As filed with the Securities and Exchange Commission on April 7, 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. 6
(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 James E. McKee, Esq.
Skadden, Arps, Slate, The Gabelli Dividend
Meagher & Flom LLP & 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 of
Title of Amount Being Offering Offering Registration
Securities Registered Price Price(1) Fee
---------- ------------ -------- --------- -------------
[__% Senior [__] $[__] $1,000,000 $126.70
Notes
due __]]
(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
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 Notes; Anti-takeover Provisions of
the Fund's Governing Documents
9. Management......................................... Outside Front Cover Page; Summary; Management of the
Fund; Custodian and Trustee
10. Capital Shares, Long-Term Debt,
and Other Securities............................. Outside Front Cover Page; Summary; Investment
Objective and Policies; Description of the Notes;
Description of Capital Shares and other Securities;
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 April 7, 2004
PROSPECTUS $[__] [GABELLI LOGO]
----------
The Gabelli Dividend & Income Trust
% Senior Notes due [__]
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 [__]% Senior Fixed-Rate Notes. The
Notes will bear interest at the rate of [__]% per annum for a period of [__]
years and will mature on [__] unless redeemed earlier by the Fund as provided
herein. Interest on the Notes is payable quarterly in arrears on [__], [__],
[__] and [__] in each year, commencing on [__]. The Notes will be the senior
unsecured obligations of the Fund and will rank equally in right of payment with
any other senior debt securities issued by the Fund.
INVESTING IN OUR NOTES INVOLVES RISKS. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS" BEGINNING ON PAGE [__].
Per Senior Notes Total
---------------- -----
Public Offering Price(1) $ $
Underwriting Discount(2) $ $
Proceeds to the Fund (before $ $
expenses)(3)
(1) Plus accrued interest, if any, from [___], 2004.
(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 Notes 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. Beneficial interests in the
Notes will be shown, and transfers thereof will be affected, only in book-entry
form through the facilities of The Depository Trust Company. The underwriters
expect to deliver the Notes to purchasers on or about [__], 2004.
_______________
[____]
Gabelli & Company, Inc.
_______________
The date of this prospectus is [___]
(continued from previous page)
The Notes may not be issued unless they are rated "[__]" by [__]
("[__]"). In order to keep this rating, the Fund will be required to maintain a
minimum discounted asset coverage with respect to its outstanding Notes under
guidelines established by [__]. See "Description of the Notes -- 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 either of
these minimum asset coverage requirements, the Fund can at its option (and in
certain circumstances must) require, in accordance with the Indenture and the
requirements of the Investment Company Act of 1940, that some or all of the
Notes be sold back to it (redeemed).
The Notes also may be redeemed by the Fund prior to [__] at any time in
such amount as may be necessary to enable the Fund to maintain its qualification
as a regulated investment company for federal tax purposes. In addition, the
Fund may redeem some or all the notes at any time at a "make-whole" redemption
price discussed under the caption "Description of the Notes -- Redemption --
Make-Whole Redemption."
Any redemption of the Notes by the Fund (other than a make-whole
redemption) will be made at a price equal to 100% of the principal amount of
such Notes plus accrued and unpaid interest to the date of the redemption. In
the event of a make-whole redemption, in addition to accrued and unpaid interest
on the Notes being redeemed, the Fund will also pay an amount equal to the
greater of (i) the principal amount of the Notes being redeemed and (ii) the sum
of the present values of the remaining scheduled payments of principal and
interest on the Notes being redeemed from the redemption date forward.
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 [__].
This prospectus concisely sets forth important information about the
Fund that you should know before deciding whether to invest in the Notes. 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 NOTES, IN THE
EVENT ANY ARE OFFERED, MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
TABLE OF CONTENTS
Page
----
SUMMARY...................................................................... 1
FINANCIAL HIGHLIGHTS.........................................................11
USE OF PROCEEDS..............................................................12
THE FUND.....................................................................12
CAPITALIZATION...............................................................13
INVESTMENT OBJECTIVE AND POLICIES............................................14
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................22
HOW THE FUND MANAGES RISK....................................................28
MANAGEMENT OF THE FUND.......................................................28
PORTFOLIO TRANSACTIONS.......................................................31
DESCRIPTION OF THE NOTES.....................................................32
DESCRIPTION OF CAPITAL SHARES AND OTHER SECURITIES...........................39
TAXATION.....................................................................41
ANTI-TAKEOVER PROVISIONS OF THE FUND'S GOVERNING DOCUMENTS...................43
CUSTODIAN AND TRUSTEE........................................................44
UNDERWRITING.................................................................45
LEGAL MATTERS................................................................46
EXPERTS......................................................................46
ADDITIONAL INFORMATION.......................................................46
PRIVACY PRINCIPLES OF THE FUND...............................................46
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................47
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 or in conjunction with
the issuance of the Notes offered
by this prospectus, the Fund may
issue one or more series of
preferred shares; the ___% Series A
Cumulative Preferred Shares (the
"Series A Preferred"), liquidation
preference $25 per share, and/or
the Series B Auction Market
Preferred Shares (the "Series B
AMPS"), liquidation preference
$25,000 per share. The Notes will
be senior to any Series A Preferred
or Series B AMPS the Fund may
issue.
The Offering............................ The Fund offers by this prospectus
$[__] aggregate principal amount of
Senior Fixed-Rate Notes through
[__] and Gabelli & Company, Inc. as
underwriters. See "Underwriting."
The Notes............................... The Notes will be issued in fully
registered form in denominations of
$1,000 and in integral multiples of
$1,000. The Notes will be general
unsecured obligations of the Fund
and will rank senior to or pari
passu with all existing or future
unsecured indebtedness of the Fund.
The Notes will be senior to any
senior equity securities that the
Fund may issue (including the
Series A Preferred and/or Series B
AMPS). In any liquidation of the
Fund, the Noteholders will be
entitled to receive an amount equal
to 100% of the principal amount of
their Notes plus accrued and unpaid
interest theron before any payments
would be made with respect to any
senior equity securities of the
Fund or the Fund's common shares.
The Notes will carry a rating by
[__] of [__]. The Notes will not be
traded on any market or exchange.
See "Description of the Notes."
The Notes will bear interest,
payable quarterly in arrears, at
the rate of [__] per annum, from
[__] through and including [__].
The interest payment dates will be
[__], commencing [__].
The Depository Trust Company (or
"DTC"), New York, NY, will act as
securities depository for the
Notes. The notes will be issued as
fully registered Global Securities
registered in the name of Cede &
Co. (DTC's partnership nominee) or
such other name as may be requested
by an authorized representative of
DTC. Beneficial interests in the
Notes will be shown, and transfers
thereof will be affected, only in
book-entry form through DTC.
Investors may elect to hold
interests in the Notes through DTC
if they are participants in the DTC
system, or indirectly through
organizations which are
participants in the DTC system.
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.
Tax Treatment of Interest
Paid on Notes........................... Interest paid on the Notes will
generally constitute ordinary
income to the Noteholder. Upon
redemption the Noteholder will
receive the principal amount of its
holdings which will constitute a
tax-free return of capital. Any
premium received upon redemption
may be taxed at capital gain rates.
For a more detailed discussion, see
"Taxation."
Rating and Asset
Coverage Requirements................... In order to be issued, the Notes
must receive a rating of "[__]"
from [__]. The Fund's Indenture
setting forth the terms of the
Notes contains certain tests that
the Fund must satisfy to obtain and
maintain a rating of "[__]" from
[__] on the Notes. See "Description
of the Notes-- Rating Agency
Guidelines."
Asset Coverage Requirements. Under
the asset coverage tests to which
of the Notes are 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 Notes -- Rating Agency
Guidelines") for each such series
calculated pursuant to the
applicable rating agency guidelines
and (ii) an asset coverage of at
least 300% (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 its senior
securities representing
indebtedness, or "senior debt
securities," outstanding. See
"Description of the Notes -- Asset
Maintenance Requirements."
The Fund estimates that if the
Notes offered hereby had been
issued and sold as of March 31,
2004, the asset coverage with
respect to the Notes 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
($[__]), expressed as a
percentage = [__]%.
The Indenture for the Notes, which
contains the technical provisions of
the various components of the asset
coverage tests, will be filed as an
exhibit to this registration
statement and may be obtained
through the web site of the
Securities and Exchange Commission
(http://www.sec.gov).
Redemption.............................. Unless redeemed earlier, the Notes
will be redeemed on [__] at a cash
price equal to 100% of the
principal amount thereof plus
accrued and unpaid interest to the
redemption date.
Prior to [__], the Notes may be
subject to 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. If the Fund
redeems Notes in order to maintain
asset coverage, it may, but is not
required to, redeem a sufficient
quantity of Notes so that after the
redemption the Fund exceeds the
asset coverage required by each of
the guidelines of [__] and the 1940
Act by 10%. The Notes will also be
subject to redemption by the Fund to
the extent necessary for the Fund to
continue to qualify for tax
treatment as a regulated investment
company. The Notes are subject to
mandatory redemption in whole or in
part upon the occurrence of certain
events of default. See "Description
of the Notes -- Redemption."
The Fund may redeem some or all the
Notes at any time at a "make-whole"
redemption price discussed under
the caption "Description of the
Notes -- Redemption -- Make-Whole
Redemption."
Any redemption of the Notes (other
than a make-whole redemption) will
be at a cash price equal to 100% of
the principal amount thereof plus
accrued and unpaid interest to the
redemption date. In the event of a
make-whole redemption, in addition
to accrued and unpaid interest on
the Notes being redeemed, the Fund
will also pay an amount equal to
the greater of (i) the principal
amount of the Notes being redeemed
and (ii) the sum of the present
values of the remaining scheduled
payments of principal and interest
on the Notes being redeemed from
the redemption date forward.
In the event the Fund redeems less
than all of the Notes then
outstanding, such redemption will
be made from the Noteholders pro
rata in accordance with the
principal amount of Notes held, by
lot or by any other method that the
Trustee considers fair and
appropriate.
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."
Special Characteristics
and Risks............................... Risk is inherent in all investing.
Therefore, before investing in the
Notes you should consider the
following risks carefully.
Primary risks specially associated
with an investment in the Notes
include:
The value of the Notes will be
influenced by changes in interest
rates, the perceived credit quality
of the Notes and other factors.
The credit rating on the Notes
could be reduced or withdrawn while
an investor holds Notes, and the
credit rating does not eliminate or
mitigate the risks of investing in
the Notes. A reduction or
withdrawal of the credit rating
would likely have an adverse effect
on the market value of the Notes.
Interest Rate Risk. The Notes are
fixed income securities. The primary
risk associated with fixed income
securities is interest rate risk. A
decrease in interest rates will
generally result in an increase in
the value of a fixed income
security, while increases in
interest rates will generally result
in a decline in its value. See "Risk
Factors and Special Considerations
-- Special Risks of the Notes --
Interest Rate Risk."
Redemption Risk. The Fund may
redeem the Notes prior to maturity
under certain circumstances and
investors may not be able to
reinvest the proceeds of any such
redemption in an investment
providing the same or better rate
of return than that of the Notes.
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 Notes for the
full redemption price. See "Risk
Factors and Special Considerations
-- Special Risks of the Notes --
Redemption Risk."
Illiquidity Risk. An investment in
the Notes may be illiquid. There
will not be any public market for
the Notes, nor will the Notes be
listed on an exchange. See "Risk
Factors and Special Considerations
-- Special Risks of the Notes --
Illiquidity Risk."
Leverage Risk. The Fund intends to
use financial leverage for
investment purposes by issuing
senior securities representing
indebtedness. It is currently
anticipated that, taking into
account the Notes 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 Notes. Such volatility may
increase the likelihood of the Fund
having to sell investments in order
to meet its obligations to make
interest payments on the Notes or
dividend payments on preferred
shares the Fund may issue, or to
redeem the Notes or preferred
shares, if any, when it may be
disadvantageous to do so.
Restrictions on Interest and Other
Distributions. Restrictions imposed
on the payment of interest on the
Notes or the declaration and
payment of dividends or other
distributions to the holders of the
Fund's common shares and any
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. See
"Taxation." While the Fund intends
to redeem its senior securities
(including the Notes) 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 any 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 Notes and other senior
securities outstanding.
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."
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
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 Notes. 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 the Notes or any
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
common 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
any preferred shares). The
Investment Adviser will not be
entitled to compensation with
respect to the assets of the Fund
represented by the principal amount
of the Fund's outstanding senior
debt, including the Notes.
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 and Trustee................... 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.
[__] will be the Trustee under the
Indenture. Principal and interest
payments will be payable through the
office of the Trustee or by such
other means as the Trustee shall
from time to time designate. The
holders of a majority in principal
amount of all outstanding Notes will
have the right to direct the time,
method and place of conducting any
proceeding for exercising any remedy
or power available to the Trustee.
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 the
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
---------
Net asset value, end of period............................. $ 19.26
=========
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 Notes offered in this
prospectus had been issued.
As of [__]
Actual As adjusted
------ -----------
[__]% Senior Fixed-Rate Notes
(The "Actual" column reflects the Fund's outstanding
capitalization as of [__]; the "As Adjusted" column
assumes the issuance of an additional [__] of Notes)... $[___]
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 principal amount of
the Notes...................................................
* As adjusted paid-in surplus reflects a reduction for the sales load and
estimated offering cost of the Notes issuance of $[___].
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 dividend 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 Notes 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 the 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 -- Leverage Risk."
In the event the Fund has both outstanding senior securities
representing both debt and preferred shares 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, such as the Notes.
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.
Special Risks of the Notes
There are a number of risks associated with an investment in the Notes.
The market value for the Notes will be influenced by changes in
interest rates, the perceived credit quality of the Notes and other factors.
The credit rating on the Notes could be reduced or withdrawn while an
investor holds Notes, and the credit rating does not eliminate or mitigate the
risks of investing in the Notes. A reduction or withdrawal of the credit rating
would likely have an adverse effect on the market value of the Notes.
Interest Rate Risk. The Notes are fixed income securities. The primary
risk associated with fixed income securities is interest rate risk. A decrease
in interest rates will generally result in an increase in the value of a fixed
income security, while increases in interest rates will generally result in a
decline in its value. This effect is generally more pronounced for fixed rate
securities than for securities whose income rate is periodically reset. Further,
while longer term fixed rate securities may pay higher interest rates than
shorter term securities, longer term fixed rate securities tend to be more
sensitive to interest rate changes and, accordingly, tend to experience larger
changes in value as a result of interest rate changes. Market interest rates are
currently significantly below historical average rates, which may increase the
risk that these rates will rise in the future.
Redemption Risk. The Fund may redeem the Notes prior to maturity under
certain 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 of
return than that of the Notes.
The value of the Fund's investment portfolio may decline, reducing the
asset coverage for the Notes. 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 redeem the Notes
prior to their maturity.
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
Notes for the full redemption price.
Illiquidity Risk. An investment in the Notes may be illiquid. There
will not be any public market for the Notes, nor will the Notes be listed on an
exchange.
Leverage Risk. The Fund intends to use financial leverage for
investment purposes by issuing senior securities representing indebtedness. It
is currently anticipated that, taking into account the Notes 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 Notes. 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 interest
payments on the Notes, or to redeem preferred shares or Notes, 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 interest or make distributions could
result in the Fund ceasing to qualify as a regulated investment company under
the Code. See "Taxation."
Restrictions on Interest 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 senior securities
(including the Notes) 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 with respect to the Fund's Notes and any other outstanding senior
security. The Fund made 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.
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 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.
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 Notes.
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).
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 the Notes.
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 principal amount of any preferred shares). The Investment
Adviser will not be entitled to compensation with respect to the assets of the
Fund represented by the principal amount of the Fund's outstanding long-term
debt, including the Notes.
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 [__], 2004, 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,
the trustee, 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 several months 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.
DESCRIPTION OF THE NOTES
The Fund offers by this prospectus in the aggregate a principal amount
of $[__] million of the Fund's [__]% Senior Fixed-Rate Notes. The following is a
brief description of the terms of the Notes. This description does not purport
to be complete and is qualified by reference to the Fund's Indenture. For
complete terms of the Notes, including definitions of terms used in this
prospectus, please refer to the actual terms of the Notes, which are set forth
in the Indenture.
General
The Notes will be issued under the Indenture, dated as of [__], 2004,
between the Fund and the Trustee, [__]. Under the Indenture, the Fund is
authorized to issue up to an aggregate principal amount of [__] of Notes. The
Notes will be issued as fully registered Global Securities registered in the
name of Cede & Co. (DTC's partnership nominee) or such other name as may be
requested by an authorized representative of DTC, without certificates, in
denominations of $1,000 and integral multiples of $1,000. Beneficial interests
in the Notes will be shown on, and transfers thereof will be affected only
through, records maintained by DTC and its direct and indirect participants.
Investors may elect to hold interests in the Notes through DTC if they are
participants in the DTC system, or indirectly through organizations which are
participants in the DTC system. No service charge will be made for any
registration of transfer or exchange of Notes except any tax or other
governmental charges that may be imposed in connection therewith.
The Trustee will act as the Fund's paying agent and security registrar
with respect to the Notes. So long as the Notes are issued in the form of Global
Security, payments of principal, interest and premium, if any, will be made by
the Fund through the paying agent to DTC. Payments by DTC participants to
Investors will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of the DTC
participant through which an Investor holds its Notes. See :General Information
-- Book-Entry-Only Issuance" in the SAI.
The Board of Trustees reserves the right to issue additional senior
securities representing debt or senior securities that are stock from time to
time, subject to the restrictions in the Indenture, the Fund's Governing
Documents and the 1940 Act.
Interest
The Notes will bear interest at an annual rate of [__]% (computed on
the basis of a 360-day year consisting of twelve 30-day months) for a period of
[__] years. The Notes will mature on [__], unless redeemed earlier by the Fund
as provided herein. Interest on the Notes is payable quarterly in arrears on
[__],[__],[__] and [__] in each year or, if such day is not a business day, the
immediately succeeding business day, commencing on [__]. Interest on the Notes
will accrue from the date on which such Notes are issued.
Deposit Securities Requirement
The Fund will be obligated to deposit with the Trustee a specified
amount of Deposit Securities, such as cash, U.S. Government obligations or
short-term money market instruments not later than [__] days prior to each
interest payment date, the maturity date and each redemption date. Such Deposit
Securities in all cases shall have an initial combined value greater than or
equal to the principal of, interest on and any premium payable with respect to
the Notes to become due and payable on the applicable payment date, and shall
mature prior to such date.
Ranking of the Notes
The Notes will be the senior unsecured obligations of the Fund and will
rank equally in right of payment with any other senior indebtedness issued by
the Fund. The Notes will rank senior to any outstanding preferred and common
shares of the Fund (the "Shares").
Asset Maintenance Requirements
The Fund will be required to satisfy two separate asset maintenance
requirements that are incorporated into the terms of the Indenture. The first
of these requirements reflects the provisions of the 1940 Act with respect to
asset coverage for senior securities representing indebtedness or preferred
stock. The second of these requirements reflects the guidelines implemented by
the Fund as a condition of obtaining a rating from [__] of "[__]" for the
Notes. These requirements are summarized below.
1940 Act Asset Coverage. The Fund will be required under the Indenture
to determine whether it has as of the last business day of each [__],[__],[__]
and [__] of each year, an "asset coverage" (as defined in the 1940 Act) of at
least 300% (or such higher or lower percentage as may be required at the time
under the 1940 Act) with respect to all outstanding senior securities
representing indebtedness, including any outstanding Notes, and at least 200%
(or such higher or lower percentage as may be required at the time under the
1940 Act) with respect to the sum of all outstanding securities representing
indebtedness, including any outstanding Notes, and all outstanding senior
securities that are stock. If the Fund fails to maintain the asset coverage
required under the 1940 Act on such dates and such failure is not cured within
[__] days the Fund may, and in certain circumstances will be required to,
redeem a sufficient amount of Notes or other senior debt to satisfy such asset
coverage. See " -- Redemption" below.
If the Notes offered hereby had been issued and sold as of March 31,
2004, the asset coverage with respect to the Notes 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 ($[__]) expressed as a percentage = [__]%.
Note Basic Maintenance Amount. The Fund will be required under the
Indenture to maintain, on designated valuation dates for the Notes, portfolio
holdings meeting specified guidelines of [__] as described in the SAI under
"Rating Agency Guidelines" having a discounted value at least equal to the Note
Basic Maintenance Amount as described in the Indenture. In the event the
discounted value of the Fund's portfolio is less than the Note Basic Maintenance
Amount on any such valuation date while any of the Notes is outstanding, the
Fund may seek to alter the composition of its portfolio so that, on or before
the [__] business day after such valuation date, the discounted value of the
Fund's portfolio is at least equal to the Note Basic Maintenance Amount. In the
event the Fund fails to, or is unable to restore the asset coverage required
under the rating agency guidelines by the applicable cure date, such failure
will constitute an event of default, which will result in, among other things,
the mandatory redemption of all or some of the Notes. See "- Redemption."
The "Note Basic Maintenance Amount" as of any date is defined as the
dollar amount equal to (i) the sum of (a) 100% of the aggregate principal
amount of the Notes then outstanding plus the sum of the liquidation
preferences of any outstanding preferred shares; (b) an amount equal to (1)
interest on the aggregate principal amount of the Notes then outstanding from
the most recent date to which interest has been paid or duly provided for (or,
in the event the Note Basic Maintenance Amount is calculated on the date prior
to [__], then from the date from which interest first accrues) until but not
including (1) the next interest payment date or (ii) if the number of days from
the date on which the Note Basic Maintenance Amount is calculated until the
next interest payment date is less than [__], all interest accrued on the Notes
then outstanding and to accrue during the [__]days following the date of such
calculation, plus (2) the total amounts of declared but unpaid dividends
payable on any oustanding preferred shares; (c) the principal amount of any
then outstanding indebtedness of the Fund for money borrowed (other than the
Notes); and (d) the greater of [__] or the Fund's current liabilities as of
such date to the extent not reflected in any of (a) through (c) above, less
(ii) the combined value of any Deposit Securities irrevocably deposited by the
Fund for the payment thereof. The discounted value of the Fund's portfolio
holdings as of any date means the quotient of the market value (as defined in
the Indenture, and including accrued interest) of each such holding divided by
the applicable discount factor. To the extent any security is not in compliance
with the [__]investment guidelines described in the SAI under "Rating Agency
Guidelines" will be excluded from the calculation of the discounted value of
the Fund's portfolio holdings.
The discount factors and guidelines for determining whether the value
of the Fund's portfolio holdings equal the Note Basic Maintenance Amount are
based upon criteria established in connection with the rating of the Notes. In
determining discount factors, several factors are taken into consideration.
These factors include, but are not limited to, the sensitivity of the market
value of the relevant asset to changes in interest rates, the liquidity and
depth of the market for the relevant asset, the credit quality of the relevant
asset (for example, the lower the rating of a corporate debt obligation, the
higher the related discount factor), the frequency with which the relevant asset
is marked to market, or (such as in the case of [__]) the credit characteristics
of the issuer. In no event will the discounted value of any asset of the Fund
exceed its unpaid principal balance or face amount as of the date of
calculation. Under the Indenture, the discount factors to be applied to Fund
assets, the Note Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the discounted value of the Fund's portfolio and certain
related definitions, methods of calculation and reporting requirements may be
changed without the consent of the Noteholders, provided that, among other
things, such changes will not impair the rating then assigned to the Notes.
Restrictive Covenants
Under the 1940 Act and the Indenture, the Fund cannot declare dividends
or other distributions in respect of its Shares or purchase any Shares if, at
the time of such declaration or purchase, as applicable (and after giving effect
thereto), asset coverage with respect to the Fund's senior securities
representing indebtedness, including the Notes, would be less than 300%, except
that dividends or other distributions may be made to holders of any preferred
shares issued by the Fund so long as the asset coverage with respect to the
Fund's senior securities representing indebtedness is not less than 200%.
Dividends or other distributions on and purchases of or tender offers for the
Shares are further prohibited under the Indenture at any time payments of
principal of or interest on the Notes are in default. The foregoing limitations
on the payment of dividends and distributions may under certain circumstances
impair the Fund's ability to maintain its qualification as a regulated
investment company. See "Taxation."
Pursuant to the guidelines implemented by the Fund in connection with
the Fund's receipt of the rating for the Notes, the Indenture also contains
covenants limiting the Fund's ability to incur, assume, guarantee or otherwise
become liable with respect to any indebtedness for money borrowed unless (i) the
incurrence of such indebtedness would not result in a default in the performance
or observance of the Fund's obligation to maintain the asset coverage required
under the 1940 Act or otherwise cause the Fund not to be in compliance with
Section 18 of the 1940 Act and (ii) either (a) such indebtedness shall
constitute certain bank borrowings (as defined in the Indenture) or (b) the Fund
shall have received written confirmation from [___] that the incurrence of such
indebtedness will not adversely affect the rating of the Notes if the Notes are
then rated by [___].
The guidelines implemented by the Fund in connection with the Fund's
receipt of the rating for the Notes as set forth in the Indenture also prohibit
the Fund from creating, incurring or suffering to exist, or agreeing to create,
incur or suffer to exist, or consenting to cause to permit in the future (upon
the happening of a contingency or otherwise) the creation, incurrence or
existence of any material lien or encumbrance of any kind upon any of its assets
which are eligible for inclusion in the discounted value of its portfolio,
except for those liens and encumbrances (i) the validity of which are being
contested in good faith by appropriate proceedings, (ii) for taxes that are not
then due and payable or that can be paid thereafter without penalty, (iii) to
secure payment for services rendered by the Trustee, (iv) specifically permitted
by the rating agency as reflected in the Indenture (v) with respect to which the
Fund has received written confirmation from the relevant rating agency that the
rating of the Notes will not be impaired thereby, and (vi) otherwise incurred in
connection with borrowings made in accordance with the Fund's stated investment
objective, policies and restrictions.
Merger and Consolidation
Subject to the requirements of the 1940 Act and the Fund's Governing
Documents, under the Indenture the Fund may consolidate with or merge with or
into, or transfer its assets substantially as an entirety to, another
corporation, limited partnership or business trust, provided that (i) the
successor corporation or business trust (if other than the Fund) formed by or
resulting from any such consolidation or merger, or the transferee of the
Fund's assets, shall assume by a supplemental indenture payment of the
principal of and interest on the Notes and the performance and observance of
the Indenture, (ii) the Fund or such successor corporation or business trust or
transferee shall not immediately before such transaction or thereafter be in
default under the Indenture and (iii) the Fund shall have received written
confirmation from [___] that such transaction will not adversely affect the
rating of the Notes, if the Notes are then rated by [___].
Events of Default
The following will be Events of Default under the Indenture: (i)
failure to pay principal of any Note when due; (ii) default for five business
days in the payment of interest on any Note; (iii) failure to make a required
deposit of Deposit Securities when such deposit shall become due with respect
to the payment of principal of or interest on the Notes; (iv) failure to
maintain asset coverage with respect to senior securities representing
indebtedness (as such terms are defined above) of at least 100% as of the last
business day of each of 24 consecutive months; (v) failure to have, as of the
last business day of any month, the asset coverage required under the 1940 Act,
which failure is not cured by [__]; (vi) failure to maintain, on each valuation
date, a discounted value for the Fund's portfolio equal to at least the Note
Basic Maintenance Amount, which failure is not cured by [__]; (vii) default in
the performance of any other covenant of the Fund under the Indenture
(including the covenant to remain a closed-end non-diversified management
investment company with the investment objectives stated herein) which has
continued for 60 days after written notice as provided in the Indenture; (viii)
default under any instrument under which the Fund has issued indebtedness or by
which there may be secured or evidenced any indebtedness of or guaranteed by
the Fund, the effect of which is to cause or permit the holders thereof to
cause the acceleration of the maturity thereof, provided that such default or
defaults related to indebtedness with an aggregate principal amount of at least
$[__] and have continued for 60 days after written notice as provided in the
Indenture; (ix) the making by the Internal Revenue Service of a final
determination that the Fund does not qualify for any taxable year as a
"regulated investment company" (as defined in the Internal Revenue Code); (x)
certain events of bankruptcy, insolvency or reorganization (including the
conversion of the Fund to an from a closed-end to an open-end investment
company); and (xi) the existence for 60 days of unsatisfied final judgments
against the Fund in an aggregate amount in excess of $[___]. For the purpose of
determining the occurrence of an Event of Default of the type specified in
clause (v) or (vi) above, no such Event of Default will be deemed to have
occurred if, within the prescribed cure period, the Fund has notified the
Trustee to call Notes (or other senior debt securities) for redemption and
certified to the Trustee that such redemption, alone or together with other
action taken by the Fund, would cause the Fund to have the requisite asset
coverage as of the relevant cure date.
If an Event of Default specified in any of the clauses (vii), (viii),
or (xi) above occurs and is continuing, the Trustee of the registered holders of
at least 25% in principal amount of the outstanding Notes may declare the Notes
due and payable as provided below. If an Event of Default specified in any of
clauses (i) through (vi) or (ix) occurs, then in every such case the Trustee
shall, immediately after the Trustee has knowledge of such Event of Default,
declare the Notes (or in the case of an Event of Default of the type specified
in clause (v) or (vi), such portion of the Notes as shall be required under the
Indenture to be redeemed) to be due and payable as provided below.
In the event of a mandatory partial redemption of Notes following an
Event of Default specified in clause (v) of (vi), the payment of principal of
and interest on the Notes due as a result of such mandatory partial redemption
shall be due within 45 days after the date on which such Event of Default
occurs. In the event of an acceleration in the maturity of Notes following an
Event of Default specified in any of the other clauses above other than clause
(x), the principal of and interest on such Notes shall be due and payable on the
30th day (or, if such day is not a business day, the next succeeding business
day) following the date of the declaration of such acceleration pursuant to
notice to the Fund. If an Event of Default specified in clause (x) occurs, the
Notes shall become due and payable immediately without any declaration or other
act on the part of the Trustee or any registered holder of the Notes.
The registered holders of a majority in principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee when exercising any trust or
power conferred on the Trustee, provided that such direction shall not conflict
with any rule of law or the Indenture. Subject to the duty of the Trustee during
a default on the Notes to act with the required standard of care before
proceeding to exercise any right or power under the Indenture at the direction
of the registered holders of the Notes, the Trustee shall be entitled to receive
from them reasonable security or indemnity against the costs, expenses and
liabilities that it may incur in complying with any such direction. Generally,
at any time after a declaration of acceleration with respect to the Notes has
been made, but before a judgment or decree based on acceleration has been
obtained, the registered holder of a majority in principal amount of the
outstanding Notes may rescind and annul such declaration, except that the
consent of the holder of 100% in principal amount of the outstanding Notes is
required to annul a mandatory acceleration pursuant to any of clauses (i)
through (vi), (ix) or (x) above.
The Fund will be required to furnish annually to the Trustee a
statement as to the fulfillment by the Fund of all of the Fund's obligations
under the Indenture. The Fund will also be required to furnish the Trustee with
statements of compliance with the asset coverage required under the 1940 Act on
a [__] basis and statements of compliance with the requirement to maintain a
discounted portfolio value at least equal to the Note Basic Maintenance Amount
on a [_] basis.
Redemption
Except as described below, the Notes will not be redeemable by the Fund
prior to maturity.
The Fund may elect at any time to redeem such amount of the Notes as
will enable the Fund to maintain asset coverage required under the 1940 Act or
the Note Basic Maintenance Amount with respect to the Notes, or to enable the
Fund to maintain its qualification for treatment as a regulated investment
company for federal income tax purposes. The Notes are also subject to mandatory
redemption in whole or in part upon the occurrence of certain Events of Default.
See " - Events of Default."
The principal amount of Notes that will be redeemed in the case of an
Event of Default described in clause (v) or (vi) under " -- Events of Default"
will equal the minimum amount of Notes, 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 Notes. In the event that Notes are redeemed due to a
failure to satisfy the asset coverage required under the 1940 Act and an event
of default has not occurred, the Fund may, but is not required to, redeem a
sufficient amount of Notes so that the Fund's assets exceed the 1940 Act asset
coverage after the redemption by 10% (that is, 330% asset coverage). In the
event that Notes are redeemed due to a failure to satisfy the Note Basic
Maintenance Amount and an event of default has not occurred, the Fund may, but
is not required to, redeem a sufficient amount of Notes so that the Fund's
discounted portfolio value (as determined in accordance with the applicable
rating agency guidelines) after redemption exceeds the Note Basic Maintenance
Amount by up to 10% (that is, 110% Note Basic Maintenance Amount). All
redemptions of Notes by the Fund (other than make-whole redemptions as described
below) will be at a price equal to 100% of principal amount of the Notes being
redeemed plus accrued and unpaid interest thereon to the date of redemption.
Make-Whole Redemption. The Fund also may redeem the Notes at any time,
in whole or in part, at a "make-whole" redemption price equal to the greater of:
(1) 100% of the principal amount of the Notes being redeemed; and
(2) the sum of the present values of the remaining scheduled
payments of the principal and interest (other than
interest accruing to the date of redemption) on the Notes
being redeemed, discounted to the redemption date on a
semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at a rate equal to [__].
In the case of any make-whole redemption, the Fund will pay accrued
interest on the principal amount of the Notes being redeemed to the redemption
date.
Redemption Procedures. If the Fund elects to redeem less than all of
the Notes, then the Trustee shall select the Notes to be redeemed pro rata or by
lot or by any other method that the Trustee considers fair and appropriate.
Notice of any redemption will be mailed at least [__] days but not more
than [__] days before the date of redemption to each holder of Notes to be
redeemed. The notice of redemption will state, among other things, the quantity
of Notes to be redeemed (which may be expressed as a percentage of the Notes
held on the applicable record date), the redemption date and the redemption
price.
If the Fund does not have funds legally available for the redemption
of, or is otherwise unable to redeem, all the Notes to be redeemed on any
redemption date, the Fund will redeem on such redemption date that quantity of
Notes for which it has legally available funds, or is otherwise able to redeem,
from the holders whose Notes (or other senior debt securities) are to be
redeemed ratably on the basis of the principal amount to be redeemed, and the
remainder of those Notes (and other senior debt securities) 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
Notes (or other senior debt securities) upon written notice of redemption.
Unless the Fund defaults in payment of the redemption price, on and
after the date of redemption, interest will cease to accrue on the Notes or the
portions thereof called for redemption.
Modification and Waiver of the Indenture
The Fund and the Trustee may supplement, amend or waive any provision
of the Indenture with the consent of the registered holders of a majority in
aggregate principal amount of the outstanding Notes, provided that no such
supplement, amendment or waiver may, without the consent of 100% of the
aggregate principal amount of the Notes outstanding: (i) reduce the principal
amount of Notes whose registered holders must consent to an amendment,
supplement or waiver; (ii) reduce the rate or change the method of calculation,
or change the time of payment of interest on any Note; (iii) reduce the
principal of or change the fixed maturity of any Notes or make any Notes payable
in money other than that stated in the Notes; (iv) waive an Event of Default of
the type specified above in any of clauses (i) through (vi), (ix) or (x) under "
-- Events of Default"; (v) reduce the percentage of outstanding Notes necessary
to waive any default or Event of Default or make any changes in or modify the
foregoing provisions; or (vi) effect any other amendment adversely affecting the
rating of the Notes (if then rated). Without the consent of any Noteholder, the
Fund and the Trustee may amend or supplement the Indenture: (1) to evidence the
succession of another person to the Fund as obligor on the Notes in accordance
with the Indenture; (2) to provide for certificated in addition to
uncertificated Notes; (3) to add to the covenants of the Fund for the benefit of
the Noteholders or to surrender any right or power conferred upon the Fund; (4)
to cure any ambiguity in, to correct or supplement any provision that may be
defective or inconsistent with any other provision or to make any other
provisions with respect to matters or questions arising under the Indenture
which are not inconsistent with the provisions of the Indenture, provided that
such action will not adversely affect the interests of the Noteholders; and (5)
to include provisions required or permitted by the Trust Indenture Act of 1939
or the 1940 Act. In addition, the Indenture may be modified or amended by the
Fund and the Trustee, without the consent of any Noteholder, to provide for an
alternative method of valuation of the Fund's assets in connection with the
determination of compliance with the Note Basic Maintenance Amount coverage
requirement described above and, in such connection and otherwise, the Fund and
the Trustee may adopt amendments to or changes in the methods of calculation or
definitions of certain terms relating thereto, provided that such amendment or
change will not impair the rating then assigned to the Notes.
Limitation on Issuance of Senior Securities
So long as the Fund has senior debt securities outstanding, subject to
receipt of approval from the rating agencies of each series of senior debt
security outstanding, and subject to compliance with the Fund's investment
objective, policies and restrictions, the Fund may issue and sell of one or more
other series of senior securities, provided that the Fund will, immediately
after giving effect to the issuance of such additional senior securities and to
its receipt and application of the proceeds thereof (including, without
limitation, to the redemption of senior securities to be redeemed out of such
proceeds) have an "asset coverage" for all senior securities representing
indebtedness outstanding of at least 300% and an "asset coverage" for all senior
securities of the Fund of at least 200% of the sum of the principal amount of
all preferred shares and senior securities representing indebtedness of the Fund
then outstanding and no such additional senior debt will have any preference or
priority over any other senior debt nor will any such preferred shares 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
or interest.
Satisfaction and Discharge of the Indenture
The Indenture will be discharged and cancelled if all the Notes have
become due and payable in full or have been called for redemption under
arrangements satisfactory to the Trustee, and the Fund irrevocably deposits in
trust with the Trustee, Deposit Securities sufficient for such payment or
redemption.
Book-Entry
The Depository Trust Company (or DTC), New York, NY, will act as
securities depository for the notes. The notes will be issued as fully
registered Global Securities registered in the name of Cede & Co. (DTC's
partnership nominee) or such other name as may be requested by an authorized
representative of DTC.
Beneficial interests in the notes will be shown on, and transfers thereof
will be affected only through, records maintained by DTC and its direct and
indirect participants. Investors may elect to hold interests in the notes
through DTC if they are participants in the DTC system, or indirectly through
organizations which are participants in the DTC system. See :General Information
-- Book-Entry-Only Issuance" 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.
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 common or preferred shares which constitute tax-free return of
capital will reduce a shareholder's tax basis in such common or preferred
shares, thereby increasing such shareholder's potential gain or reducing his or
her potential loss on the sale of the common or preferred shares. Any amounts
distributed to a common or preferred shareholder in excess of the basis in the
common or 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.
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 March 31, 2004.
Amount Held by Company or
Title of Class Amount Authorized for its Own Account Amount Outstanding*
Common Shares Unlimited None [_]
------------------------ --------------------------- ----------------------
Preferred Shares Unlimited None [_]
------------------------ --------------------------- ----------------------
Senior Long-term Debt $[ ] None 0
------------------------ --------------------------- ----------------------
* Does not include the Notes being offered pursuant to this prospectus
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 Noteholders
Noteholders will be required to include payments of interest on the
Notes in their gross income in accordance with their method of accounting for
federal income tax purposes.
Any gain from the disposition of the Notes will be treated as capital
gain for Noteholders who hold the Notes as capital assets and as long-term
capital gain if the Notes have been held for more than one year as of the date
of disposition. However, a portion of such gain may be required to be treated as
ordinary income under special rules of the Code governing the treatment of
market discount. A Noteholder who acquires a Notes at a market discount (i.e.,
at a price less than the principal amount), such as a subsequent purchaser of
the Notes, will be required to treat as ordinary income a portion of any gain
realized upon a disposition of the Note equal to the amount of market discount
deemed to have been accrued as of the date of disposition unless an election is
made include such discount in income on a current basis. A Noteholder who
acquires a Note at a market discount and does not elect to include such discount
in income on a current basis will be required to defer deduction of a portion of
interest paid or accrued on debt incurred or continued to purchase or carry the
Note until the Noteholder disposes of the Note. In addition, interest paid or
accrued in connection with purchase of a Note may be subject to the limitations
on deducting investment interest. These rules may have an effect on the price
that can be obtained upon the sale of a Note.
Amounts received upon a redemption of the Notes will be subject to tax
as ordinary income to the extent of any accrued and unpaid interest on the Notes
as of the date of redemption.
The Fund will be required to withhold 20% of payments made to a
Noteholder other than a corporation or other exempt Noteholder if the Noteholder
has not provided a correct taxpayer identification number and certain required
certifications to the Fund or if the Secretary of the Treasury notifies the Fund
that the Noteholder has not reported all interest and dividend income required
to be shown on the Noteholder's federal income tax return or is otherwise
subject to such withholding. Any amounts so withheld may be credited against
federal income taxes owed by the Noteholder.
Additional state, local and foreign taxes may apply depending on the
particular situation of each holder of Notes. Investors are advised to consult
their own tax advisers with respect to the particular tax consequences to them
of an investment in the Notes.
Different tax treatment and consequences will apply to holders of the
Fund's common and preferred shares. For a discussion on the taxation of such
shareholders see "Taxation - Taxation of Shareholders" in the SAI.
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 AND TRUSTEE
[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.
[__] will be the Trustee under the Indenture. The Trustee will serve as
the Fund's paying agent and security registrar. The holders of a majority in
principal amount of all outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy or
power available to the Trustee.
In case of an Event of Default occurs (and is not cured), the Trustee
will be required to use the degree of care of a prudent man in the conduct of
his own affairs in the exercise of its powers. Subject to such provisions and
subject to the obligation of the Trustee to declare the Notes immediately due
and payable promptly after having knowledge of certain Events of Default, as
described above under "Description of the Notes - Events of Default," the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the holders of the Notes, unless
they have offered to the Trustee security and indemnity satisfactory to it.
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 at 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-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 THE NOTES ........................... B-25
[__] GUIDELINES ...................................................... B-26
NET ASSET VALUE........................................................ B-28
BENEFICIAL OWNERS...................................................... B-28
GENERAL INFORMATION.................................................... B-29
FINANCIAL STATEMENTS................................................... B-31
GLOSSARY............................................................... B-32
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
% Senior Notes due [__]
-----------------------
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 interest 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 [__],
2004 (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 [__], 2004.
TABLE OF CONTENTS
Page
THE FUND.....................................................................3
INVESTMENT OBJECTIVE AND POLICIES............................................3
INVESTMENT RESTRICTIONS.....................................................11
MANAGEMENT OF THE FUND......................................................12
PORTFOLIO TRANSACTIONS......................................................18
PORTFOLIO TURNOVER..........................................................19
TAXATION....................................................................19
AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN............24
ADDITIONAL INFORMATION CONCERNING THE NOTES.........Error! Bookmark not defined
[__] GUIDELINES.............................................................25
NET ASSET VALUE.............................................................25
BENEFICIAL OWNERS...........................................................26
GENERAL INFORMATION...........................................................
FINANCIAL STATEMENTS........................................................29
GLOSSARY............................................Error! Bookmark not defined
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 interest 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
accrued 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 During Overseen by Directorships Held
Business Address(1) Time Served(2) 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
companies in the Gabelli fund company).
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
(69) Trustee International, Inc. (commodities) Energy (oil and
gas operations)
Salvatore J. Zizza (58) Since 2003** Chairman of Hallmark Electrical 11 Director of Hollis
Trustee Supplies Corp.; Former Executive Eden
Vice President of FMG Group (a Pharmaceuticals
healthcare provider). and Earl Scheib,
Inc. [( )]
DIRECTORS
Name (and Age), Position with Term of Office and
the Fund and Business Address(1) Length of 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 Management
Vice President and Ombudsman 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 is 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 Equity Aggregate Dollar Range of Equity
Securities in the Fund Securities in 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 $12,000 per year plus $1,500 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
NAME OF PERSON AND POSITION ESTIMATED COMPENSATION TOTAL COMPENSATION FROM THE FUND AND
FROM THE FUND FUND COMPLEX PAID TO TRUSTEES*
Mario J. Gabelli, Chairman of the Board $0 $[0] (24)
Anthony J. Colavita $19,500 $160,542.76 (35)
James P. Conn $19,500 $58,451.09 (12)
Mario d'Urso $19,500 $2,951.09 (1)
Frank J. Fahrenkopf, Jr. $20,500 $34,951.09 (4)
Michael J. Melarkey $19,500 $2,951.09 (1)
Karl Otto Pohl $0 $[0] (33)
Salvatore M. Salibello $19,500 $2,951.09 (1)
Edward T. Tokar $19,500 $2,951.09 (1)
Anthonie C. van Ekris $20,500 $73,292.76 (20)
Salvatore J. Zizza $20,500 $82,042.76 (11)
----------------------------------------------------------------------------
TOTAL $178,500
* 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 [__], 2004, 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
[__], 2004. 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 [__], 2004. 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 [__], 2004.
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 [__], 2004.
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 principal amount of such preferred shares). The Investment
Adviser will not be entitled to compensation with respect to the assets of the
Fund represented by the principal amount of the Fund's outstanding senior debt,
including the Notes.
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. Interest 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 interest 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.
RATING AGENCY 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 principal amount of any
preferred shares by the total number of shares outstanding at such time.
BENEFICIAL OWNERS
Name and Address of Amount of Shares
Beneficial/Record Owner and Nature Percent
as of [__], 2004 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
The Depository Trust Company (or "DTC"), New York, NY, will act as
securities depository for the Notes. The Notes will be issued as fully
registered Global Securities registered in the name of Cede & Co. (DTC's
partnership nominee) or such other name as may be requested by an authorized
representative of DTC.
Beneficial interests in the Notes will be shown on, and transfers thereof
will be affected only through, records maintained by DTC and its direct and
indirect participants. Investors may elect to hold interests in the Notes
through DTC if they are participants in the DTC system, or indirectly through
organizations which are participants in the DTC system.
DTC has informed us that DTC is:
o a limited-purpose trust company organized under the New York
Banking Law;
o a "banking organization" within the meaning of the New York
Banking Law; o a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
o a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934.
DTC holds securities that its participants ("Direct Participants")
deposit with DTC. DTC also facilitates the settlement among Direct Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Direct
Participants' accounts, which eliminates the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. 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 ("Indirect Participants"). The rules
applicable to DTC and its Direct and Indirect Participants are on file with the
Securities and Exchange Commission.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note (a "Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmations from DTC of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Direct or Indirect Participant through which the Beneficial
Owner entered into the transaction. Transfers of ownership interests in the
Notes are to be accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Notes except in
the event that use of the book-entry system for the Notes is discontinued. As a
result, the ability of a person having a beneficial interest in the Notes to
pledge such interest to persons or entities that do not participate in the DTC
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest. In
addition, the laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to transfer
Notes evidenced by the global Notes will be limited to such extent.
To facilitate subsequent transfers, all Notes deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of Notes with DTC and their registration in
the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Notes. DTC's records reflect only the identity of the Direct Participants to
whose accounts such Notes are credited, which may or may not be the Beneficial
Owners. The Direct and Indirect Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and another 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.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or
vote with respect to the Notes. Under its usual procedures, DTC mails an Omnibus
Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Notes are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Payments of principal, interest and premium, if any, on the Notes will
be made to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts, upon DTC's receipt of funds and corresponding detail
information from us on the payable date in accordance with their respective
holdings shown on DTC's records. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such Participant
and not of DTC, or us, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of redemption proceeds, principal
amounts and interest to Cede & Co. (or such other nominee as may be requested by
an authorized representative of DTC) is our responsibility and disbursement of
such payments to Direct Participants will be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable to U.S. corporate debt obligations. The
securities custody accounts of investors will be credited with their holdings on
the settlement date against payment in same-day funds within DTC effected in
U.S. dollars.
Secondary market sales of book-entry interests in the Notes between DTC
Participants will occur in the ordinary way in accordance with DTC rules and
will be settled using the procedures applicable to United States corporate debt
obligations in DTC's Settlement System.
If DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by us within 90 days, we
will issue individual Notes in exchange for the Global Security representing
such Notes. In addition, we may, at any time and in our sole discretion,
determine not to have the Notes represented by one or more Global Securities
and, in such event, will issue individual Notes in exchange for the Global
Security or Securities representing the Notes. Individual Notes will be issued
in denominations of $1,000 and integral multiples thereof. See "Description of
the Notes" in the accompanying prospectus.
The Fund will not have any responsibility or obligation to participants
in the DTC system or the persons for whom they act as nominees with respect to
the accuracy of the records of DTC, its nominee or any Direct or Indirect
Participant with respect to any ownership interest in the Notes, or with respect
to payments to or providing of notice for the Direct Participants, the Indirect
Participants or the beneficial owners of the Notes.
The information in this section concerning DTC and its book-entry
systems has been obtained from sources that we believe to be reliable. Neither
we, the Trustee nor the underwriters, dealers or agents are responsible for the
accuracy or completeness of this information.
Counsel and Independent Accountants
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, the Investment Adviser and other funds advised by 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
[__]
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 Common Share Certificate (2)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
of Registrant(2)
(f) Indenture (1)
(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 [__], 2004.
. Number of Record
Title of Class Holders
------------------ ----------------
Common Shares of Beneficial Interest [__]
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 7th day of April, 2004.
THE GABELLI DIVIDEND & INCOME TRUST
By: /s/ Bruce N. Alpert
--------------------------------
Bruce N. Alpert
President
By: /s/ Richard C. Sell, Jr.
--------------------------------
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 7th day of April, 2004.
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 President
-----------------------------
Bruce N. Alpert
Attorney-in-Fact
*Pursuant to a Power of Attorney
EXHIBIT INDEX