separate class would also be
required. Except as otherwise noted, all percentage limitations set forth below
apply immediately after a purchase or initial investment and any subsequent
change in any applicable percentage resulting from market fluctuations does not
require any action. The Fund may not:
(1) invest more than 25% of its total assets, taken at market value
at the time of each investment, in the securities of issuers in
any particular industry. This restriction does not apply to
investments in U.S. government securities;
(2) purchase commodities or commodity contracts if such purchase
would result in regulation of the Fund as a commodity pool
operator;
(3) purchase or sell real estate, provided the Fund may invest in
securities and other instruments secured by real estate or
interests therein or issued by companies that invest in real
estate or interests therein;
(4) make loans of money or other property, except that (i) the Fund
may acquire debt obligations of any type (including through
extensions of credit), enter into repurchase agreements and
lend portfolio assets and (ii) the Fund may lend money or other
property to other investment companies advised by the
Investment Adviser pursuant to a common lending program to the
extent permitted by applicable law;
(5) borrow money, except to the extent permitted by applicable law;
(6) issue senior securities, except to the extent permitted by
applicable law; or
(7) underwrite securities of other issuers, except insofar as the
Fund may be deemed an underwriter under applicable law in
selling portfolio securities; provided, however, this
restriction shall not apply to securities of any investment
company organized by the Fund that are to be distributed pro
rata as a dividend to its shareholders.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Overall responsibility for management and supervision of the Fund rests
with its Board of Trustees. The Board approves all significant agreements
between the Fund and the companies that furnish the Fund with services,
including agreements with the Investment Adviser, the Fund's custodian and the
Fund's transfer agent. The day-to-day operations of the Fund are delegated to
the Investment Adviser.
The names and business addresses of the trustees and principal officers
of the Fund are set forth in the following table, together with their positions
and their principal occupations during the past five years and, in the case of
the trustees, their positions with certain other organizations and companies.
Trustees who are "interested persons" of the Fund, as defined by the 1940 Act,
are indicated by a "+".
Trustees
Number of
Name (and Age), Portfolios in
Position with the Term of Office Fund Complex Other
Fund and and Length of Principal Occupation Overseen by Directorships Held
Business Address(1) Time Served(2) During Past Five Years Trustee by Trustee
---------------------- ---------------- ------------------------------------ -------------- -----------------------
INTERESTED TRUSTEES:
--------------------
+Mario J. Gabelli (61) Since 2003* Chairman of the Board, Chief 24 Director of Morgan
Trustee and Chief Executive Officer of Gabelli Group Holdings,
Investment Officer Asset Management Inc. and Chief Inc. (holding
Investment Officer of the company); Vice
Investment Adviser and GAMCO Chairman of Lynch
Investors, Inc; Director/Trustee Corporation
and Chief Investment Officer of (diversified
other registered investment manufacturing company).
companies in the Gabelli fund
complex. Vice Chairman and CEO
of Lynch Interactive Corporation
(multimedia and services)
+Karl Otto Pohl (74) Since 2003*** Member of the Shareholder 33 Director of
Trustee Committee of Sal. Oppenheim Jr. Gabelli Asset
& Cie, Zurich (private Management Inc.;
investment bank); Former Chairman,
President of the Deutsche InCentive Capital
Bundesbank and Chairman of its and Incentive
Central Bank Council from 1980 Asset Management
through 1991; Director/Trustee (Zurich); Director
of other registered investment at Sal Oppenheim
companies in the Gabelli fund Jr. & Cie, Zurich
complex. (banking)
+Edward T. Tokar (56) Since 2003*** Chief Executive Officer of 1 Trustee of LEVCO
Trustee Allied Capital Management LLC, Series Trust;
since 1997; Vice President of Trustee of DB
Honeywell International Inc., Hedge Strategies
since 1997. Fund LLC;
Director, the
Topiary Benefit
Plan Investor Fund LLC
DISINTERESTED TRUSTEES:
-----------------------
Anthony J. Colavita Since 2003** President and Attorney at law in 35 --
(68) Trustee the law firm of Anthony J.
Colavita, P.C. since 1961;
Director/Trustee of other
registered investment companies
in the Gabelli fund complex.
James P. Conn (65) Since 2003*** Former Managing Director and 12 Director of
Trustee Chief Investment Officer of LaQuinta Corp.
Financial Security Assurance (hotels) and First
Holdings Ltd., 1992-1998; Republic Bank
Director/Trustee of other
registered investment companies
in the Gabelli fund complex.
Mario d'Urso (63) Since 2003* Chairman of Mittel Capital 1 Director of SJPC,
Trustee Markets S.p.A, since 2001; London (financial
Senator in the Italian services)
Parliament, 1996-2001.
Frank J. Fahrenkopf, Since 2003** President and CEO of the 4 Director of First
Jr. (64) Trustee American Gaming Association Republic Bank
since June 1995; Partner in the law
firm of Hogan & Hartson; Co-Chairman
of the Commission on Presidential
Debates; Former Chairman of the
Republican National Committee;
Director/Trustee of other registered
investment companies in the Gabelli
fund complex.
Michael J. Melarkey Since 2003* Attorney at law in the law firm 1 __
(53) Trustee of Avansino, Melarkey, Knobel &
Mulligan.
Salvatore M. Salibello Since 2003*** Certified Public Accountant with 1 __
(58) Trustee the accounting firm Salibello &
Broder, since 1978.
Anthonie C. van Ekris Since 2003** Managing Director of BALMAC 20 Director of Aurado Energy
(69) Trustee International, Inc. (commodities) (oil and gas operating)
Salvatore J. Zizza (58) Since 2003** Chairman of Hallmark Electrical 11 Director of Hollis Eden
Trustee Supplies Corp.; Former Executive Pharmaceuticals anad
Vice President of FMG Group (a Earl Scheib, Inc.
healthcare provider).
Directors
Name (and Age), Position with the Term of Office and Length of
Fund and Business Address(1) Time Served Principal Occupation During Past Five Years
--------------------------------- ----------------------------- ---------------------------------------------
Bruce N. Alpert (52) Since 2003 Executive Vice President and Chief Operating
President Officer of the Investment Adviser since
1988; Director and President of Gabelli
Advisers, Inc.; Officer of all other
registered investment companies in the
Gabelli fund complex.
James E. McKee (40) Since 2003 Vice President, General Counsel and
Secretary Secretary of Gabelli Asset Management Inc.
(since 1999) and of GAMCO Investors, Inc.
(since 1993); Secretary of all of the
registered investment companies in the
Gabelli fund complex.
Richard C. Sell, Jr. (53 ) Since 2003 Vice President, Controller of Gabelli &
Treasurer Company, Inc. since 1998.
Carter W. Austin (36) Since 2003 Vice President of the Gabelli Equity Trust
Vice President since 2000. Vice President of the
Investment Adviser since 1996.
Matthew A. Hultquist (24) Since 2003 Vice President of Gabelli Asset
Vice President and Ombudsman Management Company since 2001 and Vice
President of The Gabelli Equity Trust
since [ ].
_____________________
+ "Interested person" of the Fund, as defined in the 1940 Act. Mr.
Mario Gabelli is an "interested person" of the Fund as a result of his
employment as an officer of the Fund and the Investment Adviser. Mr. Gabelli
is also a registered representative of an affiliated broker-dealer. Mr. Pohl
is an "interested person" of the Fund as a result of his role as a director of
the parent company of the Investment Adviser. Mr. Tokar is an "interested
person" of the Fund as a result of his son's employment by an affiliate of the
Investment Adviser.
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 2004 Annual Meeting of Shareholders and
until their successors are duly elected and qualified.
** Term expires at the Fund's 2005 Annual Meeting of Shareholders and
until their successors are duly elected and qualified.
*** Term expires at the Fund's 2006 Annual Meeting of Shareholders
and until their successors are duly elected and qualified.
The Board of Trustees of the Fund are divided into three classes,
each class having a term of three years except as described below. Each year
the term of office of one class of trustees of the Fund will expire. However,
to ensure that the term of a class of the Fund's trustees expires each year,
the initial terms of the Fund's trustees will be as follows: the terms of
Messrs. Mario J. Gabelli, Michael J. Melarkey and Mario d'Urso as trustees of
the Fund expire in 2004; the terms of Messrs. Frank J. Fahrenkopf, Jr.,
Salvatore J. Zizza, Anthonie C. van Ekris, and Anthony J. Colavita as trustees
of the Fund expire in 2005; and the terms of Messrs. James P. Conn, Karl Otto
Pohl, Edward T. Tokar, and Salvatore M. Salibello as trustees of the Fund
expire in 2006.
------------------------ -------------------------- ---------------------------
Name of Trustee Dollar Range of Aggregate Dollar Range
Equity Securities of Equity Securities in
in the Fund all Registered Investment
Companies Overseen by
Trustees in the Fund Complex
------------------------ -------------------------- ---------------------------
INTERESTED TRUSTEES
------------------------ -------------------------- ---------------------------
Mario J. Gabelli NA Over $100,000
------------------------ -------------------------- ---------------------------
Karl Otto Pohl NA None
------------------------ -------------------------- ---------------------------
Edward T. Tokar NA None
------------------------ -------------------------- ---------------------------
DISINTERESTED TRUSTEES
------------------------ -------------------------- ---------------------------
Anthony J. Colavita $1 - $10,000 Over $100,000
------------------------ -------------------------- ---------------------------
James P. Conn $50,001 - $100,000 Over $100,000
------------------------ -------------------------- ---------------------------
Mario d'Urso NA Over $100,000
------------------------ -------------------------- ---------------------------
Frank J. Fahrenkopf, Jr. NA $1 - $10,000
------------------------ -------------------------- ---------------------------
Michael J. Melarkey $10,001 - $50,000 $10,001 - $50,000
------------------------ -------------------------- ---------------------------
Salvatore M. Salibello NA None
------------------------ -------------------------- ---------------------------
Anthonie C. van Ekris Over $100,000 Over $100,000
------------------------ -------------------------- ---------------------------
Salvatore J. Zizza $50,001 - $100,000 Over $100,000
------------------------ -------------------------- ---------------------------
All shares were valued as of March 12, 2004
The Trustees serving on the Fund's Nominating Committee are Messrs.
Michael Melarkey, Salvatore Zizza and Anthony Colavita (Chairman). The
Nominating Committee is responsible for recommending qualified candidates to the
Board in the event that a position is vacated or created. The Nominating
Committee would consider recommendations by shareholders if a vacancy were to
exist. Such recommendations should be forwarded to the Secretary of the Fund.
The Fund does not have a standing compensation committee.
Messrs. Salvatore Zizza (Chairman), Anthonie van Ekris and Frank
Fahrenkopf, who are not "interested persons" of the Fund as defined in the 1940
Act, serve on the Fund's Audit Committee. The Audit Committee is generally
responsible for reviewing and evaluating issues related to the accounting and
financial reporting policies and internal controls of the Fund and, as
appropriate, the internal controls of certain service providers, overseeing the
quality and objectivity of the Fund's financial statements and the audit thereof
and to act as a liaison between the Board of Trustees and the Fund's independent
accountants.
The Trust also has a Proxy Voting Committee, which, if so determined by
the Board of Trustees, is authorized to exercise voting power and/or dispositive
power over specific securities held in the Fund's portfolio for such period as
the Board of Trustees may determine. The Trustees serving on the Proxy Voting
Committee are Messrs. Tokar, Zizza and Conn.
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each trustee who is not affiliated with the Investment
Adviser or its affiliates a fee of $5,000 per year plus $1000 per board meeting
attended in person ($500 if attended telephonically) and $500 per committee
meeting attended, together with each trustee's actual out-of-pocket expenses
relating to attendance at such meetings.
The following table shows the compensation that it is anticipated the
trustees will earn in their capacity as trustees during the Fund's Fiscal Year
ending December 31, 2004. The table also shows, for the year ended December
31, 2003, the compensation trustees earned in their capacity as trustees for
the Fund and other funds in the Gabelli fund complex. Other than Messrs.
Austin and Hultquist, officers who are employed by the Investment Adviser
receive no compensation or expense reimbursement from the Fund.
COMPENSATION TABLE
TOTAL COMPENSATION
FROM THE FUND AND
ESTIMATED COMPENSATION FUND COMPLEX
NAME OF PERSON AND POSITION FROM THE FUND PAID TO TRUSTEES*
--------------------------- ---------------------- -----------------
Mario J. Gabelli,
Chairman of the Board $0 $[0] (22)
Anthony J. Colavita $18,500 $[152,286] (33)
James P. Conn $18,000 $[53,500] (11)
Mario d'Urso $18,000 $[0] (1)
Frank J. Fahrenkopf, Jr. $18,500 $[31,000] (3)
Michael J. Melarkey $18,500 $[0] (1)
Karl Otto Pohl $0 $[0] (31)
Salvatore M. Salibello $18,000 $[0] (1)
Edward T. Tokar $0 $[0] (1)
Anthonie C. van Ekris $18,500 $[67,250] (18)
Salvatore J. Zizza $19,500 $[73,750] (9)
----------------------------------------------
TOTAL $147,500
* Represents the total compensation paid to such persons during the
calendar year ended December 31, 2003 by investment companies
(including the Fund) or portfolios thereof from which such person
receives compensation that are considered part of the same fund complex
as the Fund because they have common or affiliated investment advisers.
The total does not include, among other things, out of pocket Trustee
expenses. The number in parenthesis represents the number of such
investment companies.
For each of their services as Vice President of the Fund, Carter
Austin and Matthew Hultquist, will each receive compensation equal to [__],
respectively.
Indemnification of Officers and Trustees; Limitations on Liability
The Agreement and Declaration of Trust of the Fund provides that the
Fund will indemnify its trustees and officers and may indemnify its employees or
agents against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their positions with the Fund to the
fullest extent permitted by law. However, nothing in the Agreement and
Declaration of Trust of the Fund protects or indemnifies a trustee, officer,
employee or agent of the Fund against any liability to which such person would
otherwise be subject in the event of such person's willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her position.
Investment Advisory and Administrative Arrangements
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an
advisory agreement with the Fund. The Investment Adviser is a New York
corporation with principal offices located at One Corporate Center, Rye, New
York 10580. The Investment Adviser was organized in 1999 and is the successor to
Gabelli Funds, Inc., which was organized in 1980. As of December 31, 2003, the
Investment Adviser acted as registered investment adviser to [19] management
investment companies with aggregate net assets of $[___] billion. The Investment
Adviser, together with other affiliated investment advisers noted below had
assets under management totaling approximately $[__] billion as of December 31,
2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as
investment adviser for individuals, pension trusts, profit sharing trusts and
endowments, and as a sub-adviser to management investment companies having
aggregate assets of $[___] billion under management as of December 31, 2003.
Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as
investment adviser for The Treasurer's Funds (money market funds) and separate
accounts having aggregate assets of $[_____] billion under management as of
December 31, 2003. Gabelli Advisers, Inc., an affiliate of the Investment
Adviser, acts as investment manager to the Gabelli Westwood Funds having
aggregate assets of $[_____] million under management as of December 31, 2003.
Affiliates of the Investment Adviser may, in the ordinary course of
their business, acquire for their own account or for the accounts of their
advisory clients, significant (and possibly controlling) positions in the
securities of companies that may also be suitable for investment by the Fund.
The securities in which the Fund might invest may thereby be limited to some
extent. For instance, many companies in the past several years have adopted
so-called "poison pill" or other defensive measures designed to discourage or
prevent the completion of non-negotiated offers for control of the company. Such
defensive measures may have the effect of limiting the shares of the company
which might otherwise be acquired by the Fund if the affiliates of the
Investment Adviser or their advisory accounts have or acquire a significant
position in the same securities. However, the Investment Adviser does not
believe that the investment activities of its affiliates will have a material
adverse effect upon the Fund in seeking to achieve its investment objectives.
Securities purchased or sold pursuant to contemporaneous orders entered on
behalf of the investment company accounts of the Investment Adviser or the
advisory accounts managed by its affiliates for their unaffiliated clients are
allocated pursuant to principles believed to be fair and not disadvantageous to
any such accounts. In addition, all such orders are accorded priority of
execution over orders entered on behalf of accounts in which the Investment
Adviser or its affiliates have a substantial pecuniary interest. The Investment
Adviser may on occasion give advice or take action with respect to other clients
that differs from the actions taken with respect to the Fund. The Fund may
invest in the securities of companies which are investment management clients of
GAMCO Investors Inc. In addition, portfolio companies or their officers or
directors may be minority shareholders of the Investment Adviser or its
affiliates.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset
Management Inc., a New York corporation, whose Class A Common Stock is traded on
the New York Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be
deemed a "controlling person" of the Investment Adviser on the basis of his
ownership of a majority of the stock and voting power of Gabelli Group Capital
Partners, Inc., which owns a majority of the capital stock and voting power of
Gabelli Asset Management Inc.
Under the terms of the Advisory Agreement, the Investment Adviser
manages the portfolio of the Fund in accordance with its stated investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities on behalf of the Fund and manages its other
business and affairs, all subject to the supervision and direction of the Fund's
Board of Trustees. In addition, under the Advisory Agreement, the Investment
Adviser oversees the administration of all aspects of the Fund's business and
affairs and provides, or arranges for others to provide, at the Investment
Adviser's expense, certain enumerated services, including maintaining the Fund's
books and records, preparing reports to the Fund's shareholders and supervising
the calculation of the net asset value of its shares. All expenses of computing
the net asset value of the Fund, including any equipment or services obtained
solely for the purpose of pricing shares or valuing its investment portfolio,
will be an expense of the Fund under its Advisory Agreement.
The Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. For services rendered by the Investment
Adviser on behalf of the Fund under the Advisory Agreement, the Fund pays the
Investment Adviser a fee computed daily and paid monthly at the annual rate of
1.00% of the average weekly net assets of the Fund (which includes for this
purpose assets attributable to outstanding preferred shares, if any, with no
deduction for the liquidation preference of such preferred shares).
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties thereunder, the Investment Adviser is not liable for any
error or judgment or mistake of law or for any loss suffered by the Fund. As
part of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is
the Investment Adviser's property, and that in the event the Investment Adviser
ceases to act as an investment adviser to the Fund, the Fund will change its
name to one not including "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect
with respect to the Fund until the second anniversary of sole shareholder
approval of such Agreement, and from year to year thereafter if approved
annually (i) by the Fund's Board of Trustees or by the holders of a majority of
its outstanding voting securities and (ii) by a majority of the trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to the
Advisory Agreement, by vote cast in person at a meeting called for the purpose
of voting on such approval.
The Advisory Agreement was agreed to in principle by the Fund's Board
of Trustees at a telephonic meeting of the Board of Trustees held on October 23,
2003, including a majority of the trustees who are not parties to the agreement
or interested persons of any such party (as such term is defined in the 1940
Act). The 1940 Act requires that the Advisory Agreement be approved by a
majority of the Fund's Board of Trustees, including a majority of the trustees
who are not interested persons as that term is defined in the 1940 Act, at an in
person meeting of the Board of Trustees. The non-interested members of the Board
of Trustees subsequently met in person on November 19, 2003, at which time they
and the entire Board approved the Advisory Agreement. In determining whether to
approve the Advisory Agreement, the Fund's non-interested trustees considered,
among other factors, (i) the services to be provided to the Fund by the
Investment Adviser and the sub-administrator (ii) the team of investment
advisory personnel assigned to the Fund, (iii) the Gabelli organization's
experience with closed-end funds, (iv) the investment objective and policies of
the Fund, (v) the terms of the Advisory Agreement and the undertaking of the
Investment Adviser in regard to advisory fees on leverage used by the Fund, and
(vi) the Fund's anticipated fee and expense data (based in part on the terms of
the Advisory Agreement) as compared to other closed-end funds managed by the
Investment Adviser and a peer group of closed-end equity funds in various asset
ranges. The non-interested Directors indicated that the primary factors in their
determination to approve the Advisory Agreement were the experience of the
Investment Adviser and the Fund's portfolio management team, the comparability
of the Fund's fee structure and anticipated total expense ratio with the other
funds reviewed and the undertaking of the Investment Adviser not to charge an
advisory fee on leverage obtained through the issuance of preferred shares to
the extent the Fund's total return does not at least equal the cost of such
shares.
The Advisory Agreement terminates automatically on its assignment and
may be terminated without penalty on 60 days written notice at the option of
either party thereto or by a vote of a majority (as defined in the 1940 Act) of
the Fund's outstanding shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Fund,
the Investment Adviser is responsible for placing purchase and sale orders and
the allocation of brokerage on behalf of the Fund. Transactions in equity
securities are in most cases effected on U.S. stock exchanges and involve the
payment of negotiated brokerage commissions. In general, there may be no stated
commission in the case of securities traded in over-the-counter markets, but the
prices of those securities may include undisclosed commissions or mark-ups.
Principal transactions are not entered into with affiliates of the Fund.
However, Gabelli & Company, Inc. may execute transactions in the
over-the-counter markets on an agency basis and receive a stated commission
therefrom. To the extent consistent with applicable provisions of the 1940 Act
and the rules and exemptions adopted by the SEC thereunder, as well as other
regulatory requirements, the Fund's Board of Trustees have determined that
portfolio transactions may be executed through Gabelli & Company, Inc. and its
broker-dealer affiliates if, in the judgment of the Investment Adviser, the use
of those broker-dealers is likely to result in price and execution at least as
favorable as those of other qualified broker-dealers, and if, in particular
transactions, those broker-dealers charge the Fund a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. The Fund
has no obligations to deal with any broker or group of brokers in executing
transactions in portfolio securities. In executing transactions, the Investment
Adviser seeks to obtain the best price and execution for the Fund, taking into
account such factors as price, size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
commission available.
Subject to obtaining the best price and execution, brokers who
provide supplemental research, market and statistical information, or other
services (e.g., wire services) to the Investment Adviser or its affiliates may
receive orders for transactions by the Fund. The term "research, market and
statistical information" includes advice as to the value of securities, and
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and the performance of
accounts. Information so received will be in addition to and not in lieu of
the services required to be performed by the Investment Adviser under the
Advisory Agreement and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. Such information may be useful to the Investment Adviser and its
affiliates in providing services to clients other than the Fund, and not all
such information is used by the Investment Adviser in connection with the
Fund. Conversely, such information provided to the Investment Adviser and its
affiliates by brokers and dealers through whom other clients of the Investment
Adviser and its affiliates effect securities transactions may be useful to the
Investment Adviser in providing services to the Fund.
Although investment decisions for the Fund are made independently from
those for the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Fund may also be made for those
other accounts. When the same securities are purchased for or sold by the Fund
and any of such other accounts, it is the policy of the Investment Adviser and
its affiliates to allocate such purchases and sales in the manner deemed fair
and equitable to all of the accounts, including the Fund.
PORTFOLIO TURNOVER
Portfolio turnover rate is calculated by dividing the lesser of an
investment company's annual sales or purchases of portfolio securities by the
monthly average value of securities in its portfolio during the year,
excluding portfolio securities the maturities of which at the time of
acquisition were one year or less. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expense than a lower rate, which
expense must be borne by the Fund and indirectly by its shareholders. A higher
rate of portfolio turnover may also result in taxable gains being passed to
shareholders sooner than would otherwise be the case. As of December 31, 2003,
the Fund's portfolio turnover rate for the period since it began its
investment operations is 0.4%. The Fund anticipates that its annual portfolio
turnover rate will not exceed 100%
TAXATION
The following discussion is a brief summary of certain U.S. federal
income tax considerations affecting the Fund and its shareholders. No attempt is
made to present a detailed explanation of all U.S. federal, state, local and
foreign tax concerns affecting the Fund and its shareholders (including
shareholders owning a large position in the Fund), and the discussions set forth
here and in the Prospectus do not constitute tax advice. Investors are urged to
consult their own tax advisers with any specific questions relating to U.S.
federal, state, local and foreign taxes. The discussion reflects applicable tax
laws of the United States as of the date of this SAI, which tax laws may be
changed or subject to new interpretations by the courts or the Internal Revenue
Service (the "IRS") retroactively or prospectively.
Taxation of the Fund
The Fund intends to elect to be treated and to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") (a "RIC"). Accordingly, the Fund must, among other things,
(i) derive in each taxable year at least 90% of its gross income (including
tax-exempt interest) from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including but not limited to
gains from options, futures and forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and (ii)
diversify its holdings so that, at the end of each quarter of each taxable year
(a) at least 50% of the market value of the Fund's total assets is represented
by cash and cash items, U.S. government securities, the securities of other RICs
and other securities, with such other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the Fund's total assets
and not more than 10% of the outstanding voting securities of such issuer, and
(b) not more than 25% of the market value of the Fund's total assets is invested
in the securities of any issuer (other than U.S. government securities and the
securities of other RICs) or of any two or more issuers that the Fund controls
and that are determined to be engaged in the same business or similar or related
trades or businesses.
As a RIC, the Fund generally is not subject to U.S. federal income tax
on income and gains that it distributes each taxable year to shareholders, if it
distributes at least 90% of the sum of the Fund's (i) investment company taxable
income (which includes, among other items, dividends, interest and the excess of
any net short-term capital gain over net long-term capital loss and other
taxable income, other than any net long-term capital gain, reduced by deductible
expenses) determined without regard to the deduction for dividends paid and (ii)
its net tax-exempt interest (the excess of its gross tax-exempt interest over
certain disallowed deductions). The Fund intends to distribute at least annually
substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount at least equal to the sum of (i) 98% of its ordinary income (not
taking into account any capital gain or loss) for the calendar year, (ii) 98% of
its capital gain in excess of its capital loss (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar
year (unless an election is made to use the Fund's fiscal year), and (iii)
certain undistributed amounts from previous years on which the Fund paid no
federal income tax. While the Fund intends to distribute any income and capital
gain in the manner necessary to minimize imposition of the 4% excise tax, there
can be no assurance that sufficient amounts of the Fund's taxable income and
capital gain will be distributed to avoid entirely the imposition of the tax. In
that event, the Fund will be liable for the tax only on the amount by which it
does not meet the foregoing distribution requirement.
A distribution will be treated as paid during the calendar year if it
is paid during the calendar year or declared by the Fund in October, November or
December of the year, payable to shareholders of record on a date during such a
month and paid by the Fund during January of the following year. Any such
distributions paid during January of the following year will be deemed to be
received on December 31 of the year the distributions are declared, rather than
when the distributions are received.
If the Fund were unable to satisfy the 90% distribution requirement or
otherwise were to fail to qualify as a RIC in any year, it would be taxed in the
same manner as an ordinary corporation and distributions to the Fund's
shareholders would not be deductible by the Fund in computing its taxable
income. To qualify again to be taxed as a RIC in a subsequent year, the Fund
would be required to distribute to its shareholders its earnings and profits
attributable to non-RIC years reduced by an interest charge on 50% of such
earnings and profits payable by the Fund to the IRS. In addition, if the Fund
failed to qualify as a RIC for a period greater than one taxable year, then the
Fund would be required to recognize and pay tax on any net built-in gain (the
excess of aggregate gain, including items of income, over aggregate loss that
would have been realized if the Fund had been liquidated) or, alternatively, to
elect to be subject to taxation on such built-in gain recognized for a period of
ten years, in order to qualify as a RIC in a subsequent year.
Gain or loss on the sales of securities by the Fund will be long-term
capital gain or loss if the securities have been held by the Fund for more than
one year. Gain or loss on the sale of securities held for one year or less will
be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar-denominated securities
and on any non-U.S. dollar-denominated futures contracts, options and forward
contracts that are not section 1256 contracts (as defined below) generally will
be treated as ordinary income and loss.
Investments by the Fund in certain "passive foreign investment
companies" ("PFICs") could subject the Fund to federal income tax (including
interest charges) on certain distributions or dispositions with respect to those
investments which cannot be eliminated by making distributions to shareholders.
Elections may be available to the Fund to mitigate the effect of this tax, but
such elections generally accelerate the recognition of income without the
receipt of cash. Dividends paid by PFICs will not qualify for the reduced tax
rates discussed below under "Taxation of Shareholders."
The Fund may invest in debt obligations purchased at a discount with
the result that the Fund may be required to accrue income for U.S. federal
income tax purposes before amounts due under the obligations are paid. The Fund
may also invest in securities rated in the medium to lower rating categories of
nationally recognized rating organizations, and in unrated securities ("high
yield securities"). A portion of the interest payments on such high yield
securities may be treated as dividends for certain U.S. federal income tax
purposes.
As a result of investing in stock of PFICs or securities purchased at a
discount or any other investment that produces income that is not matched by a
corresponding cash distribution to the Fund, the Fund could be required to
include in current income, income it has not yet received. Any such income would
be treated as income earned by the Fund and therefore would be subject to the
distribution requirements of the Code. This might prevent the Fund from
distributing 90% of its investment company taxable income as is required in
order to avoid Fund-level federal income taxation on all of its income, or might
prevent the Fund from distributing enough ordinary income and capital gain net
income to avoid completely the imposition of the excise tax. To avoid this
result, the Fund may be required to borrow money or dispose of securities to be
able to make distributions to its shareholders.
If the Fund does not meet the asset coverage requirements of the 1940
Act and the Statements of Preferences, the Fund will be required to suspend
distributions to the holders of the Common Shares until the asset coverage is
restored. Such a suspension of distributions might prevent the Fund from
distributing 90% of its investment company taxable income as is required in
order to avoid Fund-level federal income taxation on all of its income, or might
prevent the Fund from distributing enough income and capital gain net income to
avoid completely imposition of the excise tax.
Certain of the Fund's investment practices are subject to special and
complex U.S. federal income tax provisions that may, among other things, (i)
disallow, suspend or otherwise limit the allowance of certain losses or
deductions, (ii) convert lower taxed long-term capital gains into higher taxed
short-term capital or ordinary income, (iii) convert ordinary loss or a
deduction into capital loss (the deductibility of which is more limited), (iv)
cause the Fund to recognize income or gain without a corresponding receipt of
cash, (v) adversely affect the time as to when a purchase or sale of stock or
securities is deemed to occur and (vi) adversely alter the characterization of
certain complex financial transactions. The Fund will monitor its transactions
and may make certain tax elections to mitigate the effect of these rules and
prevent disqualification of the Fund as a regulated investment company.
Foreign Taxes
Since the Fund may invest in foreign securities, its income from such
securities may be subject to non-U.S. taxes. The Fund intends to invest less
than 50% of its total assets in foreign securities. As long as the Fund
continues to invest less than 50% of its assets in foreign securities it will
not be eligible to elect to "pass-through" to shareholders of the Fund the
ability to use the foreign tax deduction or foreign tax credit for foreign taxes
paid with respect to qualifying taxes.
Taxation of Shareholders
The Fund will determine either to distribute or to retain for
reinvestment all or part of its net capital gain. If any such gain is retained,
the Fund will be subject to a tax of 35% of such amount. In that event, the Fund
expects to designate the retained amount as undistributed capital gain in a
notice to its shareholders, each of whom (i) will be required to include in
income for tax purposes as long-term capital gain its share of such
undistributed amounts, (ii) will be entitled to credit its proportionate share
of the tax paid by the Fund against its federal income tax liability and to
claim refunds to the extent that the credit exceeds such liability and (iii)
will increase its basis in its shares of the Fund by an amount equal to 65% of
the amount of undistributed capital gain included in such shareholder's gross
income.
Distributions paid by the Fund from its investment company taxable
income, which includes net short-term capital gain, generally are taxable as
ordinary income to the extent of the Fund's earnings and profits. Such
distributions (if designated by the Fund) may, however, qualify (provided
holding period and other requirements are met by both the Fund and the
shareholder) (i) for the dividends received deduction available to corporations,
but only to the extent that the Fund's income consists of dividends received
from U.S. corporations and (ii) under the Jobs and Growth Tax Relief
Reconciliation Act of 2003 (effective for taxable years after December 31, 2002
through December 31, 2008) ("2003 Tax Act"), as qualified dividend income
eligible for the reduced maximum rate to individuals of generally 15% (5% for
individuals in lower tax brackets) to the extent that the Fund receives
qualified dividend income. Qualified dividend income is, in general, dividend
income from taxable domestic corporations and certain foreign corporations
(e.g., generally, foreign corporations incorporated in a possession of the
United States or in certain countries with a qualifying comprehensive tax treaty
with the United States, or the stock of which is readily tradable on an
established securities market in the United States). Distributions of net
capital gain designated as capital gain distributions, if any, are taxable to
shareholders at rates applicable to long-term capital gain, whether paid in cash
or in shares, and regardless of how long the shareholder has held the Fund's
shares. Capital gain distributions are not eligible for the dividends received
deduction. Under the 2003 Tax Act, the maximum tax rate on net long-term capital
gain of individuals is reduced generally from 20% to 15% (5% for individuals in
lower brackets) for such gain realized on or after May 6, 2003 and before
January 1, 2009. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gain to such
holder (assuming the shares are held as a capital asset). For non-corporate
taxpayers, under the 2003 Tax Act, investment company taxable income (other than
qualified dividend income) will currently be taxed at a maximum rate of 35%,
while net capital gain generally will be taxed at a maximum rate of 15%. For
corporate taxpayers, both investment company taxable income and net capital gain
are taxed at a maximum rate of 35%.
Shareholders may be entitled to offset their capital gain distributions
with capital loss. There are a number of statutory provisions affecting when
capital loss may be offset against capital gain, and limiting the use of loss
from certain investments and activities. Accordingly, shareholders with capital
loss are urged to consult their tax advisers.
The price of shares purchased at any time may reflect the amount of a
forthcoming distribution. Those purchasing shares just prior to a distribution
will receive a distribution which will be taxable to them even though it
represents in part a return of invested capital.
Upon a sale, exchange or other disposition of shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as long-term capital gain or loss if
the shares have been held for more than one year. Any loss realized on a sale
or exchange will be disallowed to the extent the shares disposed of are
replaced by substantially identical shares within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by
the shareholder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any capital gain distributions received
by the shareholder (or amounts credited to the shareholder as an undistributed
capital gain) with respect to such shares.
Ordinary income distributions and capital gain distributions also may
be subject to state and local taxes. Shareholders are urged to consult their own
tax advisers regarding specific questions about federal (including the
application of the alternative minimum tax rules), state, local or foreign tax
consequences to them of investing in the Fund.
Ordinary income distributions (but not capital gain distributions) paid
to shareholders who are non-resident aliens or foreign entities (a "foreign
investor") will generally be subject to a 30% U.S. withholding tax under
existing provisions of the Code applicable to foreign individuals and entities,
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Different tax consequences may result if the
foreign investor is engaged in a trade or business in the United States or, in
the case of an individual, is present in the United States for 183 or more days
during a taxable year and certain other conditions are met. Foreign investors
are urged to consult their own tax advisers concerning the applicability of the
U.S. withholding tax.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax on all
taxable distributions and redemption proceeds payable to non-corporate
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be refunded or
credited against such shareholder's U.S. federal income tax liability, if any,
provided that the required information is furnished to the IRS.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE APPLICABLE
PROVISIONS OF THE CODE AND TREASURY REGULATIONS PRESENTLY IN EFFECT. FOR THE
COMPLETE PROVISIONS, REFERENCE SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND
THE TREASURY REGULATIONS PROMULGATED THEREUNDER. THE CODE AND THE TREASURY
REGULATIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE, JUDICIAL OR ADMINISTRATIVE
ACTION, EITHER PROSPECTIVELY OR RETROACTIVELY. PERSONS CONSIDERING AN INVESTMENT
IN COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE PURCHASE,
OWNERSHIP AND DISPOSITION OF COMMON SHARES.
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan (the "Plan"), a shareholder whose Common Shares are registered in
his or her own name will have all distributions reinvested automatically by
EquiServe, which is agent under the Plan, unless the shareholder elects to
receive cash. Distributions with respect to shares registered in the name of a
broker-dealer or other nominee (that is, in "street name") will be reinvested by
the broker or nominee in additional shares under the Plan, unless the service is
not provided by the broker or nominee or the shareholder elects to receive
distributions in cash. Investors who own Common Shares registered in street name
should consult their broker-dealers for details regarding reinvestment. All
distributions to investors who do not participate in the Plan will be paid by
check mailed directly to the record holder by EquiServe as dividend disbursing
agent.
Under the Plan, whenever the market price of the Common Shares is equal
to or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in the Plan are issued Common Shares, valued at
the greater of (i) the net asset value as most recently determined or (ii) 95%
of the then-current market price of the Common Shares. The valuation date is the
dividend or distribution payment date or, if that date is not a New York Stock
Exchange trading day, the next preceding trading day. If the net asset value of
the Common Shares at the time of valuation exceeds the market price of the
Common Shares, participants will receive shares from the Fund, valued at market
price. If the Fund should declare a dividend or capital gains distribution
payable only in cash, EquiServe will buy the Common Shares for such Plan in the
open market, on the New York Stock Exchange or elsewhere, for the participants'
accounts, except that EquiServe will endeavor to terminate purchases in the open
market and cause the Fund to issue shares at the greater of net asset value or
95% of market value if, following the commencement of such purchases, the market
value of the Common Shares exceeds net asset value.
Participants in the Plan have the option of making additional cash
payments to EquiServe, monthly, for investment in the shares as applicable. Such
payments may be made in any amount from $250 to $10,000. EquiServe will use all
funds received from participants to purchase shares of the Fund in the open
market on or about the 15th of each month. EquiServe will charge each
shareholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be less than
the usual brokerage charge for such transactions. It is suggested that
participants send voluntary cash payments to EquiServe in a manner that ensures
that EquiServe will receive these payments approximately 10 days before the 15th
of the month. A participant may without charge withdraw a voluntary cash payment
by written notice, if the notice is received by EquiServe at least 48 hours
before such payment is to be invested.
EquiServe maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by EquiServe in noncertificated form in the
name of the participant. A Plan participant may send its share certificates to
EquiServe so that the shares represented by such certificates will be held by
EquiServe in the participant's shareholder account under the Plan.
In the case of shareholders such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, EquiServe will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who participate in the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate its Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of such Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by EquiServe on at least 90 days written
notice to the participants in such Plan. All correspondence concerning the Plan
should be directed to EquiServe at P.O. Box 43025, Providence, RI 02940-3025.
ADDITIONAL INFORMATION CONCERNING AUCTIONS
FOR SERIES B AMPS
General
The Statement of Preferences provides that the Applicable Rate for each
Dividend Period of the Series B AMPS will be equal to the rate per annum that
the Auction Agent advises has resulted on the Business Day preceding the first
day of a Dividend Period (an "Auction Date") from implementation of the Auction
Procedures set forth in the Statement of Preferences, and summarized below, in
which persons determine to hold or offer to sell or, based on dividend rates bid
by them, offer to purchase or sell shares of such Series. Each periodic
implementation of the Auction Procedures is referred to herein as an "Auction."
The following summary is qualified by reference to the Auction Procedures set
forth in the Statements of Preferences.
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
The Bank of New York), which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for Series B AMPS so long as the Applicable Rate is to be based
on the results of the Auction.
Broker-Dealer Agreements. Each Auction requires the participation of
one or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those
Broker-Dealers in Auctions for Series B AMPS. See "Broker-Dealers" below.
Securities Depository. DTC will act as the Securities Depository for
the Agent Members with respect to the Series B AMPS. One certificate for all of
the Series B AMPS shares will be registered in the name of Cede & Co., as
nominee of the Securities Depository.
Such certificate will bear a legend to the effect that such certificate
is issued subject to the provisions restricting transfers of Series B AMPS
contained in the Statement of Preferences. The Fund will also issue
stop-transfer instructions to the transfer agent for the Series B AMPS. Prior to
the commencement of the right of Holders of the Preferred Shares to elect a
majority of the Fund's trustees, as described under "Description of the Series A
Preferred and Series B AMPS -- Voting Rights" in the Prospectus, Cede & Co. will
be the Holder of all the Series B AMPS and owners of such shares will not be
entitled to receive certificates representing their ownership interest in such
shares.
DTC, a New York chartered limited purpose trust company, performs
services for its participants (including Agent Members), some of whom (and/or
their representatives) own DTC. DTC maintains lists of its participants and will
maintain the positions (ownership interests) held by each such Agent Member in
Series B AMPS, whether for its own account or as a nominee for another person.
Orders by Existing Holders and Potential Holders
On or prior to the Submission Deadline on each Auction Date for the
Series B AMPS:
(i) each Beneficial Owner of Series B AMPS may submit to its
Broker-Dealer by telephone or otherwise a:
(a) "Hold Order" - indicating the number of Outstanding
Series B AMPS shares, if any, that such Beneficial
Owner desires to continue to hold without regard to
the Applicable Rate for such shares for the next
succeeding Dividend Period of such shares;
(b) "Bid" - indicating the number of Outstanding Series B
AMPS shares, if any, that such Beneficial Owner
offers to sell if the Applicable Rate for such Series
B AMPS for the next succeeding Dividend Period is
less than the rate per annum specified by such
Beneficial Owner in such Bid; and/or
(c) "Sell Order" - indicating the number of Outstanding
Series B AMPS shares, if any, that such Beneficial
Owner offers to sell without regard to the Applicable
Rate for such Series B AMPS for the next succeeding
Dividend Period; and
(ii) Broker-Dealers will contact customers who are Potential
Beneficial Owners by telephone or otherwise to determine
whether such customers desire to submit Bids, in which case
they will indicate the number of Series B AMPS shares that
they offer to purchase if the Applicable Rate for Series B
AMPS for the next succeeding Dividend Period is not less than
the rate per annum specified in such Bids.
The communication to a Broker-Dealer of the foregoing information is
herein referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order with its Broker-Dealer is
herein referred to as a "Bidder" and collectively as "Bidders." The submission
by a Broker-Dealer of an Order to the Auction Agent is referred to herein as an
"Order" and collectively as "Orders," and an Existing Holder or Potential Holder
who places an Order with the Auction Agent or on whose behalf an Order is placed
with the Auction Agent is referred to herein as a "Bidder" and collectively as
"Bidders."
A Bid placed by a Beneficial Owner specifying a rate higher than the
Applicable Rate determined in the Auction will constitute an irrevocable offer
to sell the shares subject thereto. A Beneficial Owner that submits a Bid to its
Broker-Dealer having a rate higher than the Maximum Rate on the Auction Date
thereof will be treated as having submitted a Sell Order to its Broker-Dealer. A
Sell Order will constitute an irrevocable offer to sell Series B AMPS subject
thereto at a price per share equal to $25,000.
A Beneficial Owner that fails to submit to its Broker-Dealer prior to
the Submission Deadline for the Series B AMPS an Order or Orders covering all
the Outstanding Series B AMPS held by such Beneficial Owner will be deemed to
have submitted a Hold Order to its Broker-Dealer covering the number of
Outstanding Series B AMPS shares held by such Beneficial Owner and not subject
to Orders submitted to its Broker-Dealer; provided, however, that if a
Beneficial Owner fails to submit to its Broker-Dealer prior to the Submission
Deadline for the Series B AMPS an Order or Orders covering all of the
Outstanding Series B AMPS held by such Beneficial Owner for an Auction relating
to a Special Dividend Period consisting of more than 28 Dividend Period days,
such Beneficial Owner will be deemed to have submitted a Sell Order to its
Broker-Dealer covering the number of Outstanding Series B AMPS shares held by
such Beneficial Owner and not subject to Orders submitted to its Broker-Dealer.
A Potential Beneficial Owner of Series B AMPS may submit to its
Broker-Dealer Bids in which it offers to purchase Series B AMPS if the
Applicable Rate for the next Dividend Period is not less than the rate specified
in such Bid. A Bid placed by a Potential Beneficial Owner specifying a rate not
higher than the Maximum Rate will constitute an irrevocable offer to purchase
the number of Series B AMPS shares specified in such Bid if the rate determined
in the Auction is equal to or greater than the rate specified in such Bid. A
Beneficial Owner of Series B AMPS that offers to become the Beneficial Owner of
additional Series B AMPS is, for purposes of such offer, a Potential Beneficial
Owner.
As described more fully below under "-- Submission of Orders by
Broker-Dealers to Auction Agent," the Broker-Dealers will submit the Orders of
their respective customers who are Beneficial Owners and Potential Beneficial
Owners to the Auction Agent, designating themselves (unless otherwise permitted
by the Fund) as Existing Holders in respect of Series B AMPS subject to Orders
submitted or deemed submitted to them by Beneficial Owners and as Potential
Holders in respect of Series B AMPS subject to Orders submitted to them by
Potential Beneficial Owners. However, neither the Fund nor the Auction Agent
will be responsible for a Broker-Dealer's failure to comply with the foregoing.
Any Order placed with the Auction Agent by a Broker-Dealer as or on behalf of an
Existing Holder or a Potential Holder will be treated in the same manner as an
Order placed with a Broker-Dealer by a Beneficial Owner or a Potential
Beneficial Owner, as described above. Similarly, any failure by a Broker-Dealer
to submit to the Auction Agent an Order in respect of any Series B AMPS held by
it or its customers who are Beneficial Owners will be treated in the same manner
as a Beneficial Owner's failure to submit to its Broker-Dealer an Order in
respect of Series B AMPS held by it, as described in the second preceding
paragraph. For information concerning the priority given to different types of
Orders placed by Existing Holders, see "-- Submission of Orders by
Broker-Dealers to Auction Agent" below.
The Fund may not submit an Order in any Auction.
The Auction Procedures include a pro rata allocation of shares for
purchase and sale, which may result in an Existing Holder continuing to hold or
selling, or a Potential Holder purchasing, a number of Series B AMPS shares that
is fewer than the number of Series B AMPS shares specified in its Order. See "--
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares" below. To the extent the allocation procedures have that
result, Broker-Dealers that have designated themselves as Existing Holders or
Potential Holders in respect of customer Orders will be required to make
appropriate pro rata allocations among their respective customers. Each purchase
or sale will be made for settlement on the Business Day next succeeding the
Auction Date at a price per share equal to $25,000. See "-- Notification of
Results; Settlement" below.
As described above, any Bid specifying a rate higher than the Maximum
Rate will (i) be treated as a Sell Order if submitted by a Beneficial Owner or
an Existing Holder and (ii) not be accepted if submitted by a Potential
Beneficial Owner or a Potential Holder. Accordingly, the Auction Procedures
establish the Maximum Rate as a maximum rate per annum that can result from an
Auction up to the Maximum Rate. See "Determination of Sufficient Clearing Bids,
Winning Bid Rate and Applicable Rate" and "Acceptance and Rejection of Submitted
Bids and Submitted Sell Orders and Allocation of Shares" below.
Concerning the Auction Agent
The Auction Agent is acting as agent for the Fund in connection with
Auctions. In the absence of willful misconduct or gross negligence on its part,
the Auction Agent will not be liable for any action taken, suffered, or omitted
or for any error of judgment made by it in the performance of its duties under
the Auction Agency Agreement and will not be liable for any error of judgment
resulting from the use or reliance on a source of information used in good faith
unless the Auction Agent will have been grossly negligent in the determination,
calculation or declaration thereunder.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of Series B AMPS, the Auction Agent's registry of Existing
Holders, the results of Auctions and notices from any Broker-Dealer (or other
person, if permitted by the Fund) with respect to transfers described under "The
Auction of Series B AMPS -- Secondary Market Trading and Transfer of Series B
AMPS" in the Prospectus and notices from the Fund. The Auction Agent is not
required to accept any such notice for an Auction unless it is received by the
Auction Agent by 3:00 p.m., New York City time, on the Business Day preceding
such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon
written notice to the Fund on a date no earlier than 30 days after the date of
delivery of such notice. If the Auction Agent should resign or for any reason
its appointment is terminated during any period when the Series B AMPS are
outstanding, the Fund will use its best efforts promptly thereafter to enter
into an agreement with a successor Auction Agent containing substantially the
same terms and conditions as the Auction Agency Agreement. The Fund may remove
the Auction Agent, provided that prior to such removal, the Fund has entered
into such an agreement in substantially the form of the Auction Agency Agreement
with a successor Auction Agent.
Broker-Dealers
The Auction Agent after each Auction for Series B AMPS will pay to each
Broker-Dealer, from funds provided by the Fund, a service charge equal to, in
the case of any auction immediately preceding a dividend period of less than 365
days the product of (i) a fraction, the numerator of which is the number of days
in such dividend period and the denominator of which is 360, times (ii) 1/4 of
1%, times (iii) $25,000, times (iv) the aggregate number of Series B AMPS shares
placed by such broker-dealer at such auction or, in the case of any auction
immediately preceding a dividend period of one year or longer, a percentage of
the purchase price of the Series B AMPS placed by the broker-dealers at the
auction agreed to by the Fund and the broker-dealers. For the purposes of the
preceding sentence, Series B AMPS will be placed by a Broker-Dealer if such
shares were (i) the subject of Hold Orders deemed to have been submitted to the
Auction Agent by the Broker-Dealer and were acquired by such Broker-Dealer for
its customers who are Beneficial Owners or (ii) the subject of an Order
submitted by such Broker-Dealer that is (a) a Submitted Bid of an Existing
Holder that resulted in such Existing Holder continuing to hold such shares as a
result of the Auction, (b) a Submitted Bid of a Potential Holder that resulted
in such Potential Holder purchasing such shares as a result of the Auction or
(c) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer may submit
Orders in Auctions for its own account, unless the Fund notifies all
Broker-Dealers that they may no longer do so, in which case Broker-Dealers may
continue to submit Hold Orders and Sell Orders for their own accounts. If a
Broker-Dealer submits an Order for its own account in any Auction, it might have
an advantage over other Bidders because it would have knowledge of all Orders
submitted by it in that Auction. Such Broker-Dealer, however, would not have
knowledge of Orders submitted by other Broker-Dealers in that Auction.
Submission of Orders by Broker-Dealers to Auction Agent
Prior to 1:30 p.m., New York City time, on each Auction Date, or such
other time on the Auction Date specified by the Auction Agent (i.e., the
Submission Deadline), each Broker-Dealer will submit to the Auction Agent in
writing all Orders obtained by it for the Auction to be conducted on such
Auction Date, designating itself (unless otherwise permitted by the Fund) as the
Existing Holder or Potential Holder, as the case may be, in respect of Series B
AMPS subject to such Orders. Any Order submitted by a Beneficial Owner or a
Potential Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the
Auction Agent, prior to the Submission Deadline on any Auction Date, will be
irrevocable.
If any rate specified in any Bid contains more than three figures to
the right of the decimal point, the Auction Agent will round such rate to the
next highest one-thousandth (0.001) of 1%.
If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding Series B
AMPS shares subject to an Auction held by such Existing Holder, such Orders will
be considered valid in the following order of priority:
(i) all Hold Orders for Series B AMPS will be considered valid,
but only up to and including in the aggregate the number of
Outstanding shares of Series B AMPS held by such Existing
Holder, and, if the number of Series B AMPS shares subject to
such Hold Orders exceeds the number of shares of Outstanding
Series B AMPS held by such Existing Holder, the number of
shares subject to each such Hold Order will be reduced pro
rata to cover the number of Outstanding shares held by such
Existing Holder;
(ii) (a) any Bid for Series B AMPS will be considered valid
up to and including the excess of the number of
Outstanding shares of Series B AMPS held by such
Existing Holder over the number of Series B AMPS
shares subject to any Hold Orders referred to in
clause (i) above;
(b) subject to subclause (a), if more than one Bid of an
Existing Holder for Series B AMPS is submitted to the
Auction Agent with the same rate and the number of
Outstanding shares of Series B AMPS subject to such
Bids is greater than such excess, such Bids will be
considered valid up to and including the amount of
such excess, and the number of shares of Series B
AMPS subject to each Bid with the same rate will be
reduced pro rata to cover the number of shares of
Series B AMPS equal to such excess;
(c) subject to subclauses (a) and (b), if more than one
Bid of an Existing Holder for Series B AMPS is
submitted to the Auction Agent with different rates,
such Bids will be considered valid in the ascending
order of their respective rates up to and including
the amount of such excess; and
(d) in any such event, the number, if any, of such
Outstanding shares of Series B AMPS subject to any
portion of Bids considered not valid in whole or in
part under this clause (ii) will be treated as the
subject of a Bid for Series B AMPS by or on behalf of
a Potential Holder at the rate specified therein; and
(iii) all Sell Orders for Series B AMPS will be considered valid up
to and including the excess of the number of Outstanding
shares of Series B AMPS held by such Existing Holder over the
sum of shares subject to valid Hold Orders referred to in
clause (i) above and valid Bids referred to in clause (ii)
above.
If more than one Bid of a Potential Holder for Series B AMPS is submitted to the
Auction Agent by or on behalf of any Potential Holder, each such Bid submitted
will be a separate Bid with the rate and number of Series B AMPS shares
specified therein.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate
Not earlier than the Submission Deadline on each Auction Date for
Series B AMPS, the Auction Agent will assemble all valid Orders submitted or
deemed submitted to it by the Broker-Dealers (each such Hold Order, Bid or Sell
Order as submitted or deemed submitted by a Broker-Dealer being herein referred
to as a "Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order,"
as the case may be, or as a "Submitted Order" and collectively as "Submitted
Hold Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be,
or as "Submitted Orders") and will determine the excess of the number of
Outstanding shares of Series B AMPS over the number of Outstanding shares of
Series B AMPS subject to Submitted Hold Orders (such excess being herein
referred to as the "Available Series B AMPS") and whether Sufficient Clearing
Bids have been made in the Auction. "Sufficient Clearing Bids" will have been
made if the number of Outstanding shares of Series B AMPS that are the subject
of Submitted Bids of Potential Holders specifying rates not higher than the
Maximum Rate equals or exceeds the number of Outstanding shares of Series B AMPS
that are the subject of Submitted Sell Orders (including the number of Series B
AMPS shares subject to Bids of Existing Holders specifying rates higher than the
Maximum Rate).
If Sufficient Clearing Bids for Series B AMPS have been made, the
Auction Agent will determine the lowest rate specified in such Submitted Bids
(the Winning Bid Rate for shares of such Series) which, taking into account the
rates in the Submitted Bids of Existing Holders, would result in Existing
Holders continuing to hold an aggregate number of Outstanding Series B AMPS
shares which, when added to the number of Outstanding Series B AMPS shares to be
purchased by Potential Holders, based on the rates in their Submitted Bids,
would equal not less than the Available Series B AMPS. In such event, the
Winning Bid Rate will be the Applicable Rate for the next Dividend Period for
all shares of such Series.
If Sufficient Clearing Bids have not been made (other than because all
of the Outstanding Series B AMPS is subject to Submitted Hold Orders), the
Applicable Rate for the next Dividend Period for all Series B AMPS will be equal
to the Maximum Rate. In such a case, Beneficial Owners that have submitted or
that are deemed to have submitted Sell Orders may not be able to sell in the
Auction all Series B AMPS subject to such Sell Orders but will continue to own
Series B AMPS for the next Dividend Period. See "-- Acceptance and Rejection of
Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
If all of the Outstanding Series B AMPS is subject to Submitted Hold
Orders, the Applicable Rate for all Series B AMPS for the next succeeding
Dividend Period will be the All Hold Rate.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares
Based on the determinations made under "-- Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the
discretion of the Auction Agent to round and allocate certain shares as
described below, Submitted Bids and Submitted Sell Orders will be accepted or
rejected in the order of priority set forth in the Auction Procedures, with the
result that Existing Holders and Potential Holders of Series B AMPS will sell,
continue to hold and/or purchase such shares as set forth below. Existing
Holders that submitted or were deemed to have submitted Hold Orders (or on whose
behalf Hold Orders were submitted or deemed to have been submitted) will
continue to hold the Series B AMPS subject to such Hold Orders.
If Sufficient Clearing Bids for Series B AMPS shares have been made:
(i) Each Existing Holder that placed or on whose behalf was placed
a Submitted Sell Order or Submitted Bid specifying any rate
higher than the Winning Bid Rate will sell the Outstanding
Series B AMPS subject to such Submitted Sell Order or
Submitted Bid;
(ii) Each Existing Holder that placed or on whose behalf was placed
a Submitted Bid specifying a rate lower than the Winning Bid
Rate will continue to hold the Outstanding Series B AMPS
subject to such Submitted Bid;
(iii) Each Potential Holder that placed or on whose behalf was
placed a Submitted Bid specifying a rate lower than the
Winning Bid Rate will purchase the number of Outstanding
Series B AMPS shares subject to such Submitted Bid;
(iv) Each Existing Holder that placed or on whose behalf was placed
a Submitted Bid specifying a rate equal to the Winning Bid
Rate will continue to hold Series B AMPS subject to such
Submitted Bid, unless the number of Outstanding Series B AMPS
shares subject to all such Submitted Bids is greater than the
number of Series B AMPS shares ("remaining shares") in excess
of the Available Series B AMPS over the number of Series B
AMPS shares accounted for in clauses (ii) and (iii) above, in
which event each Existing Holder with such a Submitted Bid
will continue to hold Series B AMPS subject to such Submitted
Bid determined on a pro rata basis based on the number of
Outstanding Series B AMPS shares subject to all such Submitted
Bids of such Existing Holders; and
(v) Each Potential Holder that placed or on whose behalf was
placed a Submitted Bid specifying a rate equal to the Winning
Bid Rate for Series B AMPS will purchase any Available Series
B AMPS not accounted for in clauses (ii) through (iv) above on
a pro rata basis based on the Outstanding Series B AMPS shares
subject to all such Submitted Bids.
If Sufficient Clearing Bids for Series B AMPS shares have not been made
(unless this results because all Outstanding Series B AMPS shares are subject to
Submitted Hold Orders):
(i) Each Existing Holder that placed or on whose behalf was placed
a Submitted Bid specifying a rate equal to or lower than the
Maximum Rate will continue to hold the Series B AMPS subject
to such Submitted Bid;
(ii) Each Potential Holder that placed or on whose behalf was
placed a Submitted Bid specifying a rate equal to or lower
than the Maximum Rate will purchase the number of Series B
AMPS shares subject to such Submitted Bid; and
(iii) Each Existing Holder that placed or on whose behalf was placed
a Submitted Bid specifying a rate higher than the Maximum Rate
or a Submitted Sell Order will sell a number of Series B AMPS
shares subject to such Submitted Bid or Submitted Sell Order
determined on a pro rata basis based on the number of
Outstanding Series B AMPS shares subject to all such Submitted
Bids and Submitted Sell Orders.
If, as a result of the pro rata allocation described in clauses (iv) or
(v) of the second preceding paragraph or clause (iii) of the next preceding
paragraph, any Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a fraction of a
Series B AMPS share, the Auction Agent will, in such manner as, in its sole
discretion, it determines, round up or down to the nearest whole share the
number of Series B AMPS shares being sold or purchased on such Auction Date so
that the number of Series B AMPS shares sold or purchased by each Existing
Holder or Potential Holder will be whole shares of such Series. If as a result
of the pro rata allocation described in clause (v) of the second preceding
paragraph, any Potential Holder would be entitled or required to purchase less
than a whole Series B AMPS share, the Auction Agent will, in such manner as, in
its sole discretion, it will determine, allocate Series B AMPS for purchase
among Potential Holders so that only whole Series B AMPS shares are purchased by
any such Potential Holder, even if such allocation results in one or more of
such Potential Holders not purchasing shares of such Series.
Notification of Results; Settlement
The Auction Agent will be required to advise each Broker-Dealer that
submitted an Order of the Applicable Rate for the next Dividend Period and, if
the Order was a Bid or Sell Order, whether such Bid or Sell Order was accepted
or rejected, in whole or in part, by telephone by approximately 3:00 p.m., New
York City time, on each Auction Date. Each Broker-Dealer that submitted an Order
for the account of a customer will then be required to advise such customer of
the Applicable Rate for the next Dividend Period and, if such Order was a Bid or
a Sell Order, whether such Bid or Sell Order was accepted or rejected, in whole
or in part, will be required to confirm purchases and sales with each customer
purchasing or selling Series B AMPS as a result of the Auction and will be
required to advise each customer purchasing or selling Series B AMPS as a result
of the Auction to give instructions to its Agent Member of the Securities
Depository to pay the purchase price against delivery of such shares or to
deliver such shares against payment therefor, as appropriate. The Auction Agent
will be required to record each transfer of Series B AMPS shares on the registry
of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on
the Business Day after the Auction Date, the transactions described above will
be executed through the Securities Depository and the accounts of the respective
Agent Members at the Securities Depository will be debited and credited and
shares delivered as necessary to effect the purchases and sales of Series B AMPS
as determined in the Auction. Purchasers will make payment through their Agent
Members in same-day funds to the Securities Depository against delivery through
their Agent Members; the Securities Depository will make payment in accordance
with its normal procedures, which now provide for payment against delivery by
their Agent Members in same-day funds.
If any Existing Holder selling Series B AMPS in an Auction fails to
deliver such shares, the Broker-Dealer of any person that was to have purchased
such shares in such Auction may deliver to such person a number of whole Series
B AMPS shares that is less than the number of Series B AMPS shares that
otherwise was to be purchased by such person. In such event, the number of
Series B AMPS shares to be so delivered will be determined by the Broker-Dealer.
Delivery of such lesser number of Series B AMPS shares will constitute good
delivery.
ADDITIONAL INFORMATION CONCERNING
THE SERIES A PREFERRED AND SERIES B AMPS
The additional information concerning the Series A Preferred and Series
B AMPS contained in this SAI does not purport to be complete a complete
description of those Series and should be read in conjunction with the
description of the Series A Preferred and Series B AMPS contained in the
Prospectus under "Description of the Series A Preferred and Series B AMPS." This
description is subject to and qualified in its entirety by reference to the
Fund's Governing Documents, including the provisions of the Statements of
Preferences establishing, respectively, the Series A Preferred and the Series B
AMPS. Copies of these Statements of Preferences are filed as exhibits to the
registration statement of which the Prospectus and this SAI are a part and may
be inspected, and a copy thereof may be obtained, as described under "Additional
Information" in the Prospectus.
Dividends and Dividend Periods For the Series B AMPS
Holders of Series B AMPS will be entitled to receive, when, as and if
declared by the Board of Trustees, out of funds legally available therefor,
cumulative cash dividends on their shares, at the Applicable Rate determined as
described under " -- Determination of Dividend Rate," payable as and when set
forth below. Dividends so declared and payable will be paid to the extent
permitted under the Code, and to the extent available and in preference to and
priority over any dividend declared and payable on the Fund's Common Shares.
By 12:00 noon, New York City time, on the Business Day immediately
preceding each Dividend Payment Date, the Fund is required to deposit with the
Paying Agent sufficient same-day funds for the payment of declared dividends.
The Fund does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid by the Paying Agent to the Holder, which
Holder is expected to be the nominee of the Securities Depository. The
Securities Depository will credit the accounts of the Agent Members of the
beneficial owners in accordance with the Securities Depository's normal
procedures. The Securities Depository's current procedures provide for it to
distribute dividends in same-day funds to Agent Members who are in turn expected
to distribute such dividends to the persons for whom they are acting as agents.
The Agent Member of a beneficial owner will be responsible for holding or
disbursing such payments on the applicable Dividend Payment Date to such
beneficial owner in accordance with the instructions of such beneficial owner.
Holders of Series B AMPS will not be entitled to any dividends, whether
payable in cash, property or shares, in excess of full cumulative dividends. No
interest will be payable in respect of any dividend payment or payments that may
be in arrears. See "-- Default Period."
The amount of dividends per Outstanding Series B AMPS share payable (if
declared) on each Dividend Payment Date of each Dividend Period of less than one
year (or in respect of dividends on another date in connection with a redemption
during such Dividend Period) will be computed by multiplying the Applicable Rate
(or the Default Rate) for such Dividend Period (or a portion thereof) by a
fraction, the numerator of which will be the number of days in such Dividend
Period (or portion thereof) such share was Outstanding and for which the
Applicable Rate or the Default Rate was applicable (but in no event will the
numerator exceed 360) and the denominator of which will be 360, multiplying the
amount so obtained by the $25,000, and rounding the amount so obtained to the
nearest cent. During any Dividend Period of one year or more, the amount of
dividends per Series B AMPS share payable on any Dividend Payment Date (or in
respect of dividends on another date in connection with a redemption during such
Dividend Period) will be computed as described in the preceding sentence except
that the numerator, with respect to any full twelve month period, will be 360.
Determination of Dividend Rate. The dividend rate for the initial
Dividend Period (i.e., the period from and including the Date of Original Issue
to and including the initial Auction Date) and the initial Auction Date for the
Series B AMPS is set forth in the Prospectus. See "The Auction of Series B AMPS
-- Summary of Auction Procedures" in the Prospectus. For each subsequent
Dividend Period, subject to certain exceptions, the dividend rate will be the
Applicable Rate that the Auction Agent advises the Fund has resulted from an
Auction.
Dividend Periods after the initial Dividend Period will either be
Standard Dividend Periods (generally seven days) or, subject to certain
conditions and with notice to Holders, Special Dividend Periods.
A Special Dividend Period will not be effective unless Sufficient
Clearing Bids exist at the Auction in respect of such Special Dividend Period
(that is, in general, the number of shares subject to Bids by Potential
Beneficial Owners is at least equal to the number of shares subject to Sell
Orders by Existing Holders). If Sufficient Clearing Bids do not exist at any
Auction in respect of a Special Dividend Period, the Dividend Period commencing
on the Business Day succeeding such Auction will be the Standard Dividend
Period, and the Holders of the Series B AMPS will be required to continue to
hold such shares for such Standard Dividend Period. The designation of a Special
Dividend Period is also subject to additional conditions. See "-- Notification
of Dividend Period" below.
Dividends will accumulate at the Applicable Rate from the Date of
Original Issue and will be payable on each Dividend Payment Date thereafter.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date. The Applicable Rate resulting from an Auction will not be greater
than the Maximum Rate. The Maximum Rate is subject to upward, but not downward,
adjustment in the discretion of the Board of Trustees after consultation with
the Broker-Dealers, provided that immediately following any such increase the
Fund would be in compliance with the Series B AMPS Basic Maintenance Amount.
The Maximum Rate will apply automatically following an Auction for
Series B AMPS in which Sufficient Clearing Bids have not been made (other than
because all Series B AMPS were subject to Submitted Hold Orders) or following
the failure to hold an Auction for any reason on the Auction Date scheduled to
occur (except for (i) circumstances in which the Dividend Rate is the Default
Rate, as described below or (ii) in the event an auction is not held because an
unforeseen event or unforeseen events cause a day that otherwise would have been
an Auction Date not to be a Business Day, in which case the length of the
then-current dividend period will be extended by seven days, or a multiple
thereof if necessary because of such unforeseen event or events, the applicable
rate for such period will be the applicable rate for the then-current dividend
period so extended and the dividend payment date for such dividend period will
be the first business day next succeeding the end of such period). The All Hold
Rate will apply automatically following an Auction in which all of the
Outstanding Series B AMPS shares are subject (or are deemed to be subject) to
Hold Orders.
Prior to each Auction, Broker-Dealers will notify Holders of the term
of the next succeeding Dividend Period as soon as practicable after the
Broker-Dealers have been so advised by the Fund. After each Auction, on the
Auction Date, Broker-Dealers will notify Holders of the Applicable Rate for the
next succeeding Dividend Period and of the Auction Date of the next succeeding
Auction.
Notification of Dividend Period. The Fund will designate the duration
of Dividend Periods of the Series B AMPS; provided, however, that no such
designation is necessary for a Standard Dividend Period and that any designation
of a Special Dividend Period will be effective only if (i) notice thereof has
been given as provided herein, (ii) any failure to pay in the timely manner to
the Auction Agent the full amount of any dividend on, or the redemption price
of, the Series B AMPS has been cured as set forth under "-- Default Period,"
(iii) Sufficient Clearing Orders existed in an Auction held on the Auction Date
immediately preceding the first day of such proposed Special Dividend Period,
(iv) if the Fund mailed a notice of redemption with respect to any shares, the
Redemption Price with respect to such shares has been deposited with the Paying
Agent, and (v) the Fund has confirmed that, as of the Auction Date next
preceding the first day of such Special Dividend Period, it has Eligible Assets
with an aggregate Discounted Value at least equal to the Series B AMPS Basic
Maintenance Amount and has consulted with the Broker-Dealers and has provided
notice and a Series B AMPS Basic Maintenance Report to each Rating Agency which
is then rating the Series B AMPS and so requires.
If the Fund proposes to designate any Special Dividend Period, not
fewer than seven Business Days (or two Business Days in the event the duration
of the Special Dividend Period is fewer than ten days) nor more than 30 Business
Days prior to the first day of such Special Dividend Period, notice will be made
by press release and communicated by the Fund by telephonic or other means to
the Auction Agent and confirmed in writing promptly thereafter. Each such notice
will state (x) that the Fund proposes to exercise its option to designate a
succeeding Special Dividend Period, specifying the first and last days thereof
and (y) that the Fund will, by 3:00 p.m., New York City time, on the second
Business Day next preceding the first day of such Special Dividend Period,
notify the Auction Agent, who will promptly notify the Broker-Dealers, of either
its determination, subject to certain conditions, to proceed with such Special
Dividend Period, in which case the Fund may specify the terms of any Specific
Redemption Provisions, or its determination not to proceed with such Special
Dividend Period, in which case the succeeding Dividend Period will be a Standard
Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of any proposed Special Dividend Period, the Fund
will deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(a) a notice stating (i) that the Fund has determined to designate
the immediately succeeding Dividend Period as a Special
Dividend Period, specifying the first and last days thereof and
(ii) the terms of the Specific Redemption Provisions, if any;
or
(b) a notice stating that the Fund has determined not to exercise
its option to designate a Special Dividend Period.
If the Fund fails to deliver either such notice with respect to any designation
of any proposed Special Dividend Period to the Auction Agent or is unable to
make the confirmation described above by 3:00 p.m., New York City time, on the
second Business Day next preceding the first day of such proposed Special
Dividend Period, the Fund will be deemed to have delivered a notice to the
Auction Agent with respect to such Dividend Period to the effect set forth in
clause (b) above, thereby resulting in a Standard Dividend Period.
Default Period. A "Default Period" with respect to the Outstanding
Series B AMPS will commence on any date upon which the Fund fails to deposit
irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon, New
York City time, on the Business Day immediately preceding the relevant Dividend
Payment Date or Redemption Date (or such later date as the Paying Agent may
authorize), as the case may be, (i) the full amount of any declared dividend on
the Outstanding Series B AMPS payable on such Dividend Payment Date (a "Dividend
Default") or (ii) the full amount of any redemption price (the "Redemption
Price") payable on the Series B AMPS being redeemed on such Redemption Date (a
"Redemption Default" and, together with a Dividend Default, a "Default").
A Default Period with respect to a Dividend Default or a Redemption
Default will end by 12:00 noon, New York City time, on the Business Day on which
all unpaid dividends and any unpaid Redemption Price will have been deposited
irrevocably in trust in same-day funds with the Paying Agent.
In the case of a Dividend Default, no Auction will be held during a
Default Period applicable to the Series B AMPS, and the dividend rate for each
Dividend Period commencing during a Default Period will be equal to the Default
Rate; provided, however, that if a Default Period is deemed not to have occurred
because the Default has been cured, then the dividend rate for the period shall
be the Applicable Rate set at the auction for such period.
Each subsequent Dividend Period commencing after the beginning of a
Default Period will be a Standard Dividend Period; provided, however, that the
commencement of a Default Period will not by itself cause the commencement of a
new Dividend Period. No Auction will be held during a Default Period applicable
to such Series; provided, however, that if a Default Period shall end prior to
the end of Standard Dividend Period that had commenced during the Default
Period, an Auction shall be held on the last day of such Standard Dividend
Period.
In the event the Fund fully pays all default amounts due during a
Dividend Period, the dividend rate for the remainder of that Dividend Period
will be, as the case may be, the Applicable Rate (for the first Dividend Period
following a Dividend Default) or the Maximum Rate (for any subsequent Dividend
Period for which such Default is continuing).
No Default Period with respect to a Dividend Default or Redemption
Default will be deemed to commence if the amount of any dividend or any
Redemption Price due (if such Default is not solely due to the willful failure
of the Fund) is deposited irrevocably in trust, in same-day funds with the
Paying Agent by 12:00 noon, New York City time, within three Business Days after
the applicable Dividend Payment Date or Redemption Date, together with an amount
equal to the Default Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 360. The Default Rate
will be equal to the Reference Rate multiplied by three.
Restrictions on Dividends, Redemption and Other Payments
Under the 1940 Act, the Fund may not (i) declare any dividend (except a
dividend payable in shares of the issuer) or other distributions upon any of its
outstanding Common Shares, or purchase any such Common Shares, if at the time of
the declaration, distribution or purchase, as applicable (and after giving
effect thereto), asset coverage with respect to the Fund's outstanding senior
securities representing stock, including the Series A Preferred or Series B
AMPS, would be less than 200% (or such higher percentage as may in the future be
specified in or under the 1940 Act as the minimum asset coverage for senior
securities representing indebtedness of a closed-end investment company as a
condition of declaring distributions, purchases or redemptions of its capital
shares), or (ii) declare any dividend (except a dividend payable in shares of
the issuer) or other distributions upon any of its outstanding capital shares,
including the Series A Preferred or Series B AMPS, or purchase any such capital
shares if, at the time of such declaration, distribution or purchase, as
applicable (and after giving effect thereto), asset coverage with respect to the
senior securities representing indebtedness would be less than 300% (or such
other percentage as may in the future be specified in or under the 1940 Act as
the minimum asset coverage for senior securities representing stock of a
closed-end investment company as a condition of declaring dividends on its
Preferred Shares), except that dividends may be declared upon any Preferred
Shares, including the Series A Preferred or Series B AMPS, if, at the time of
such declaration (and after giving effect thereto), asset coverage with respect
to the senior securities representing indebtedness would be equal to or greater
than 200% (or such other percentage as may in the future be specified in or
under the 1940 Act as the minimum asset coverage for senior securities
representing stock of a closed-end investment company as a condition of
declaring dividends on its Preferred Shares). A declaration of a dividend or
other distribution on or purchase or redemption of Series A Preferred or Series
B AMPS is prohibited, unless there is no event of default under indebtedness
senior to the Series A Preferred and/or Series B AMPS and, immediately after
such transaction, the Fund would have Eligible Assets with an aggregated
Discounted Value at least equal to the asset coverage requirements under
indebtedness senior to its Preferred Shares (including the Series A Preferred
and/or Series B AMPS).
For so long as the Series A Preferred or Series B AMPS is Outstanding,
except as otherwise provided in the Statement of Preferences, the Fund will not
pay any dividend or other distribution (other than a dividend or distribution
paid in shares of, or options, warrants or rights to subscribe for or purchase,
Common Shares or other shares, if any, ranking junior to the Series A Preferred
and/or Series B AMPS as to dividends or upon liquidation) with respect to Common
Shares or any other shares of the Fund ranking junior to the Series A Preferred
and/or Series B AMPS as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consideration any Common
Shares or other shares ranking junior to the Series A Preferred and/or Series B
AMPS (except by conversion into or exchange for shares of the Fund ranking
junior to the Series A Preferred and/or Series B AMPS as to dividends and upon
liquidation), unless, in each case, (x) immediately after such transaction, the
Fund would have Eligible Assets with an aggregate Discounted Value at least
equal to the Basic Maintenance Amount applicable to, as the case may be, the
Series A Preferred or Series B AMPS and the 1940 Act Asset Coverage with respect
to the Fund's Outstanding Preferred Shares, including the Series A Preferred
and/or Series B AMPS, would be achieved, (y) all cumulative and unpaid dividends
due on or prior to the date of the transaction have been declared and paid in
full with respect to the Preferred Shares, including the Series A Preferred
and/or Series B AMPS (or will have been declared and sufficient funds for the
full payment thereof will have been deposited with the Paying Agent or the
dividend-disbursement agent, as applicable) and (z) the Fund has redeemed the
full number of Preferred Shares to be redeemed pursuant to any provision for
mandatory redemption contained in the Statements of Preferences, including any
Series A Preferred and/or Series B AMPS required or determined to be redeemed
pursuant to any such provision.
No full dividend will be declared or paid on the Series A Preferred or
Series B AMPS for any Dividend Period or part thereof, unless full cumulative
dividends due through the most recent Dividend Payment Dates of the Outstanding
Preferred Shares (including the Series A Preferred and/or Series B AMPS) have
been or contemporaneously are declared and paid. If full cumulative dividends
due have not been paid on all such Preferred Shares, any dividends being paid on
such Preferred Shares (including the Series A Preferred and/or Series B AMPS)
will be paid as nearly pro rata as possible in proportion to the respective
amounts of dividends accumulated but unpaid on each such series of Preferred
Shares on the relevant Dividend Payment Date.
[__] AND [__] GUIDELINES
The descriptions of the [__] and [__] Guidelines contained in
this SAI do not purport to be complete and are subject to and qualified in their
entireties by reference to the applicable Articles Supplementary. Copies of the
Articles Supplementary are filed as an exhibit to the registration statement of
which the Prospectus and this SAI are a part and may be inspected, and copies
thereof may be obtained, as described under "Additional Information" in the
Prospectus.
The composition of the Fund's portfolio reflects guidelines
(referred to herein as the "Rating Agency Guidelines") established by [__] and
[__], each a Rating Agency, in connection with the Fund's receipt of a rating of
[__] from [__] and [__] from [__], for the Series B AMPS and a rating of [__]
from [__] for the Series A Preferred. These Rating Agency Guidelines relate,
among other things, to industry and credit quality characteristics of issuers
and diversification requirements and specify various Discount Factors for
different types of securities (with the level of discount greater as the rating
of a security becomes lower). Under the Rating Agency Guidelines, certain types
of securities in which the Fund may otherwise invest consistent with its
investment strategy are not eligible for inclusion in the calculation of the
Discounted Value of the Fund's portfolio. Such instruments include, for example,
private placements (other than Rule 144A Securities) and other securities not
within the Rating Agency Guidelines. Accordingly, although the Fund reserves the
right to invest in such securities to the extent set forth herein, such
securities have not and it is anticipated that they will not constitute a
significant portion of the Fund's portfolio.
The Rating Agency Guidelines require that the Fund maintain
assets having an aggregate Discounted Value, determined on the basis of such
guidelines, greater than the aggregate liquidation preference of the Outstanding
shares of Series A Preferred, Series B AMPS and other Preferred Shares plus
specified liabilities, payment obligations and other amounts, as of periodic
Valuation Dates. The Rating Agency Guidelines also require the Fund to maintain
asset coverage for the Outstanding Shares of Series A Preferred, Series B AMPS
and other Preferred Shares on a non-discounted basis of at least 200% as of the
end of each month, and the 1940 Act requires this asset coverage as a condition
to paying dividends or other distributions on Common Shares. See "Additional
Information Concerning The Series A Preferred and Series B AMPS - Asset
Maintenance." The effect of compliance with the Rating Agency Guidelines may be
to cause the Fund to invest in higher quality assets and/or to maintain
relatively substantial balances of highly liquid assets or to restrict the
Fund's ability to make certain investments that would otherwise be deemed
potentially desirable by the Investment Adviser, including private placements of
other than Rule 144A Securities (as defined herein). The Rating Agency
Guidelines are subject to change from time to time with the consent of the
relevant Rating Agency and will apply to the Series A Preferred or Series B AMPS
only so long as the relevant Rating Agency is rating such shares at the request
of the Fund. If in the future the Fund elected to issue senior securities rated
by a rating agency other than [__] or [__], other similar arrangements might
apply with respect to those securities.
The Fund intends to maintain, at specified times, a Discounted
Value for its portfolio at least equal to the amount specified by each Rating
Agency (the "Basic Maintenance Amount"), the determination of which is as set
forth under "Additional Information Concerning The Series A Preferred and Series
B AMPS -- Asset Maintenance." [__] and [__] have each established separate
guidelines for determining Discounted Value. To the extent any particular
portfolio holding does not satisfy the applicable Rating Agency's Guidelines,
all or a portion of such holding's value will not be included in the calculation
of Discounted Value (as defined by such Rating Agency).
Upon any failure to maintain the required Discounted Value,
the Fund may seek to alter the composition of its portfolio to reestablish
required asset coverage within the specified ten Business Day cure period,
thereby incurring additional transaction costs and possible losses and/or gains
on dispositions of portfolio securities.
The Rating Agency Guidelines do not impose any limitations on
the percentage of Fund assets that may be invested in holdings not eligible for
inclusion in the calculation of the Discounted Value of the Fund's portfolio.
The amount of such assets included in the portfolio at any time may vary
depending upon the rating, diversification and other characteristics of the
assets included in the portfolio which are eligible for inclusion in the
Discounted Value of the portfolio under the Rating Agency Guidelines.
A rating of preferred shares as [__] (as described by [__]) or
[__] (as described by [__]) indicates strong asset protection, conservative
balance sheet ratios and positive indications of continued protection of
preferred dividend requirements. A [__] or [__] credit rating of preferred
shares does not address the likelihood that a resale mechanism (such as the
Auction) will be successful. As described respectively by [__] and [__], an
issue of preferred shares which is rated [__] or [__] is considered to be
top-quality preferred sthares with good asset protection and the least risk of
dividend impairment within the universe of preferred shares.
The Fund will pay certain fees to [__] and [__] for rating, as
the case may be, the Series A Preferred or Series B AMPS . Such ratings may be
subject to revision or withdrawal by the assigning Rating Agency for any time.
Any rating of the Series A Preferred or Series B AMPS should be evaluated
independently of any other ratings. Ratings are not recommendations to purchase,
hold or sell Series A Preferred or Series B AMPS, inasmuch as the rating does
not comment as to market price or suitability for a particular investor. The
rating is based on current information furnished to [__] and [__] by the Fund
and obtained by [__] and [__] from other sources. The rating may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information. The Fund has no current intention to file a voluntary application
for relief under federal bankruptcy law or any similar application under state
law for so long as the Fund is solvent and does not foresee becoming insolvent.
[__] Guidelines
[__] Guidelines
NET ASSET VALUE
The net asset value of the Fund's shares will be computed based on the
market value of the assets it holds and will generally be determined daily as of
the close of regular trading on the New York Stock Exchange. The net asset value
of the Fund's shares is reported to the financial press on a weekly basis.
Portfolio instruments of the Fund which are traded in a market subject
to government regulation on which trades are reported contemporaneously
generally will be valued at the last sale price on the principal market for such
instruments as of the close of regular trading on the day the instruments are
being valued, or lacking any sales, at the average of the bid and asked price on
the principal market for such instruments on the most recent date on which bid
and asked prices are available. Initial public offering securities are initially
valued at cost, and thereafter as any other equity security. Other readily
marketable assets will be valued at the average of quotations provided by
dealers maintaining an active market in such instruments. Short-term debt
instruments that are credit impaired or mature in more than 60 days for which
market quotations are available are valued at the latest average of the bid and
asked prices obtained from a dealer maintaining an active market in that
security. Short-term investments that are not credit impaired and mature in 60
days or fewer are valued at amortized cost from purchase price or value on the
61st day prior to maturity. Securities and other assets for which market
quotations are not readily available will be valued at fair value as determined
in good faith by or under the direction of the Investment Adviser in accordance
with guidelines adopted by the Fund. The Fund may employ recognized pricing
services from time to time for the purpose of pricing portfolio instruments
(including non-U.S. dollar-denominated assets and futures and options).
Trading takes place in various foreign markets on days which are not
Business Days and on which therefore the Fund's net asset value per share is not
calculated. The calculation of the Fund's net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
held by the Fund. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the NYSE will not
be reflected in the Fund's calculation of net asset value unless the Investment
Adviser, pursuant to procedures established by the Board of Trustees, deems that
the particular event would materially affect the net asset value, in which case
the fair value of those securities will be determined by consideration of other
factors by or under the direction of the Board of Trustees.
Net asset value per Common Share is calculated by dividing the value of
the securities held plus any cash or other assets minus all liabilities,
including accrued expenses, and minus the aggregate liquidation preference of
any preferred shares by the total number of shares outstanding at such time.
BENEFICIAL OWNERS
Name and Address of Amount of
Beneficial/Record Owner Shares and Nature Percent
as of September 15, 2003 Title of Class of Ownership of Class
------------------------ -------------- ----------------- ------------
Cede & Co.* Common [__] (Record) [__]
P.O. Box 29
Bowling Green Station
New York, NY 10274
* A nominee partnership of DTC.
As of December 31, 2003, the Directors and Officers of the Fund as a
group beneficially owned approximately 3% of the outstanding shares of the
Fund's Common Shares.
GENERAL INFORMATION
Book-Entry-Only Issuance
DTC will act as securities depository for the shares of Series A
Preferred and/or Series B AMPS offered pursuant to the Prospectus. The
information in this section concerning DTC and DTC's book-entry system is based
upon information obtained from DTC. The securities offered hereby initially will
be issued only as fully-registered securities registered in the name of Cede &
Co. (as nominee for DTC). One or more fully-registered global security
certificates initially will be issued, representing in the aggregate the total
number of securities, and deposited with DTC.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants deposit with
DTC. DTC also facilities the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
DTC participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Access to the DTC system
is also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
direct participant, either directly or indirectly through other entities.
Purchases of securities within the DTC system must be made by or
through direct participants, which will receive a credit for the securities on
DTC's records. The ownership interest of each actual purchaser of a security, a
beneficial owner, is in turn to be recorded on the direct or indirect
participants' records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the direct or indirect participants through
which the beneficial owners purchased securities. Transfers of ownership
interests in securities are to be accomplished by entries made on the books of
participants acting on behalf of beneficial owners. Beneficial owners will not
receive certificates representing their ownership interests in securities,
except as provided herein.
DTC has no knowledge of the actual beneficial owners of the securities
being offered pursuant to this Prospectus; DTC's records reflect only the
identity of the direct participants to whose accounts such securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payments on the securities will be made to DTC. DTC's practice is to
credit direct participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
participants to beneficial owners will be governed by standing instructions and
customary practices and will be the responsibility of such participant and not
of DTC or the Fund, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Fund, disbursement of such payments to direct participants
is the responsibility of DTC, and disbursement of such payments to the
beneficial owners is the responsibility of direct and indirect participants.
Furthermore each beneficial owner must rely on the procedures of DTC to exercise
any rights under the securities.
DTC may discontinue providing its services as securities depository
with respect to the securities at any time by giving reasonable notice to the
Fund. Under such circumstances, in the event that a successor securities
depository is not obtained, certificates representing the securities will be
printed and delivered.
Counsel and Independent Auditors
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York,
New York 10036 is counsel to the Fund in connection with the issuance of the
Common Shares.
PricewaterhouseCoopers LLP serve as independent accountants of the
Fund and will annually audit the financial statements of the Fund.
Proxy Voting Procedures
The Fund has adopted the proxy voting procedures of the Investment
Adviser and has directed the Investment Adviser to vote all proxies relating to
the Fund's voting securities in accordance with such procedures. The proxy
voting procedures have been filed with the Securities and Exchange Commission
and can be reviewed and copied at the Securities and Exchange Commission's
Public Reference Room in Washington, D.C. and information on the operation of
the Public Reference Room may be obtained by calling the Securities and Exchange
Commission at 202-942-8090. The proxy voting procedures are also available on
the EDGAR Database on the Securities and Exchange Commission's Internet site at
http:// www.sec.gov, and copies of the proxy voting procedures may be obtained,
after paying a duplicating fee, by electronic request at the following E-mail
address: publicinfo@sec.gov, or by writing the Securities and Exchange
Commission's Public Reference Section, Washington, D.C. 20549-0102. In addition,
information on how the Fund voted proxies relating to voting securities during
the most recent twelve month period is available, upon request, by calling
800-GABELLI (800-422-3554). The proxy voting procedures are also available at
http://www.gabelli.com and on the Security and Exchange Commissions website at
http://www.sec.gov.
Code of Ethics
The Fund and the Investment Adviser have adopted a code of ethics. This
code of ethics sets forth restrictions on the trading activities of
trustees/directors, officers and employees of the Fund, the Investment Adviser
and their affiliates. For example, such persons may not purchase any security
for which the Fund has a purchase or sale order pending, or for which such trade
is under consideration. In addition, those trustees/directors, officers and
employees that are principally involved in investment decisions for client
accounts are prohibited from purchasing or selling for their own account for a
period of seven days a security that has been traded for a client's account,
unless such trade is executed on more favorable terms for the client's account
and it is determined that such trade will not adversely affect the client's
account. Short-term trading by such trustee/directors, officers and employees
for their own accounts in securities held by a Fund client's account is also
restricted. The above examples are subject to certain exceptions and they do not
represent all of the trading restrictions and policies set forth by the code of
ethics. The code of ethics is on file with the Securities and Exchange
Commission and can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C., and information on the
operation of the Public Reference Room may be obtained by calling the Securities
and Exchange Commission at 202-942-8090. The code of ethics is also available on
the EDGAR Database on the Securities and Exchange Commission's Internet site at
http:// www.sec.gov, and copies of the code of ethics may be obtained, after
paying a duplicating fee, by electronic request at the following E-mail address:
publicinfo@sec.gov, or by writing the Securities and Exchange Commission's
Public Reference Section, Washington, D.C. 20549-0102.
Code of Conduct for Chief Executive and Senior Financial Officers
The Fund and the Investment Adviser have adopted a code of conduct.
This code of conduct sets forth policies to guide the chief executive and senior
financial officers in the performance of their duties. The code of conduct is on
file with the Securities and Exchange Commission and can be reviewed and copied
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C., and information on the operation of the Public Reference Room may be
obtained by calling the Securities and Exchange Commission at 202-942-8090. The
code of ethics is also available on the EDGAR Database on the Securities and
Exchange Commission's Internet site at http:// www.sec.gov, and copies of the
code of ethics may be obtained, after paying a duplicating fee, by electronic
request at the following E-mail address: publicinfo@sec.gov, or by writing the
Securities and Exchange Commission's Public Reference Section, Washington, D.C.
20549-0102.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the
Fund's Shareholders for the period ended December 31, 2003, together with the
report of PricewaterhouseCoopers LLP thereon, are also incorporated herein by
reference from the Fund's Annual Report to Shareholders. All other portions of
the Annual Report to Shareholders are not incorporated herein by reference and
are not part of the Registration Statement. A copy of the Annual Report to
Shareholders may be obtained without charge by writing to the Fund at its
address at One Corporate Center, Rye, New York 10580-1422 or by calling the Fund
toll-free at 800-GABELLI (422-3554).
GLOSSARY
"Adjusted Value" of each Eligible Asset shall be computed as follows:
(i) cash shall be valued at 100% of the face value thereof; and
(ii) all other Eligible Assets shall be valued at the applicable
Discounted Value thereof; and
(iii) each asset that is not an Eligible Asset shall be valued at zero.
"Administrator" means the other party to the Administration Agreement with the
Fund, which shall initially be Gabelli Funds, LLC, a New York limited liability
company, and will include, as appropriate, any sub-administrator appointed by
the Administrator.
["Advance Rate" means (a) so long as [__] is rating the Series E Preferred
Stock at the Corporation's request, the Advance Rates set forth in the
definition of [__] Rating Factor or (b) any applicable advance rate
established by any Other Rating Agency, whichever is applicable.]
"Affiliate" means, with respect to the Auction Agent, any person known to the
Auction Agent to be controlled by, in control of or under common control with
the Fund; provided, however, that no Broker-Dealer controlled by, in control of
or under common control with the Fund will be deemed to be an Affiliate nor will
any Person controlled by, in control of or under common control with such
Person, one of the directors or executive officers of which is director of the
Fund, be deemed to be an Affiliate solely because such director or executive
officer is also a director of the Fund.
"Agent Member" means a member of or a participant in the Securities Depository
that will act on behalf of a Bidder.
"All Hold Rate" means 90% of the Reference Rate.
"Applicable Rate" means, with respect to the Series B AMPS, for each Dividend
Period (i) if Sufficient Clearing Bids exist for the Auction in respect thereof,
the Winning Bid Rate, (ii) if Sufficient Clearing Orders do not exist for the
Auction in respect thereof or an Auction does not take place with respect to
such Dividend Period because of the commencement of a Default Period that ends
prior to an Auction Date, the Maximum Rate and (iii) if all Series B AMPS is the
subject of Submitted Hold Orders for the Auction in respect thereof, the All
Hold Rate.
"Auction" means each periodic operation of the Auction Procedures.
"Auction Agent" means The Bank of New York unless and until another commercial
bank, trust company, or other financial institution appointed by a resolution of
the Board of Trustees enters into an agreement with the Fund to follow the
Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the last day of the initial Dividend Period and each
seventh day after the immediately preceding Auction Date; provided, however,
that if any such seventh day is not a Business Day, such Auction Date shall be
the first preceding day that is a Business Day and the next Auction Date, if for
a Standard Dividend Period, shall (subject to the same advancement procedure) be
the seventh day after the date that the preceding Auction Date would have been
if not for the advancement procedure; provided further, however, that the
Auction Date for the Auction at the conclusion of any Special Dividend Period
shall be the last Business Day in such Special Dividend Period and that no more
than one Auction shall be held during any Dividend Period; provided, further,
however, that the Auction Date following a Default Period shall be the last
Business Day in the Standard Dividend Period that commenced during such Default
Period. Notwithstanding the foregoing, in the event an auction is not held
because an unforeseen event or unforeseen events cause a day that otherwise
would have been an Auction Date not to be a Business Day, then the length of the
then-current dividend period will be extended by seven days (or a multiple
thereof if necessary because of such unforeseen event or events).
"Auction Procedures" means the procedures for conducting Auctions described in
"Additional Information Concerning the Auction for Series B AMPS."
"Available Series B AMPS" has the meaning set forth in "Additional Information
Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing
Bids, Winning Bid Rate and Applicable Rate."
"Basic Maintenance Amount" has the meaning set forth in "Additional Information
Concerning The Series A Preferred and Series B AMPS -- Asset Maintenance."
"Basic Maintenance Report" means, with respect to the Series B AMPS, a report
prepared by the Administrator which sets forth, as of the related Monthly
Valuation Date, (i) [__] Eligible Assets and [__] Eligible Assets sufficient to
meet or exceed the Basic Maintenance Amount, the Market Value and Discounted
Value thereof (seriatim and in the aggregate), (iii) the Basic Maintenance
Amount, and (iv) the net asset value of the Fund. Such report will also include
(A) the month-end closing price for the Common Shares of the Fund (B) the
monthly total-return per Common Shares, which will be determined based upon
month-end closing share prices, assuming reinvestment of all dividends paid
during such month and (C) the total leverage positions of the Fund. For the
purposes of this Statement of Preferences, "Basic Maintenance Report" or
"Report" shall have a correlative meaning with respect to any other class or
series of Preferred Shares.
"Beneficial Owner" with respect to Series B AMPS, means a customer of a
Broker-Dealer who is listed on the records of that Broker-Dealer (or, if
applicable, the Auction Agent) as a holder of such shares of such series.
"Bid" has the meaning set forth in "Additional Information Concerning the
Auction for the Series B AMPS -- Orders by Existing Holders and Potential
Holders."
"Bidder" has the meaning set forth in "Additional Information Concerning the
Auction for Series B AMPS -- Orders by Existing Holders and Potential Holders."
"Board of Trustees" or "Board" means the Board of Trustees of the Fund or any
duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity
permitted by law to perform the functions required of a Broker-Dealer by the
Auction Procedures, that has been selected by the Fund and has entered into a
Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a
Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the Auction
Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in The
City of New York, New York are authorized or obligated by law to close.
"By-Laws" means the By-Laws of the Fund, as amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Shares" means the shares of the Fund's common shares, par value $.001
per share.
"Cure Date" has the meaning set forth in paragraph 3(a)(i) of Article II of the
Statement of Preferences for the Series A Preferred and paragraph 3(a)(ii) of
Article I of the Statement of Preferences for the Series B AMPS.
"Date of Original Issue" means the date on which the Series A Preferred or
Series B AMPS, as the case may be, is originally issued by the Fund.
"Declaration" means the Agreement and Declaration of Trust of the Fund, dated as
of February 25, 1999, as amended, supplemented or restated from time to time
(including by the Statements of Preferences or by way of any other supplement or
Statement of Preferences authorizing or creating a class of shares of beneficial
interest in the Fund).
"Default Period" has the meaning set forth in "Additional Information Concerning
the Series A Preferred and Series B AMPS -- Dividends and Dividend Period."
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S.
Government Obligations. Except for determining whether the Fund has Eligible
Assets with an Adjusted Value equal to or greater than the Basic Maintenance
Amount, each Deposit Asset shall be deemed to have a value equal to its
principal or face amount payable at maturity plus any interest payable thereon
after delivery of such Deposit Asset but only if payable on or prior to the
applicable payment date in advance of which the relevant deposit is made.
"Discount Factor" means (i) so long as [__] is rating the Series A Preferred or
Series B AMPS at the Fund's request, the [__] Discount Factor, (ii) so long as
[__] is rating the Series B AMPS, the [__] Discount Factor, and/or (iii) any
applicable discount factor established by any Other Rating Agency, whichever is
applicable.
"Discounted Value" means, as applicable, (i) the quotient of the Market Value of
an Eligible Asset divided by the applicable Discount Factor, or (ii) such other
formula for determining the discounted value of an Eligible Asset as may be
established by an applicable Rating Agency, provided that with respect to an
Eligible Asset that is currently callable, Discounted Value will be equal to the
applicable quotient or product as calculated above or the call price, whichever
is lower, and that with respect to an Eligible Asset that is prepayable,
Discounted Value will be equal to the applicable quotient or product as
calculated above or the par value, whichever is lower.
"Dividend Default" has the meaning set forth in "Additional Information
Concerning the Series A Preferred and Series B AMPS -- Dividends and Dividend
Period."
"Dividend Payment Date" means, with respect to the Series A Preferred, any date
on which dividends declared by the Board of Trustees thereon are payable
pursuant to the provisions of paragraph 1(a) of Article II of the Statement of
Preferences of the Series A Preferred, and, with respect to the Series B AMPS,
any date on which dividends declared by the Board of Trustees thereon are
payable pursuant to the provisions of paragraph 2(b) of Article I of the
Statement of Preferences, for the Series B AMPS, and shall have a correlative
meaning with respect to any other class or series of Preferred Shares.
"Dividend Period" means, with respect to Series A Preferred, the quarterly
dividend specified in paragraph 1(a) of Article II of the Statement of
Preferences for the Series A Preferred and, with respect to Series B AMPS, the
initial period determined in the manner set forth under "Designation" in the
Statement of Preferences of the Series B AMPS, and thereafter, the period
commencing on the Business Day following each Auction Date and ending on the
next Auction Date or, if such next Auction Date is not immediately followed by a
Business Day, on the latest day prior to the next succeeding Business Day.
"Eligible Assets" means [__] Eligible Assets (if [__] is then rating the Series
A Preferred or Series B AMPS at the request of the Fund), [__] Eligible Assets
(if [__] is then rating the Series B AMPS at the request of the Fund), and/or
Other Rating Agency Eligible Assets if any Other Rating Agency is then rating
the Series A Preferred or Series B AMPS, whichever is applicable.
"Existing Holder" means (i) a person who beneficially owns those shares of
Series B AMPS listed in that person's name in the records of the Fund or the
Auction Agent or (ii) the beneficial owner of those shares of Series B AMPS
which are listed under such person's Broker-Dealer's name in the records of the
Auction Agent, which Broker-Dealer will have signed a master purchaser's letter.
"Governing Documents" means the Declaration, and the By-Laws
"Hold Order" has the meaning set forth in "Additional Information Concerning the
Auction for Series B AMPS -- Orders By Existing Holders and Potential Holders."
"Holder" means, with respect to the Series B AMPS, the registered holder of
Series B AMPS shares as the same appears on the share ledger or share records of
the Fund or records of the Auction Agent, as the case may be.
"Industry Classification" means a six-digit industry classification in the
Standard Industry Classification system published by the United States.
"LIBOR Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and
such other dealer or dealers as the Fund may from time to time appoint, or, in
lieu of any thereof, their respective affiliates or successors.
"LIBOR Rate" on any Auction Date, means (i) the rate for deposits in U.S.
dollars for the designated Dividend Period, which appears on display page 3750
of Moneyline's Telerate Service ("Telerate Page 3750") (or such other page as
may replace that page on that service, or such other service as may be selected
by the LIBOR Dealer or its successors that are LIBOR Dealers) as of 11:00 a.m.,
London time, on the day that is the London Business Day preceding the Auction
Date (the "LIBOR Determination Date"), or (ii) if such rate does not appear on
Telerate Page 3750 or such other page as may replace such Telerate Page 3750,
(A) the LIBOR Dealer shall determine the arithmetic mean of the offered
quotations of the Reference Banks to leading banks in the London interbank
market for deposits in U.S. dollars for the designated Dividend Period in an
amount determined by such LIBOR Dealer by reference to requests for quotations
as of approximately 11:00 a.m. (London time) on such date made by such LIBOR
Dealer to the Reference Banks, (B) if at least two of the Reference Banks
provide such quotations, LIBOR Rate shall equal such arithmetic mean of such
quotations, (C) if only one or none of the Reference Banks provide such
quotations, LIBOR Rate shall be deemed to be the arithmetic mean of the offered
quotations that leading banks in The City of New York selected by the LIBOR
Dealer (after obtaining the Fund's approval) are quoting on the relevant LIBOR
Determination Date for deposits in U.S. dollars for the designated Dividend
Period in an amount determined by the LIBOR Dealer (after obtaining the Fund's
approval) that is representative of a single transaction in such market at such
time by reference to the principal London offices of leading banks in the London
interbank market; provided, however, that if one of the LIBOR Dealers does not
quote a rate required to determine the LIBOR Rate, the LIBOR Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute LIBOR Dealer or Substitute LIBOR Dealers selected by the Fund to
provide such rate or rates not being supplied by the LIBOR Dealer; provided
further, that if the LIBOR Dealer and Substitute LIBOR Dealers are required but
unable to determine a rate in accordance with at least one of the procedures
provided above, LIBOR Rate shall be LIBOR Rate as determined on the previous
Auction Date. If the number of Dividend Period days shall be (1) 7 or more but
fewer than 21 days, such rate shall be the seven-day LIBOR rate; (2) more than
21 but fewer than 49 days, such rate shall be the one-month LIBOR rate; (3) 49
or more but fewer than 77 days, such rate shall be the two-month LIBOR rate; (4)
77 or more but fewer than 112 days, such rate shall be the three-month LIBOR
rate; (5) 112 or more but fewer than 140 days, such rate shall be the four-month
LIBOR rate; (6) 140 or more but fewer than 168 days, such rate shall be the
five-month LIBOR rate; (7) 168 or more but fewer than 189 days, such rate shall
be the six-month LIBOR rate; (8) 189 or more but fewer than 217 days, such rate
shall be the seven-month LIBOR rate; (9) 217 or more but fewer than 252 days,
such rate shall be the eight-month LIBOR rate; (10) 252 or more but fewer than
287 days, such rate shall be the nine-month LIBOR rate; (11) 287 or more but
fewer than 315 days, such rate shall be the ten-month LIBOR rate; (12) 315 or
more but fewer than 343 days, such rate shall be the eleven-month LIBOR rate;
and (13) 343 or more but fewer than 365 days, such rate shall be the
twelve-month LIBOR rate.
"London Business Day" means any day on which commercial banks are generally open
for business in London.
"Liquidation Preference" means $25 per share of Series A Preferred and $25,000
per share of Series B AMPS and will have a correlative meaning with respect to
shares of any other class or series of Preferred Shares.
"Market Capitalization" means, with respect to any issue of common stock, as of
any date, the product of (i) the number of shares of such common stock issued
and outstanding as of the close of business on the date of determination thereof
and (ii) the Market Value per share of such common stock as of the close of
business on the date of determination thereof.
"Market Value" means the amount determined by the Fund with respect to
specific Eligible Assets in accordance with valuation policies adopted from
time to time by the Board of Trustees as being in compliance with the
requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the
Fund with respect to any of its assets, mean the amount determined with respect
to specific Eligible Assets of the Fund in the manner set forth below:
(i) as to any common or preferred stock which is an Eligible Asset,
(a) if the stock is traded on a national securities exchange or
quoted on the Nasdaq System, the last sales price reported on
the Valuation Date or (b) if there was no reported sales price
on the Valuation Date, the price obtained from a Pricing
Service as of the Valuation Date, or (c) if there was no
reported sales price on the Valuation Date or price available
from a Pricing Service, the lower of two bid prices for such
stock provided to the Administrator by two recognized
securities dealers with a minimum capitalization of $25,000,000
(or otherwise approved for such purpose by [__] and [__]) at
least one of which will be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained
quotation reducible to written form or similar means, and in
turn provided to the Fund by any such means by such
administrator, or, if two bid prices cannot be obtained, such
Eligible Asset will have a Market Value of zero;
(ii) as to any U.S. Government Obligation, Short-Term Money Market
Instrument (other than demand deposits, federal funds, bankers'
acceptances and next Business Day repurchase agreements) and
commercial paper, with a maturity of greater than 60 days, the
product of (a) the principal amount (accreted principal to the
extent such instrument accretes interest) of such instrument
and (b) the price provided by a Pricing Service or, if not
obtainable through a Pricing Service, the lower of the bid
prices for the same kind of instruments having, as nearly as
practicable, comparable interest rates and maturities provided
by two recognized securities dealers having minimum
capitalization of $25,000,000 (or otherwise approved for such
purpose by [__] and [__]) to the administrator, at least one of
which will be provided in writing or by telecopy, telex, other
electronic transcription, computer obtained quotation reducible
to written form or similar means, and in turn provided to the
Fund by any such means by such administrator, or, if two bid
prices cannot be obtained, such Eligible Asset will have a
Market Value of zero;
(iii) as to cash, demand and timed deposits, federal funds, bankers'
acceptances and next Business Day repurchase agreements
included in Short-Term Money Market Instruments, the face value
thereof;
(iv) as to any U.S. Government Obligation, Short-Term Money Market
Instrument or commercial paper with a maturity of 60 days or
fewer, amortized cost unless the Board of Trustees determines
that such value does not constitute fair value; or
(v) as to any other evidence of indebtedness which is an Eligible
Asset, (a) the product of (1) the unpaid principal balance of
such indebtedness as of the Valuation Date and (2)(A) if such
indebtedness is traded on a national securities exchange or
quoted on the Nasdaq System, the last sales price reported on
the Valuation Date or (B) if there was no reported sales price
on the Valuation Date and if such indebtedness is not traded on
a national securities exchange or quoted on the Nasdaq System,
the price obtained from a Pricing Service as of the Valuation
Date or (C) if there was no reported sales price on the
Valuation Date or if such indebtedness is not traded on a
national securities exchange or quoted on the Nasdaq System,
and a price was not obtainable from a Pricing Service as of the
Valuation Date, the lower of two bid prices for such
indebtedness provided by two recognized dealers with a minimum
capitalization of $25,000,000 (or otherwise approved for such
purpose by [__] and [__]) to the administrator of the Fund's
assets, at least one of which will be provided in writing or by
telecopy, telex, other electronic transcription, computer
obtained quotation reducible to written form or similar means,
and in turn provided to the Fund by any such means by such
administrator, plus (b) accrued interest on such indebtedness.
Notwithstanding the foregoing, in the case of preferred stock that is
rated by a single Rating Agency, "Market Value" shall have the meaning set forth
in the governing documents of such preferred stock.
"Maximum Rate" means, on any day on which the Applicable Rate is determined, the
greater of (as set forth in the table below) (i) the applicable percentage of
the Reference Rate or (ii) the applicable spread plus the Reference Rate. The
reference rate is the applicable LIBOR Rate (for a dividend period or a special
dividend period of fewer than 365 days), or the applicable Treasury Index Rate
(for a special dividend period of 365 days or more). The applicable percentage
and applicable spread will be determined based on the lower of the credit
ratings assigned to the Series B AMPS by [__] and [__] subject to upward. If
[__] and [__]or both do not make such ratings available, the rate will be
determined by reference to equivalent ratings issued by a substitute rating
agency.
Credit Ratings for Series B AMPS
Applicable Applicable
[__] Credit Rating [__] Credit Rating Percentage Spread
------------------ ------------------ ---------- ------
[__] or higher [__]or higher 150%
[__] to [__] [__] to [__] 175%
[__]to [__] [__] to [__] 250%
Below [__] Below [__] 275%
"Monthly Valuation Date" means the last Vlauation Date of any calendar month.
"[__]" means [__] Investors Service, Inc. and its successors at law.
"[__] Discount Factor" has the meaning ascribed to it in "[__] and [__]
Guidelines -- [__] Guidelines."
"[__] Eligible Assets" has the meaning ascribed to it in "[__] and [__]
Guidelines -- [__] Guidelines."
"1940 Act" means the Investment Company Act of 1940, or any successor statute.
"1940 Act Asset Coverage" means asset coverage, as determined in accordance with
Section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Fund which are stock, including all Outstanding shares
of Series A Preferred and Series B AMPS (or such other asset coverage as may in
the future be specified in or under the 1940 Act as the minimum asset coverage
for senior securities which are stock of a closed-end investment company as a
condition of declaring dividends on its common shares), determined on the basis
of values calculated as of a time within 48 hours (not including Saturdays,
Sundays or holidays) next preceding the time of such determination.
"1940 Act Asset Coverage Certificate" means the certificate required to be
delivered by the Fund pursuant to paragraph 9(a)(i)(B) of Article I of the
Statement of Preferences of the Series B AMPS.
"Non-Call Period" means a period determined by the Board of Trustees after
consultation with the Broker-Dealers, during which the Series B AMPS subject to
such Special Dividend Period are not subject to redemption at the option of the
Fund but only to mandatory redemption.
"NRSRO" means a Nationally Recognized Statistical Ratings Organization.
"Order" has the meaning set forth in "Additional Information Concerning the
Auction for Series B AMPS -- Orders By Existing Holders and Potential Holders."
"Other Rating Agency" means any rating agency other than [__] or [__] then
providing a rating for the Series B AMPS pursuant to the request of the Fund.
"Other Rating Agency Eligible Assets" means assets of the Fund designated by any
Other Rating Agency as eligible for inclusion in calculating the discounted
value of the Fund's assets in connection with such Other Rating Agency's rating
of the Series B AMPS.
"Outstanding" means, as of any date, Preferred Shares theretofore issued by the
Fund except:
(i) any such Preferred Shares theretofore cancelled by the Fund or
delivered to the Fund for cancellation;
(ii) any such share of Preferred Shares other than auction market
Preferred Shares as to which a notice of redemption will have
been given and for whose payment at the redemption thereof
Deposit Assets in the necessary amount are held by the Fund in
trust for, or have been irrevocably deposited with the
relevant disbursing agent for payment to, the holder of such
share pursuant to the Statement of Preferences with respect
thereto;
(iii) in the case of auction market Preferred Shares, any such
shares theretofore delivered to the applicable auction agent
for cancellation or with respect to which the Fund has given
notice of redemption and irrevocably deposited with the
applicable paying agent sufficient funds to redeem such
shares; and
(iv) any such Preferred Shares in exchange for or in lieu of which
other shares have been issued and delivered.
Notwithstanding the foregoing, (x) for purposes of voting rights (including the
determination of the number of shares required to constitute a quorum), any
Preferred Shares as to which the Fund or any subsidiary is the holder or
Existing Holder, as applicable, will be disregarded and deemed not Outstanding;
and (y) in connection with any auction, any auction market Preferred Shares as
to which the Fund or any Person known to the auction agent to be an subsidiary
is the holder or Existing Holder, as applicable, will be disregarded and not
deemed Outstanding.
"Paying Agent" means with respect to Series B AMPS, The Bank of New York unless
and until another entity appointed by a resolution of the Board of Trustees
enters into an agreement with the Fund to serve as paying agent, which paying
agent may be the same as the Auction Agent and, with respect to any other class
or series of Preferred Shares, the Person appointed by the Fund as dividend
disbursing or paying agent with respect to such class or series.
"Person" means and includes an individual, a partnership, the Fund, a trust, a
corporation, a limited liability company, an unincorporated association, a joint
venture or other entity or a government or any agency or political subdivision
thereof.
"Potential Beneficial Owner or Holder" means (i) any Existing Holder who may be
interested in acquiring additional shares of Series B AMPS or (ii) any other
person who may be interested in acquiring shares of Series B AMPS and who has
signed a master purchaser's letter or whose shares will be listed under such
person's Broker-Dealer's name on the records of the Auction Agent which
Broker-Dealer will have executed a master purchaser's letter.
"Preferred Shares" means the preferred shares, par value $.001 per share, of the
Fund, and includes the Series A Preferred and Series B AMPS.
"Premium Call Period" means a period consisting of a number of whole years as
determined by the Board of Trustees after consultation with the Broker-Dealers,
during each year of which the shares subject to such Special Dividend Period
will be redeemable at the Fund's option at a price per share equal to the
Liquidation Preference plus accumulated but unpaid dividends (whether or not
earned or declared) plus a premium expressed as a percentage or percentages of
the Liquidation Preference or expressed as a formula using specified variables
as determined by the Board of Trustees after consultation with the
Broker-Dealers.
"Pricing Service" means any of the following: Bloomberg Financial Service,
Bridge Information Services, Data Resources Inc., FT Interactive, International
Securities Market Association, Merrill Lynch Securities Pricing Service, Muller
Data Corp., Reuters, [__]/J.J. Kenny, Telerate, Trepp Pricing and Wood Gundy.
"Rating Agency" means [__] and [__] as long as such rating agency is then rating
the Series A Preferred or the Series B AMPS at the request of the Fund, or any
other rating agency then rating the Series A Preferred or the Series B AMPS at
the request of the Fund.
"Rating Agency Guidelines" has the meaning set forth in set forth in "[__] and
[__] Guidelines."
"Redemption Date" means, with respect to shares of the Fund's Outstanding
Preferred Shares, the date fixed by the Fund for the redemption of such shares.
"Redemption Default" has the meaning set forth in "Additional Information
Concerning the Series A Preferred and Series B AMPS -- Dividends and Dividend
Period."
"Redemption Price" means, with respect to the Series A Preferred, the price set
forth in paragraph 3(a) of Article II of the Statement of Preferences for the
Series A Preferred and, with respect to the Series B AMPS, the price set forth
in paragraph 3(a)(i) of Article I of the Statement of Preferences for the Series
B AMPS.
"Reference Banks" means four major banks in the London interbank market selected
by [__] or its affiliates or successwors or such other party as the Fund may
from time to time appoint.
"Reference Rate" means, with respect to the determination of the Default Rate,
the applicable LIBOR Rate for a Dividend Period of 364 days or fewer or the
applicable Treasury Index Rate for a Dividend Period of longer than 364 days
and, with respect to the determination of the Maximum Rate, the LIBOR Rate or
the Treasury Index Rate, as appropriate.
"[__]" means [__], or its successors at law.
"[__] Discount Factor" has the meaning set forth in "[__] and [__] Guidelines --
[__] Guidelines."
"[__] Eligible Assets" has the meaning set forth in "[__] and [__] Guidelines --
[__] Guidelines."
"[__] Hedging Transactions" has the meaning set forth in "[__] and [__]
Guidelines -- [__] Guidelines"
"SEC" means the United States Securities and Exchange Commission
"Securities Act" means The Securities Act of 1933, as amended, or any successor
statute.
"Securities Depository" means The Depository Trust Company and its successors
and assigns or any successor securities depository selected by the Fund that
agrees to follow the procedures required to be followed by such securities
depository in connection with the shares of Series A Preferred or Series B AMPS.
"Sell Order" has the meaning set forth in "Additional Information Concerning the
Auction for Series B AMPS -- Orders by Existing Holders and Potential Holders."
"Series A Preferred" means the Fund's Series A Cumulative Preferred Shares,
$.001 par value per share and liquidation preference $25 per share.
"Series B AMPS" means the Fund's Series B AMPS Shares, $.001 par value per share
and liquidation preference $25,000 per share.
"Series B AMPS Basic Maintenance Amount Test" means a test which is met if the
lower of the aggregate Discounted Values of the [__] Eligible Assets or the [__]
Eligible Assets if both [__] and [__] are then rating the Series B AMPS at the
request of the Fund, or the Eligible Assets of whichever of [__] or [__] is then
doing so if only one of [__] or [__] is then rating the Series B AMPS at the
request of the Fund, meets or exceeds the Basic Maintenance Amount with respect
to the Series B AMPS.
"Short-Term Money Market Instruments" means the following types of instruments
if, on the date of purchase or other acquisition thereof by the Fund, the
remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in
30 days, or A-1+ if such commercial paper matures in over 30
days;
(ii) AAAm rated money market funds
(iii) demand or time deposits in, and banker's acceptances and
certificates of deposit of (A) a depository institution or
trust company incorporated under the laws of the United States
of America or any state thereof or the District of Columbia or
(B) a United States branch office or agency of a foreign
depository institution (provided that such branch office or
agency is subject to banking regulation under the laws of the
United States, any state thereof or the District of Columbia)
or (C) A-1+ rated institutions;
(iv) overnight funds; and
(v) U.S. Government` Obligations.
Notwithstanding the foregoing, in the case of preferred stock that is rated by a
single Rating Agency, "Short-Term Money Market Instruments" shall have the
meaning set forth in the governing documents of such preferred stock.
"Special Dividend Period" means a Dividend Period that is not a Standard
Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special Dividend
Period of more than one year, either, or any combination of (i) a Non-Call
Period and (ii) a Premium Call Period.
"Standard Dividend Period" means a Dividend Period of seven days, subject to
increase or decrease to the extent necessary for the next Auction Date and
Dividend Payment Date to each be Business Days.
"Statement of Preferences" means the Statement of Preferences of the Fund
establishing, as the case may be, the Series A Preferred or the Series B AMPS.
"Submission Deadline" means 1:30 p.m., New York City time, on any Auction Date
or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
"Submitted Bid" has the meaning set forth in "Additional Information Concerning
the Auction for Series B AMPS -- Determination of Sufficient Clearing Bids,
Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Bid Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing
Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Hold Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing
Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing
Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Sell Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing
Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Bids" has the meaning set forth in "Additional Information
Concerning the Auction for Series B AMPS -- Determination of Sufficient Clearing
Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Orders" means that all shares of Series B AMPS are the
subject of Submitted Hold Orders or that the number of shares of Series B AMPS
that are the subject of Submitted Bids by Potential Holders specifying one or
more rates equal to or less than the Maximum Rate exceeds or equals the sum of
(i) the number of shares of Series B AMPS that are subject of Submitted Bids by
Existing Holders specifying one or more rates higher than the Maximum Rate and
(ii) the number of shares of Series B AMPS that are subject to Submitted Sell
Orders.
"Treasury Index Rate" means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities having the same number
of 30-day periods to maturity as the length of the applicable Dividend Period,
determined, to the extent necessary, by linear interpolation based upon the
yield for such securities having the next shorter and next longer number of
30-day periods to maturity treating all Dividend Periods with a length greater
than the longest maturity for such securities as having a length equal to such
longest maturity, in all cases based upon data set forth in the most recent
weekly statistical release published by the Board of Governors of the Federal
Reserve System (currently in H.15 (519)); provided, however, if the most recent
such statistical release will not have been published during the 15 days
preceding the date of computation, the foregoing computations will be based upon
the average of comparable data as quoted to the Fund by at least three
recognized dealers in U.S. Government Obligations selected by the Fund.
"U.S. Government Obligations" means direct obligations of the United States or
by its agencies or instrumentalities that are entitled to the full faith and
credit of the United States and that, other than United States Treasury Bills,
provide for the periodic payment of interest and the full payment of principal
at maturity or call for redemption.
"Valuation Date" means the last Business Day of each week, or such other date as
the Fund and Rating Agencies may agree to for purposes of determining the Basic
Maintenance Amount. Notwithstanding the foregoing, in the case of preferred
stock that is rated by a single Rating Agency, "Valuation Date" shall have the
meaning set forth in the governing documents of such preferred stock.
"Winning Bid Rate" means the lowest rate specified in the Submitted Bids which
if:
(i) (a) each such Submitted Bid of Existing Holders specifying
such lowest rate and
(b) all other such Submitted Bids of Existing Holders
specifying lower rates were rejected, thus entitling
such Existing Holders to continue to hold the shares
of such series that are subject to such Submitted
Bids; and
(ii) (a) each such Submitted Bid of Potential Holders specifying
such lowest rate and
(b) all other such Submitted Bids of Potential Holders
specifying lower rates were accepted;
would result in such Existing Holders described in subclause (i) above
continuing to hold an aggregate number of shares of Outstanding Series B AMPS
which, when added to the number of shares of Outstanding Series B AMPS to be
purchased by such Potential Holders described in subclause (ii) above, would
equal not less than the Available shares of Series B AMPS.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements (audited) for fiscal year 2003*
(2) Exhibits
(a) Agreement and Declaration of Trust of Registrant(3)
(b) By-Laws of Registrant(3)
(c) Not applicable
(d) Form of Specimen Share Certificate(2)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
of Registrant(2)
(f) Not applicable
(g) Form of Investment Advisory Agreement between Registrant and
Gabelli Funds, LLC(2)
(h) Form of Underwriting Agreement(1)
(i) Not applicable
(j) Form of Custodian Contract(2)
(k) Form of Registrar, Transfer Agency and Service Agreement(3)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to legality(1)
(m) Not applicable
(n) (i) Consent of Independent Auditors(4)
(ii) Powers of Attorney(2)
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Codes of Ethics of the Fund and the Investment Adviser(2)
___________________
* Incorporated by reference to the Fund's annual report filed March __, 2004
(1) To be filed by Amendment.
(2) Incorporated by reference to the Registrant's Pre-Effective Amendment No.1
to the Fund's Registration Statement on Form N-2 Nos. 333-108409 and 811-21423,
as filed with the Securities and Exchange Commission on October 27, 2003.
(3) Incorporated by reference to the Registrant's Pre-Effective Amendment No.3
to the Fund's Registration Statement on Form N-2 Nos. 333-108409 and 811-21423,
as filed with the Securities and Exchange Commission on November 24, 2003.
(4) Filed herewith.
Item 25. Marketing Arrangements
Reference is made to Exhibit 2(h) to this Registration Statement to be
filed by amendment.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred
in connection with the offering described in this Registration Statement:
NYSE listing fee............................................................
SEC Registration fees.......................................................
Printing/engraving expenses.................................................
Accounting fees.............................................................
Legal fees..................................................................
NASD fee....................................................................
Miscellaneous...............................................................
Total..................................................................
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of December 31, 2003
Number of Record
Title of Class Holders
-------------- ----------------
Common Shares of Beneficial Interest 0
Item 29. Indemnification
[To Come]
Item 30. Business and Other Connections of Investment Adviser
The Investment Adviser, a limited liability company organized under
the laws of the State of New York, acts as investment adviser to the
Registrant. The Registrant is fulfilling the requirement of this Item 30 to
provide a list of the officers and trustees of the Investment Adviser,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the Investment Adviser or
those officers and trustees during the past two years, by incorporating by
reference the information contained in the Form ADV of the Investment Adviser
filed with the commission pursuant to the Investment Advisers Act of 1940
(Commission File No. 801-26202).
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part at
the office of the Investment Adviser at One Corporate Center, Rye, New York
10580-1422, in part at the offices of the Custodian, [_______], at the offices
of the Fund's Administrator, [_______], and in part at the offices of
[______].
Item 32. Management Services
Not applicable.
Item 33. Undertakings
1. Registrant undertakes to suspend the offering of shares until the
prospectus is amended, if subsequent to the effective date of this
registration statement, its net asset value declines more than ten percent
from its net asset value, as of the effective date of the registration
statement or its net asset value increases to an amount greater than its net
proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that, for the purpose of determining any
liability under the 1933 Act the information omitted from the form of
prospectus filed as part of the Registration Statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant pursuant
to Rule 497(h) will be deemed to be a part of the Registration Statement as of
the time it was declared effective.
Registrant undertakes that, for the purpose of determining any
liability under the 1933 Act, each post-effective amendment that contains a form
of prospectus will be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional Information
constituting Part B of this Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, as amended, this
Registrant's Registration Statement has been signed on behalf of the
Registrant, in the City of Rye, State of New York, on the 18th day of
March, 2004.
THE GABELLI DIVIDEND & INCOME TRUST
By: /s/ Bruce N. Alpert
_______________________________
Bruce N. Alpert
President
By: /s/ Richard C. Sell
_______________________________
Richard C. Sell, Jr.
Treasurer
As required by the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities set forth below on the 18th day of March, 2003.
Name Title
---- -----
Signature
* Trustee, Chairman and Chief Investment Officer
------------------------------
Mario J. Gabelli
* Trustee
------------------------------
Anthony J. Colavita
* Trustee
------------------------------
James P. Conn
* Trustee
------------------------------
Mario d'Urso
* Trustee
------------------------------
Frank J. Fahrenkopf, Jr.
* Trustee
------------------------------
Michael J. Melarkey
* Trustee
------------------------------
Karl Otto Pohl
* Trustee
------------------------------
Salvatore M. Salibello
* Trustee
------------------------------
Edward T. Tokar
* Trustee
------------------------------
Anthonie C. van Ekris
* Trustee
------------------------------
Salvatore J. Zizza
/s/ Bruce N. Alpert
------------------------------
Bruce N. Alpert President
Attorney-in-Fact
* Pursuant to a Power of Attorney
EXHIBIT INDEX