As filed with the Securities and Exchange Commission on
January 26, 2011
Securities Act File
No. 333-152424
Investment Company Act File
No. 811-22216
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form N-2
þ
Registration
Statement under the Securities Act of 1933
þ
Pre-Effective
Amendment No. 4
o
Post-Effective
Amendment No.
and/or
þ
Registration
Statement under the Investment Company Act of 1940
þ
Amendment
No. 4
(Check Appropriate Box or Boxes)
THE GABELLI NATURAL RESOURCES,
GOLD & INCOME TRUST
(Exact Name of Registrant as
Specified in Charter)
One Corporate Center
Rye, New York
10580-1422
(Address of Principal Executive
Offices)
Registrants Telephone
Number, Including Area Code:
(800) 422-3554
Bruce N. Alpert
The Gabelli Natural Resources,
Gold & Income Trust
One Corporate Center
Rye, New York
10580-1422
(914) 921-5100
(Name and Address of Agent for
Service)
Copies to:
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Richard T. Prins, Esq.
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Christopher J. Michailoff, Esq.
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Sarah E. Cogan, Esq.
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Skadden, Arps, Slate, Meagher &
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The Gabelli Natural Resources,
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Simpson Thacher & Bartlett LLP
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Flom LLP
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Gold & Income Trust
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425 Lexington Avenue
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4 Times Square
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One Corporate Center
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New York, New York 10017
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New York, New York 10036
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Rye, New York 10580-1422
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(212) 455-2000
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(212)
735-3000
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(914) 921-5100
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Approximate date of proposed public
offering:
From time to time 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.
o
It is proposed that this filing will become effective (check
appropriate box)
þ
When declared effective pursuant to section 8(c).
If appropriate, check the following box:
o
This [post-effective] amendment designates a new effective date
for a previously filed [post-effective amendment] [registration
statement].
o
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 number of the earlier
effective registration statement for the same offering
is .
CALCULATION
OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Amount Being
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Securities
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Registered
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Offering Price Per Share
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Aggregate Offering Price(1)
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Registration Fee
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Common Shares of Beneficial Interest
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18,750,000
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$20.00
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$375,000,000
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43,537.50(2)
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(1)
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Estimated solely for the purpose of calculating the registration
fee.
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(2)
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$78.60 of this amount was previously paid.
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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.
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 is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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PROSPECTUS
Subject to Completion
Preliminary Prospectus dated
January 26, 2011
$
The Gabelli Natural Resources,
Gold & Income Trust
COMMON SHARES OF BENEFICIAL
INTEREST
$20.00 per Share
Investment Objectives.
The Gabelli Natural Resources,
Gold & Income Trust (the Fund) is a
non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended
(the 1940 Act). The Funds primary investment
objective is to provide a high level of current income from
interest, dividends and option premiums. The Funds
secondary investment objective is to seek capital appreciation
consistent with the Funds strategy and its primary
objective. An investment in the Fund is not appropriate for all
investors. We cannot assure you that the Funds objectives
will be achieved.
Investment Adviser.
Gabelli Funds, LLC serves as
Investment Adviser to the Fund. See Management
of the Fund.
Investment Policies and Strategy.
Under normal market
conditions, the Fund will attempt to achieve its objectives by
investing at least 80% of its assets in securities of companies
principally engaged in the natural resources and gold
industries. The Fund will invest at least 25% of its assets in
the securities of companies principally engaged in the
exploration, production or distribution of natural resources,
such as base metals, metals, paper, food, agriculture, forestry
products, water, gas, oil, sustainable energy and other
commodities as well as related transportation companies and
equipment manufacturers. The Fund will invest at least 25% of
its assets in the securities of companies principally engaged in
the exploration, mining, fabrication, processing, distribution
or trading of gold or the financing, managing, controlling or
operating of companies engaged in gold-related
activities. The Fund may invest in the securities of companies
located anywhere in the world. As part of its investment
strategy, the Fund intends to generate current income from
short-term gains through an option strategy of writing (selling)
covered call options covering amounts up to between 90% to 100%,
and generally at least 80%, of the equity securities assets in
its portfolio and uncovered call options on related indices and
securities not in its portfolio. When the Fund sells a covered
call option, it generates current income from short-term gains
in the form of the premium paid by the buyer of the call option,
but the Fund forgoes the opportunity to participate in any
increase in the value of the underlying equity security above
the exercise price of the option. See Investment
Objectives and Policies.
No Prior History.
The Funds common shares
have no history of public trading. Shares of closed-end funds
often trade at a discount from net asset value. If our common
shares trade at a discount to our net asset value, it may
increase the risk of loss for purchasers in this offering. The
Funds common shares have been approved for listing on the
New York Stock Exchange (NYSE), under the symbol
GNT, subject to notice of issuance.
Investing in the Funds common shares involves risks.
See Risk Factors and Special Considerations on
page 28 for factors that should be considered before
investing in common shares of the Fund.
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Per Share
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Total
(1)
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Public offering price
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$
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20.00
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$
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Sales
load
(2)
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$
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0.90
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$
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Estimated offering
expenses
(3)
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$
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0.04
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$
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Proceeds after expenses to the Fund
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$
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19.06
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$
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(1)
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The Fund has granted the
Underwriters an option to purchase up
to
additional common shares at the public offering price, less the
sales load, within 45 days of the date of this prospectus
solely to cover overallotments, if any. If such option is
exercised in full, the total public offering price, sales load,
estimated offering expenses and proceeds, after expenses, to the
Fund will be $ ,
$ , $
and $ , respectively. See
Underwriters.
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(2)
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Gabelli Funds, LLC (and not the
Fund) has agreed to pay from its own assets a structuring fee to
each of Morgan Stanley & Co. Incorporated, Citigroup Global
Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. These fees are not reflected under sales load in
the table above. Gabelli Funds, LLC (and not the Fund) may also
pay certain qualifying underwriters a structuring fee, sales
incentive fee or additional compensation in connection with this
offering. The sum of all compensation to the underwriters in
connection with this public offering of common shares, including
the sales load, the structuring fees or sales incentive fees and
all forms of additional payments to the underwriters will not
exceed 9.0% of the total public offering price of the common
shares sold in this offering. See
UnderwritersAdditional Compensation to be Paid by
the Investment Adviser.
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(3)
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The Fund will pay offering expenses
of the Fund (other than the sales load) up to an aggregate of
$.04 per share of the Funds common shares. Gabelli Funds,
LLC has agreed to pay such offering expenses of the Fund to the
extent those expenses exceed $.04 per share of the Funds
common shares.
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Neither the Securities and Exchange Commission (the
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 underwriters expect to deliver the common shares to the
purchasers on or about January , 2011.
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Morgan
Stanley
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Citi
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BofA Merrill Lynch
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Gabelli
& Company, Inc.
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J.J.B.
Hilliard, W.L. Lyons, LLC
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Janney
Montgomery Scott
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Ladenburg Thalmann & Co. Inc.
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Maxim Group LLC
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Stifel Nicolaus Weisel
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Wunderlich Securities
The date of this prospectus
is ,
2011.
This prospectus sets forth concisely the information about the
Fund that a prospective investor should know before investing.
You should read this prospectus, which contains important
information about the Fund, before deciding whether to invest in
the common shares, and retain it for future reference. A
Statement of Additional Information (the SAI),
dated ,
2011, containing additional information about the Fund, has been
filed with the Commission and is incorporated by reference in
its entirety into this prospectus. You may request a free copy
of our annual and semi-annual reports and request a free copy of
the SAI, the table of contents of which is on page 59 of
this prospectus, by calling toll-free (800) GABELLI
(422-3554),
by visiting the Funds website at www.gabelli.com or by
writing to the Fund, or obtain a copy (and other information
regarding the Fund) from the Commissions website
(http://www.sec.gov).
You may also call this toll-free number to request other
information about us and make shareholder inquiries.
The Funds common shares do not represent a deposit or
obligation of, and are not guaranteed or endorsed by, any bank
or other insured depository institution, and are not federally
insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other government agency.
TABLE OF
CONTENTS
You should rely only on the information contained or
incorporated by reference in this prospectus. The Fund has not
authorized anyone to provide you with different information. The
Fund is not, and the underwriters are not, making an offer to
sell these securities in any state where the offer or sale is
not permitted. You should not assume that the information
contained in this prospectus is accurate as of any date other
than the date of this prospectus.
i
PROSPECTUS
SUMMARY
This is only a summary. This summary may not contain all of
the information that you should consider before investing in our
shares. You should review the more detailed information
contained in this prospectus and the SAI, especially the
information set forth under the heading Risk Factors and
Special Considerations.
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The Fund
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The Gabelli Natural Resources, Gold & Income Trust is
a non-diversified, closed-end management investment company
organized under the laws of the State of Delaware. Throughout
this prospectus, we refer to The Gabelli Natural Resources,
Gold & Income Trust as the Fund or as
we, us or our. See The
Fund.
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The Offering
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The Fund is
offering
common shares of beneficial interest at an initial offering
price of $20.00 per share through a group of underwriters (the
Underwriters) led by Morgan Stanley & Co.
Incorporated, Citigroup Global Markets Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The common shares of
beneficial interest are called common shares in the
rest of this prospectus. You must purchase at least 100 common
shares ($2,000) in order to participate in this offering. The
Fund has given the Underwriters an option to purchase up
to
additional common shares at the public offering price, less the
sales load, within 45 days from the date of this prospectus
to cover orders in excess of
common shares. The Investment Adviser has agreed to pay offering
expenses (other than the sales load) that exceed $.04 per common
share. See Underwriters.
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Investment Objectives and Policies
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The Funds primary investment objective is to provide a
high level of current income from interest, dividends and option
premiums. The Funds secondary investment objective is to
seek capital appreciation consistent with the Funds
strategy and its primary objective.
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To meet the objective of providing a high level of current
income, the Fund intends to invest in income producing
securities such as equity securities, convertible securities and
other securities and earn short-term gains from a strategy of
writing covered call options on equity securities in its
portfolio. The Fund will seek dividend income through
investments in equity securities such as common stock or
convertible preferred stock. The Fund will seek interest income
through investments in convertible or corporate bonds. See
Investment Objectives and Policies.
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Under normal market conditions, the Fund will attempt to achieve
its objectives by investing at least 80% of its assets, which
includes the amount of any borrowings for investment purposes,
in securities of companies principally engaged in the natural
resources and gold industries. The Fund will invest at least 25%
of its assets in the securities of companies principally engaged
in the exploration, production or distribution of natural
resources, such as base metals, metals, paper, food,
agriculture, forestry products, water, gas, oil, sustainable
energy and other commodities as well as
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related transportation companies and equipment manufacturers
(Natural Resources Companies). Related
transportation companies and equipment manufacturers, such as
agriculture transportation vehicles and farm equipment
manufacturers, are vital components of the natural resource
industry and are therefore included within the definition of
Natural Resources Companies. The Fund will invest at least 25%
of its assets in the securities of companies principally engaged
in the exploration, mining, fabrication, processing,
distribution or trading of gold or the financing, managing,
controlling or operating of companies engaged in
gold-related activities (Gold
Companies). Companies principally engaged in the
financing, managing, controlling or operating of companies
engaged in gold-related activities include companies
that own or receive royalties on the production of gold; such
companies are vital components of the gold industry and are
therefore included within the definition of Gold Companies.
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The Fund may invest without limitation in the securities of
domestic and foreign issuers. The Fund expects that its assets
will usually be invested in several countries. To the extent
that the natural resources and gold industries are concentrated
in any given geographic region, such as Europe, North America or
Asia, a relatively high proportion of the Funds assets may
be invested in that particular region. See Investment
Objectives and Policies.
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Principally engaged, as used in this prospectus, means a company
that derives at least 50% of its revenues or earnings from or
devotes at least 50% of its assets to the indicated businesses.
Equity securities may include common stocks, preferred stocks,
convertible securities, warrants, depository receipts and equity
interests in trusts and other entities. Other Fund investments
may include investment companies, including exchange traded
funds, securities of issuers subject to reorganization,
derivative instruments, debt (including obligations of the
U.S. government) and money market instruments. As part of
its investment strategy, the Fund intends to provide current
income from short-term gains earned through an option strategy
which will normally consist of writing (selling) call options on
equity securities in its portfolio (covered calls),
but may, in amounts up to 5% of the Funds assets, consist
of writing uncovered call options on securities not held by the
Fund and indices comprised of Natural Resources Companies or
Gold Companies or exchange-traded funds comprised of such
issuers and writing put options on securities of Natural
Resource Companies or Gold Companies. When the Fund sells a call
option, it generates current income from short-term gains in the
form of the premium paid by the buyer of the call option, but
the Fund forgoes the opportunity to participate in any increase
in the value of the underlying equity security above the
exercise price of the option. When the Fund sells a put option,
it generates current income from short-term gains in the form of
the premium paid by the buyer of the put option, but the Fund
will have the obligation to buy the underlying security at the
exercise price if the price of the security decreases below the
exercise price of the option. Any premiums received by the Fund
from writing options may result in short-term capital gains. See
Investment Objectives and Policies.
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The Fund may invest up to 20% of its assets in convertible
securities,
i.e.
, securities (bonds, debentures,
notes, stocks and other similar securities) that are convertible
into common stock or other equity securities, and income
securities,
i.e.
, nonconvertible debt or equity
securities having a history of regular payments or accrual of
income to holders. Under normal market conditions, the Fund may
invest up to 35% of its assets in fixed-income securities, not
including short-term discounted Treasury Bills or certain
short-term securities of U.S. government sponsored
instrumentalities. The Fund may invest up to 25% of its assets
in junk
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bonds such as convertible debt securities (which generally
are rated lower than investment grade) and fixed-income
securities that are rated lower than investment grade, or not
rated but of similar quality as determined by the Investment
Adviser.
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The Fund is not intended for those who wish to exploit
short-term swings in the stock market.
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The Investment Advisers investment philosophy with respect
to selecting investments in the natural resources and gold
industries is to emphasize quality, value and favorable
prospects for growth, as determined by such factors as asset
quality, balance sheet leverage, management ability, reserve
life, cash flow, and commodity hedging exposure. In addition, in
making stock selections, the Investment Adviser looks for
securities that it believes may provide attractive yields as
well as capital gains potential and that allow the Fund to
generate current income from short-term gains from writing
covered calls on such stocks.
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Leverage
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The Fund does not currently anticipate borrowing from banks or
other financial institutions, issuing preferred shares or
otherwise leveraging the common shares. However, the Fund will
monitor interest rates and market conditions and anticipates
that it may leverage the common shares at some point in the
future if the Board of Trustees determines that it is in the
best interest of the common shareholders. The use of borrowing
techniques or preferred shares to leverage the common shares may
involve greater risk to common shareholders. The use of leverage
may magnify the impact of changes in net asset value on the
holders of common shares. In addition, the cost of leverage
could exceed the return on the securities acquired with the
proceeds of the leverage, thereby diminishing returns to the
holders of the common shares.
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The Fund may also engage in certain investment management
techniques which may be considered senior securities for
purposes of the 1940 Act unless the Fund segregates cash or
other liquid securities equal to the Funds obligations in
respect of such techniques. These segregation and coverage
requirements could result in the Fund maintaining securities
positions that it would otherwise liquidate, segregating assets
at a time when it may be disadvantageous to do so or otherwise
restricting portfolio management.
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Distributions and Dividends
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The Fund intends to make regular monthly cash distributions of
all or a portion of its investment company taxable income (which
includes ordinary income and short-term capital gains) to common
shareholders. The Fund also intends to make annual distributions
of its net capital gain (which is the excess of net
long-term capital gains over net short-term capital losses).
Various factors will affect the level of the Funds
investment company taxable income, such as its asset mix, and
use of covered call strategies. To permit the Fund to maintain
more stable monthly distributions, the Fund may from time to
time distribute less than the entire amount of income earned in
a particular period, which would be available to supplement
future distributions. As a result, the distributions paid by the
Fund for any particular monthly period may be more or less than
the amount of income actually earned by the Fund during that
period. Because the Funds income will fluctuate and the
Funds distribution policy may be changed by the Board of
Trustees at any time, there can be no assurance that the Fund
will pay distributions or dividends at a particular rate. See
Distributions and Dividends.
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Distributions paid by the Fund are automatically reinvested in
additional shares of the Fund unless a shareholder elects to
receive cash or the shareholders broker
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does not provide reinvestment services. See Automatic
Dividend Reinvestment and Voluntary Cash Purchase Plan.
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Use of Proceeds
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The Fund will use the net proceeds from the offering to purchase
portfolio securities in accordance with its investment
objectives and policies. The investment of proceeds is expected
to be substantially completed within three months; however,
changes in market conditions could result in the Funds
anticipated investment period extending to as long as six
months. See Use of Proceeds.
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Exchange Listing
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The Funds common shares have been approved for listing on
the New York Stock Exchange (NYSE), subject to
notice of issuance, under the trading or ticker
symbol GNT. See Description of the
Shares.
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Market Price of Shares
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Common shares of closed-end investment companies often trade at
prices lower than their net asset value. Common shares of
closed-end investment companies may trade during some periods at
prices higher than their net asset value and during other
periods at prices lower than their net asset value. The Fund
cannot assure you that its common shares will trade at a price
higher than or equal to net asset value. The Funds net
asset value will be reduced immediately following this offering
by the sales load and the amount of the offering expenses paid
by the Fund. See Use of Proceeds.
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In addition to net asset value, the market price of the
Funds common shares may be affected by such factors as the
Funds dividend and distribution levels (which are affected
by expenses) and stability, market liquidity, market supply and
demand, unrealized gains, general market and economic conditions
and other factors. See Risk Factors and Special
Considerations, Description of the Shares and
Repurchase of Common Shares.
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The common shares are designed primarily for long-term
investors, and you should not purchase common shares of the Fund
if you intend to sell them shortly after purchase.
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Risk Factors and Special Considerations
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Risk is inherent in all investing. Therefore, before investing
in common shares of the Fund you should consider the risks
carefully.
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Industry Risks.
The Funds investments
will be concentrated in the natural resources industries and
gold industries. Because the Fund is concentrated in these
industries, it may present more risks than if it were broadly
diversified over numerous industries and sectors of the economy.
A downturn in the natural resources or gold industries would
have a larger impact on the Fund than on an investment company
that does not concentrate in such industries.
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Under normal market conditions the Fund will invest at least 25%
of its assets in securities of Natural Resources Companies. A
downturn in the indicated natural resources industries would
have a larger impact on the Fund than on an investment company
that does not invest significantly in such industries. Such
industries can be significantly affected by the supply of and
demand for the indicated commodities and related services,
exploration and production spending, government regulations,
world events and economic conditions. The base metals, metals,
paper, food and agriculture, forestry products, water, gas, oil,
sustainable energy and other commodities industries can be
significantly affected by events relating to international
political developments, the success of exploration projects,
commodity prices, and tax and government regulations. The stock
prices of Natural Resources Companies, some of which have
experienced substantial price increases in recent periods, may
also experience greater price volatility than other types of
common stocks. Securities issued by Natural Resources Companies
are sensitive to changes
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in the prices of, and in supply and demand for, the indicated
commodities. The value of securities issued by Natural Resources
Companies may be affected by changes in overall market
movements, changes in interest rates, or factors affecting a
particular industry or commodity, such as weather, embargoes,
tariffs, policies of commodity cartels and international
economic, political and regulatory developments. The Investment
Advisers judgments about trends in the prices of these
securities and commodities may prove to be incorrect. It is
possible that the performance of securities of Natural Resources
Companies may lag the performance of other industries or the
broader market as a whole.
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Under normal market conditions the Fund will invest at least 25%
of its assets in securities of Gold Companies. Securities of
Gold Companies may experience greater volatility than companies
not involved in the gold industries. Investments related to gold
are considered speculative and are affected by a variety of
worldwide economic, financial and political factors. The price
of gold, which has experienced substantial increases in recent
periods, may fluctuate sharply, including substantial decreases,
over short periods of time due to changes in inflation or
expectations regarding inflation in various countries, the
availability of supplies of gold, changes in industrial and
commercial demand, gold sales by governments, central banks or
international agencies, investment speculation, monetary and
other economic policies of various governments and government
restrictions on private ownership of gold. The Investment
Advisers judgments about trends in the prices of
securities of Gold Companies may prove to be incorrect. It is
possible that the performance of securities of Gold Companies
may lag the performance of other industries or the broader
market as a whole. See Risk Factors and Special
Considerations Industry Risks Industry
Risks.
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Supply and Demand Risk.
A decrease in the
production of, or exploration of, gold, base metals, metals,
paper, food and agriculture, forestry products, gas, oil and
other commodities or a decrease in the volume of such
commodities available for transportation, mining, processing,
storage or distribution may adversely impact the financial
performance of the Funds investments. Production declines
and volume decreases could be caused by various factors,
including catastrophic events affecting production, depletion of
resources, labor difficulties, environmental proceedings,
increased regulations, equipment failures and unexpected
maintenance problems, import supply disruption, increased
competition from alternative energy sources or commodity prices.
Sustained declines in demand for the indicated commodities could
also adversely affect the financial performance of Natural
Resources Companies and Gold Companies over the long-term.
Factors which could lead to a decline in demand include economic
recession or other adverse economic conditions, higher fuel
taxes or governmental regulations, increases in fuel economy,
consumer shifts to the use of alternative fuel sources, changes
in commodity prices, or weather. See Risk Factors and
Special Considerations Industry Risks
Supply and Demand Risk.
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Depletion and Exploration Risk.
Many Natural
Resources Companies and Gold Companies are either engaged in the
production or exploration of particular commodities or are
engaged in transporting, storing, distributing and processing
such commodities. To maintain or increase their revenue level,
these companies or their customers need to maintain or expand
their reserves through exploration of new sources of supply, the
development of existing sources, acquisitions, or long-term
contracts to acquire reserves. The financial performance of
Natural Resources Companies and Gold Companies may be adversely
affected if they, or the companies to whom they provide products
or services, are unable to cost
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effectively acquire additional products or reserves sufficient
to replace the natural decline. See Risk Factors and
Special Considerations Industry Risks
Depletion and Exploration Risk.
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Regulatory Risk.
Natural Resources Companies
and Gold Companies may be subject to extensive government
regulation in virtually every aspect of their operations,
including how facilities are constructed, maintained and
operated, environmental and safety controls, and in some cases
the prices they may charge for the products and services they
provide. Various governmental authorities have the power to
enforce compliance with these regulations and the permits issued
under them, and violators are subject to administrative, civil
and criminal penalties, including civil fines, injunctions or
both. Stricter laws, regulations or enforcement policies could
be enacted in the future, which would likely increase compliance
costs and may adversely affect the financial performance of
Natural Resources Companies and Gold Companies. See Risk
Factors and Special Considerations Industry
Risks Regulatory Risk.
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Commodity Pricing Risk.
The operations and
financial performance of Natural Resources Companies and Gold
Companies may be directly affected by the prices of the
indicated commodities, especially those Natural Resources
Companies and Gold Companies for whom the commodities they own
are significant assets. Commodity prices fluctuate for several
reasons, including changes in market and economic conditions,
levels of domestic production, impact of governmental regulation
and taxation, the availability of transportation systems and, in
the case of oil and gas companies in particular, conservation
measures and the impact of weather. Volatility of commodity
prices which may lead to a reduction in production or supply,
may also negatively affect the performance of Natural Resources
Companies and Gold Companies which are solely involved in the
transportation, processing, storing, distribution or marketing
of commodities. Volatility of commodity prices may also make it
more difficult for Natural Resources Companies and Gold
Companies to raise capital to the extent the market perceives
that their performance may be directly or indirectly tied to
commodity prices. See Risk Factors and Special
Considerations Industry Risks Commodity
Pricing Risk.
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Risks Associated with Covered Calls and Other Option
Transactions.
There are several risks associated
with transactions in options on securities. For example, there
are significant differences between the securities and options
markets that could result in an imperfect correlation between
these markets, causing a given covered call option transaction
not to achieve its objectives. A decision as to whether, when
and how to use covered calls (or other options) involves the
exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful because of market behavior or
unexpected events. The use of options may require the Fund to
sell portfolio securities at inopportune times or for prices
other than current market values, may limit the amount of
appreciation the Fund can realize on an investment, or may cause
the Fund to hold a security it might otherwise sell. As the
writer of a covered call option, the Fund forgoes, during the
options life, the opportunity to profit from increases in
the market value of the security covering the call option above
the exercise price of the call option, but has retained the risk
of loss should the price of the underlying security decline.
Although such loss would be offset in part by the option premium
received, in a situation in which the price of a particular
stock on which the Fund has written a covered call option
declines rapidly and materially or in which prices in general on
all or a substantial portion of the stocks on which the Fund
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has written covered call options decline rapidly and materially,
the Fund could sustain material depreciation or loss in its net
assets to the extent it does not sell the underlying securities
(which may require it to terminate, offset or otherwise cover
its option position as well).
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There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. If the Fund were
unable to close out a covered call option that it had written on
a security, it would not be able to sell the underlying security
unless the option expired without exercise. Reasons for the
absence of a liquid secondary market for exchange-traded options
include the following: (i) there may be insufficient
trading interest; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes
or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange;
(v) the trading facilities may not be adequate to handle
current trading volume; or (vi) the relevant exchange could
discontinue the trading of options. In addition, the Funds
ability to terminate
over-the-counter
options may be more limited than with exchange-traded options
and may involve the risk that counterparties participating in
such transactions will not fulfill their obligations. See
Risk Factors and Special Considerations Risks
Associated with Covered Calls and Other Option
Transactions.
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Limitation on Covered Call Writing Risk.
The
number of covered call options the Fund can write is limited by
the number of shares of the corresponding common stock the Fund
holds. Furthermore, the Funds covered call options and
other options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other
trading facilities on which such options are traded. As a
result, the number of covered call options that the Fund may
write or purchase may be affected by options written or
purchased by it and other investment advisory clients of the
Investment Adviser. See Risk Factors and Special
Considerations Risks Associated with Covered Calls
and Other Option Transactions Limitation on Covered
Call Writing Risk.
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Risks Associated with Uncovered Calls.
There
are special risks associated with uncovered option writing which
expose the Fund to potentially significant loss. As the writer
of an uncovered call option, the Fund has no risk of loss should
the price of the underlying security decline, but bears
unlimited risk of loss should the price of the underlying
security increase above the exercise price until the Fund covers
its exposure. As with writing uncovered calls, the risk of
writing uncovered put options is substantial. The writer of an
uncovered put option bears a risk of loss if the value of the
underlying instrument declines below the exercise price. Such
loss could be substantial if there is a significant decline in
the value of the underlying instrument. See Risk Factors
and Special Considerations Risks Associated with
Uncovered Calls.
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Common Stock Risk.
Common stock of an issuer
in the Funds portfolio may decline in price for a variety
of reasons including if the issuer fails to make anticipated
dividend payments. Common stock in which the Fund will invest is
structurally subordinated as to income and residual value to
preferred stock, bonds and other debt instruments in a
companys capital structure, in terms of priority to
corporate income, and therefore will be subject to greater
dividend risk than preferred stock or debt instruments of such
issuers. In addition, while common stock has historically
generated higher average returns than fixed income securities,
common stock has also experienced significantly more volatility
in those returns. See Risk Factors and Special
Considerations Common Stock Risk.
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Foreign Securities Risk.
Because many of the
worlds Natural Resources Companies and Gold Companies are
located outside of the U.S., the Fund may have a significant
portion of its investments in securities that are traded in
foreign markets and that are not subject to the requirements of
the U.S. securities laws, markets and accounting
requirements (Foreign Securities). Investments in
Foreign Securities involve certain considerations and risks not
ordinarily associated with investments in securities of
U.S. issuers. Foreign companies are not generally subject
to the same accounting, auditing and financial standards and
requirements as 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 U.S. 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,
and 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. See Risk Factors and Special
Considerations Foreign Securities Risk.
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Convertible Securities Risk.
Convertible
securities generally offer lower interest or dividend yields
than non-convertible securities of similar quality. The market
values of convertible securities tend to decline as interest
rates increase and conversely, to increase as interest rates
decline. In the absence of adequate anti-dilutive provisions in
a convertible security, dilution in the value of the Funds
holding may occur in the event the underlying stock is
subdivided, additional equity securities are issued for below
market value, a stock dividend is declared, or the issuer enters
into another type of corporate transaction that has a similar
effect. See Risk Factors and Special
Considerations Convertible Securities Risk.
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Income Risk.
The income shareholders receive
from the Fund is expected to be based primarily on income from
short-term gains that the Fund earns from its investment
strategy of writing covered calls and dividends and other
distributions received from its investments. If the Funds
covered call strategy fails to generate sufficient income from
short-term gains or the distribution rates or yields of the
Funds holdings decrease, shareholders income from
the Fund could decline. See Risk Factors and Special
Considerations Income Risk.
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Dilution Risk for Convertible Securities.
In
the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Funds
holding may occur in the event the underlying stock is
subdivided, additional equity securities are issued for below
market value, a stock dividend is declared, or the issuer enters
into another type of corporate transaction that has a similar
effect. See Risk Factors and Special
Considerations Dilution Risk for Convertible
Securities.
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Lower Grade Securities Risk.
The Fund may
invest up to 25% of its assets in fixed-income and convertible
securities rated in the lower rating categories of recognized
statistical rating agencies, such as securities rated
CCC or lower by Standard & Poors
Ratings Services (S&P) or Caa by
Moodys Investors Service, Inc. (Moodys),
or non-rated securities of comparable 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
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securities. See Risk Factors and Special
Considerations Lower Grade Securities Risk.
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Emerging Markets Risk.
The Fund may invest
without limit in securities of issuers whose primary operations
or principal trading market is in an emerging
market. An emerging market country is any
country that is considered to be an emerging or developing
country by the International Bank for Reconstruction and
Development (the World Bank). Investing in
securities of companies in emerging markets may entail special
risks relating to potential political and economic instability
and the risks of expropriation, nationalization, confiscation or
the imposition of restrictions on foreign investment, the lack
of hedging instruments and restrictions on repatriation of
capital invested. Emerging securities markets are substantially
smaller, less developed, less liquid and more volatile than the
major securities markets. The limited size of emerging
securities markets and limited trading value compared to the
volume of trading in U.S. securities could cause prices to
be erratic for reasons apart from factors that affect the
quality of the securities. For example, limited market size may
cause prices to be unduly influenced by traders who control
large positions. Adverse publicity and investors
perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of portfolio securities,
especially in these markets. Other risks include high
concentration of market capitalization and trading volume in a
small number of issuers representing a limited number of
industries, as well as a high concentration of investors and
financial intermediaries; overdependence on exports, including
natural resources and gold exports, making these economies
vulnerable to changes in commodity prices; overburdened
infrastructure and obsolete or unseasoned financial systems;
environmental problems; less developed legal systems; and less
reliable securities custodial services and settlement practices.
See Risk Factors and Special Considerations
Emerging Markets Risk.
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Foreign Currency Risk.
The Fund expects to
invest in companies whose securities are denominated or quoted
in currencies other than U.S. dollars or have significant
operations or markets outside of the U.S. In such
instances, the Fund will be exposed to currency risk, including
the risk of fluctuations in the exchange rate between
U.S. dollars (in which the Funds shares are
denominated) and such foreign currencies and the risk of
currency devaluations. Certain
non-U.S. currencies,
primarily in developing countries, have been devalued in the
past and might face devaluation in the future. Currency
devaluations generally have a significant and adverse impact on
the devaluing countrys economy in the short and
intermediate term and on the financial condition and results of
companies operations in that country. Currency
devaluations may also be accompanied by significant declines in
the values and liquidity of equity and debt securities of
affected governmental and private sector entities generally. To
the extent that affected companies have obligations denominated
in currencies other than the devalued currency, those companies
may also have difficulty in meeting those obligations under such
circumstances, which in turn could have an adverse effect upon
the value of the Funds investments in such companies.
There can be no assurance that current or future developments
with respect to foreign currency devaluations will not impair
the Funds investment flexibility, its ability to achieve
its investment objectives or the value of certain of its foreign
currency denominated investments. See Risk Factors and
Special Considerations Foreign Currency Risk.
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Market Discount Risk.
Whether investors will
realize gains or losses upon the sale of common shares of the
Fund will depend upon the market price of the
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shares at the time of sale, which may be less or more than the
Funds net asset value per share. Since the market price of
the common shares will be affected by various factors such as
the Funds dividend and distribution levels (which are in
turn affected by expenses), dividend and distribution stability,
net asset value, market liquidity, the relative demand for and
supply of the common shares in the market, unrealized gains,
general market and economic conditions and other factors beyond
the control of the Fund, we cannot predict whether the common
shares will trade at, below or above net asset value or at,
below or above the public offering price. Common shares of
closed-end funds often trade at a discount from their net asset
values and the Funds common shares may trade at such a
discount. This risk may be greater for investors expecting to
sell their common shares of the Fund soon after completion of
the public offering. The common shares of the Fund are designed
primarily for long-term investors, and investors in the common
shares should not view the Fund as a vehicle for trading
purposes. See Risk Factors and Special
Considerations Market Discount Risk.
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Equity Risk.
Investing in the Fund involves
equity risk, which is the risk that the securities held by the
Fund will fall in market value due to adverse market and
economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate and
the particular circumstances and performance of particular
companies whose securities the Fund holds. An investment in the
Fund represents an indirect economic stake in the securities
owned by the Fund, which are for the most part traded on
securities exchanges or in the
over-the-counter
markets. The market value of these securities, like other market
investments, may move up or down, sometimes rapidly and
unpredictably. The net asset value of the Fund may at any point
in time be worth less than the amount at the time the
shareholder invested in the Fund, even after taking into account
any reinvestment of distributions. See Risk Factors and
Special Considerations Equity Risk.
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Commodities-Linked Equity Derivative Instrument
Risk.
The Fund may invest in structured notes
that are linked to one or more underlying commodities. Such
structured notes provide exposure to the investment returns of
physical commodities without actually investing directly in
physical commodities. Such structured notes in which the Fund
may invest are hybrid instruments that have substantial risks,
including risk of loss of all or a significant portion of their
principal value. Because the payments on these notes are linked
to the price change of the underlying commodities, these
investments are subject to market risks that relate to the
movement of prices in the commodities markets. They may also be
subject to additional special risks that do not affect
traditional equity and debt securities that may be greater than
or in addition to the risks of derivatives in general, including
risk of loss of interest, risk of loss of principal, lack of
liquidity and risk of greater volatility. See Risk Factors
and Special Considerations Commodities-Linked Equity
Derivative Instrument Risk.
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Distribution Risk for Equity Income Portfolio
Securities.
The Fund intends to invest in the
shares of issuers that pay dividends or other distributions.
Such dividends or other distributions are not guaranteed and an
issuer may forego paying dividends or other distributions at any
time and for any reason. See Risk Factors and Special
Considerations Distribution Risk for Equity Income
Portfolio Securities.
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Interest Rate Risk.
Rising interest rates may
adversely affect the financial performance of Natural Resources
Companies and Gold Companies by increasing
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their costs of capital. This may reduce their ability to execute
acquisitions or expansion projects in a cost-effective manner.
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During periods of declining interest rates, the issuer of a
preferred stock or fixed income security may be able to exercise
an option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is known
as call or prepayment risk. During periods of rising interest
rates, the average life of certain types of securities may be
extended because of slower than expected principal payments.
This may prolong the length of time the security pays a below
market interest rate, increase the securitys duration and
reduce the value of the security. This is known as extension
risk. See Risk Factors and Special
Considerations Interest Rate Risk.
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Interest Rate Risk for Fixed Income
Securities.
The primary risk associated with
fixed income securities is interest rate risk. A decrease in
interest rates will generally result in an increase in the value
of a fixed income security, while increases in interest rates
will generally result in a decline in its value. This effect is
generally more pronounced for fixed rate securities than for
securities whose income rate is periodically reset. See
Risk Factors and Special Considerations
Interest Rate Risk for Fixed Income Securities.
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Inflation Risk.
Inflation risk is the risk
that the value of assets or income from investments will be
worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of the Funds
shares and distributions thereon can decline. In addition,
during any periods of rising inflation, dividend rates of any
variable rate preferred shares or debt securities issued by the
Fund would likely increase, which would tend to further reduce
returns to common shareholders. See Risk Factors and
Special Considerations Inflation Risk.
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Illiquid Investments Risk.
The Fund may invest
in unregistered securities 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. An illiquid investment is a security or
other investment that cannot be disposed of within seven days in
the ordinary course of business at approximately the value at
which the Fund has valued the investment. Unregistered
securities often can be resold only in privately negotiated
transactions with a limited number of purchasers or in a public
offering registered under the Securities Act of 1933.
Considerable delay could be encountered in either event and,
unless otherwise contractually provided for, the Funds
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
Funds inability to realize a favorable price upon
disposition of unregistered securities, and at times might make
disposition of such securities impossible. In addition, the Fund
may be unable to sell other illiquid investments when it desires
to do so, resulting in the Fund obtaining a lower price or being
required to retain the investment. Illiquid investments
generally must be valued at fair value, which is inherently less
precise than utilizing market values for liquid investments, and
may lead to differences between the price a security is valued
for determining the Funds net asset value and the price
the Fund actually receives upon sale. See Risk Factors and
Special Considerations Illiquid Investments
Risk.
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Investment Companies.
The Fund may invest in
the securities of other investment companies, including
exchange-traded funds, to the extent permitted by law. To the
extent the Fund invests in the common equity of investment
companies,
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the Fund will bear its ratable share of any such investment
companys 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 the
securities of other investment companies. In these
circumstances, holders of the Funds common shares will be
in effect subject to duplicative investment expenses. See
Risk Factors and Special Considerations
Investment Companies.
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Special Risks of Derivative Transactions.
The
Fund may participate in derivative transactions. Such
transactions entail certain execution, market, liquidity,
hedging and tax risks. Participation in the options or futures
markets, in other derivatives transactions, or 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 Advisers prediction of
movements in the direction of the securities, foreign currency,
interest rate or other referenced instruments or markets is
inaccurate, the consequences to the Fund may leave the Fund in a
worse position than if it had not used such strategies. See
Risk Factors and Special Considerations
Special Risks of Derivative Transactions.
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Swaps and Related Derivatives.
The Fund may
enter into total rate of return, credit default or other types
of swaps and related derivatives for the purpose of hedging and
risk management. These transactions generally provide for the
transfer from one counterparty to another of certain risks
inherent in the ownership of a financial asset such as a common
stock or debt instrument. Such risks include, among other
things, the risk of default and insolvency of the obligor of
such asset, the risk that the credit of the obligor or the
underlying collateral will decline or the risk that the common
stock of the underlying issuer will decline in value. The
transfer of risk pursuant to a derivative of this type may be
complete or partial, and may be for the life of the related
asset or for a shorter period. These derivatives may be used for
investment purposes or as a risk management tool for a pool of
financial assets, providing the Fund with the opportunity to
gain or reduce exposure to one or more reference securities or
other financial assets (each, a Reference Asset)
without actually owning or selling such assets in order, for
example, to increase or reduce a concentration risk or to
diversify a portfolio. Conversely, these derivatives may be used
by the Fund to reduce exposure to an owned asset without selling
it. See Risk Factors and Special
Considerations Swaps and Related Derivatives.
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Dependence on Key Personnel.
The Investment
Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli. If the Investment Adviser were to lose the services of
Mr. Gabelli, it 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.
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The Fund is dependent upon the expertise of Vincent
Hugonnard-Roche as the sole option strategist on the Funds
portfolio management team. If the Fund were to lose the services
of Mr. Roche, it could be temporarily adversely affected
until a suitable replacement could be found. See Risk
Factors and Special Considerations Dependence on Key
Personnel.
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Long-Term Objective; Not a Complete Investment
Program.
The Fund is intended for investors
seeking a high level of current income. The Fund is not meant to
provide a vehicle for those who wish to exploit short-term
swings in the stock market. An investment in shares of the Fund
should not be considered a
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complete investment program. Each shareholder should take into
account the Funds investment objectives as well as the
shareholders other investments when considering an
investment in the Fund. See Risk Factors and Special
Considerations Long-Term Objective; Not a Complete
Investment Program.
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Portfolio Turnover Risk.
The Fund will buy and
sell securities to accomplish its investment objectives. The
investment policies of the Fund, including its strategy of
writing covered call options on securities in its portfolio, are
expected to result in portfolio turnover that is higher than
that of many investment companies, may initially be higher than
100% and may result in the Fund paying higher commissions than
many investment companies. See Risk Factors and Special
Considerations Portfolio Turnover Risk.
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Management Risk.
The Fund is subject to
management risk because its portfolio will be actively managed.
The Investment Adviser will apply investment techniques and risk
analyses in making investment decisions for the Fund, but there
can be no guarantee that these will produce the desired results.
See Risk Factors and Special Considerations
Management Risk.
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No Operating History.
The Fund is a
non-diversified, closed-end management investment company with
no operating history.
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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. 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. See Risk Factors and Special
Considerations Non-Diversified Status.
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Market Disruption and Geopolitical Risk.
The
terrorist attacks on domestic U.S. targets on
September 11, 2001, the wars in Iraq and Afghanistan 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.
The nature, scope and duration of the war and occupation cannot
be predicted with any certainty. Similar events in the future or
other disruptions of financial markets could affect interest
rates, securities exchanges, auctions, secondary trading,
ratings, credit risk, inflation, energy prices and other factors
relating to the common shares. See Risk Factors and
Special Considerations Market Disruption and
Geopolitical Risk.
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Recent Economic Events.
While the
U.S. and global markets had experienced extreme volatility
and disruption for an extended period of time, the first, second
and third quarters of 2010 witnessed more stabilized economic
activity as expectations for an economic recovery increased.
However, risks to a robust resumption of growth persist: a weak
consumer weighed down by too much debt and increasing
joblessness, the growing size of the federal budget deficit and
national debt, and the threat of inflation. A return to
unfavorable economic conditions could impair the Funds
ability to execute its investment strategies. See Risk
Factors and Special Considerations Recent Economic
Developments.
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2011 U.S. Federal Budget.
The proposed
U.S. federal budget for fiscal year 2011 calls for the
elimination of approximately $40 billion in tax incentives
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widely used by oil, gas and coal companies and the imposition of
new fees on certain energy producers. The elimination of such
tax incentives and imposition of such fees could adversely
affect Natural Resources Companies in which the Fund invests
and/or
the
natural resources sector generally. See Risk Factors and
Special Considerations 2011 U.S. Federal
Budget.
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Government Intervention in Financial Markets
Risk.
The recent instability in the financial
markets has led the U.S. government and foreign governments
to take a number of unprecedented actions designed to support
certain financial institutions and segments of the financial
markets that have experienced extreme volatility, and in some
cases a lack of liquidity. U.S. federal and state
governments and foreign governments, their regulatory agencies
or self regulatory organizations may take additional actions
that affect the regulation of the securities in which the Fund
invests, or the issuers of such securities, in ways that are
unforeseeable. Issuers of corporate securities might seek
protection under the bankruptcy laws. Legislation or regulation
may also change the way in which the Fund itself is regulated.
Such legislation or regulation could limit or preclude the
Funds ability to achieve its investment objectives. See
Risk Factors and Special Considerations
Government Intervention in Financial Markets Risk.
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Anti-Takeover Provisions.
The Funds
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 Risk
Factors and Special Considerations Anti-Takeover
Provisions and Anti-Takeover Provisions of the
Funds Governing Documents.
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See Risk Factors and Special Considerations and the
other information included in this prospectus for a discussion
of factors you should carefully consider before deciding to
invest in the common shares of the Fund.
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Management and Fees
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Gabelli Funds, LLC serves as the Funds Investment Adviser
and is compensated for its services and its related expenses at
an annual rate of 1.00% of the Funds average weekly
managed assets payable monthly in arrears. Managed assets
consist of all the assets of the Fund without deduction for
borrowings, repurchase transactions and other leveraging
techniques, the liquidation value of any outstanding preferred
shares or other liabilities except for certain ordinary course
expenses. 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.
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Repurchase of Common Shares and Anti-Takeover Provisions
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The Funds Board of Trustees has authorized the Fund to
consider the repurchase of its common shares in the open market
when the common shares are trading at a discount of 10% or more
from net asset value (or such other percentage as the Board of
Trustees may determine from time to time). Although the Board of
Trustees has authorized such repurchases, the Fund is not
required to repurchase its common shares. Such repurchases are
subject to certain notice and other requirements under the 1940
Act. See Repurchase of Common Shares.
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Certain provisions of the Funds 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 or to authorize
certain transactions between the Fund and a beneficial owner of
more than 5% of any class of the Funds capital stock. The
overall effect of these provisions is to
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14
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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 Funds common
shareholders of an opportunity to sell their shares at a premium
to the prevailing market price. The issuance of preferred shares
could make it more difficult for the holders of common shares to
avoid the effect of these provisions. See Anti-Takeover
Provisions of the Funds Governing Documents.
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Custodian, Transfer Agent and Dividend Disbursing Agent
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The Bank of New York Mellon, located at 135 Santilli Highway,
Everett, Massachusetts 02149, serves as the custodian (the
Custodian) of the Funds assets pursuant to a
custody agreement. Under the custody agreement, the Custodian
holds the Funds assets in compliance with the 1940 Act.
For its services, the Custodian will receive a monthly fee paid
by the Fund based upon, among other things, the average value of
the total assets of the Fund, plus certain charges for
securities transactions and out of pocket expenses.
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American Stock Transfer & Trust Company, located at
59 Maiden Lane, New York, New York 10038, serves as
the Funds distribution disbursing agent, as agent under
the Funds Automatic Dividend Reinvestment and Voluntary
Cash Purchase Plan (the Plan), and as transfer agent
and registrar with respect to the common shares of the Fund.
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15
SUMMARY
OF FUND EXPENSES
The following table shows Fund expenses as a percentage of net
assets attributable to common shares and is intended to assist
you in understanding the various costs and expenses directly or
indirectly associated with investing in common shares of the
Fund. Because the Fund has no operating history, the following
tables are based on estimated amounts for the first fiscal year
of operations and assume that the Fund has issued 15,000,000
common shares. The Funds actual expenses may vary from the
estimated expenses shown in the table and may increase as a
percentage of net assets attributable to common shares if the
Fund issues less than 15,000,000 common shares.
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Shareholder Transaction Expenses
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Sales Load Paid By You (as a percentage of offering price)
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4.50%
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Offering Expenses Borne by the Fund (as a percentage of offering
price)
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.20%
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(*)
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Dividend Reinvestment Plan Fees
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None
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(**)
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Percentage of Net
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Assets Attributable
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to Common Shares
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Annual Expenses
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Management Fees
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1.00
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%
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Other Expenses
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0.20
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%
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Total Annual Expenses
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1.20
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%
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(*)
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Gabelli Funds, LLC, the Funds
Investment Adviser, has agreed to pay the amount of the
Funds offering expenses (other than the sales load) that
exceed $.04 per common share (.20% of the offering price).
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(**)
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You will be charged a $1.00 service
charge and pay brokerage charges if you direct the plan agent to
sell your common shares held in a dividend reinvestment account.
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The purpose of the table above and the example below is to help
you understand all fees and expenses that you, as a holder of
common shares, would bear directly or indirectly. The expenses
shown in the table under Other Expenses and
Total Annual Expenses are based on estimated amounts
for the Funds first year of operations and assumes that
the Fund issues 15,000,000 common shares. If the Fund issues
fewer common shares, all other things being equal, these
expenses would increase as a percentage of net assets
attributable to common shares.
The following example illustrates the expenses (including the
sales load of $45 and estimated offering expenses of this
offering of $2) that an investor would pay on a $1,000
investment in common shares, assuming (1) net annual
expenses of 1.20% of net assets attributable to common shares
and (2) a 5% annual portfolio total
return.
*
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1 Year
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3 Years
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5 Years
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10 Years
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Total Expenses Incurred
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$
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59
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$
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83
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$
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110
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$
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186
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*
The example should not be considered a representation
of future expenses.
The example assumes that the amounts set
forth in the Shareholder Transaction Expenses and Annual
Expenses table are accurate and that all distributions are
reinvested at net asset value.
Actual expenses may be greater
or less than those assumed.
Moreover, the Funds actual
rate of return may be greater or less than the hypothetical 5%
return shown in the example.
16
USE OF
PROCEEDS
The net proceeds of the offering will be approximately
$ or
$ if the underwriters exercise the
overallotment option in full, after payment of the underwriting
discounts and commissions and estimated offering costs. 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 Funds investment objectives 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
Funds anticipated investment period extending to as long
as six months.
17
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 June 26, 2008,
pursuant to a Certificate of Trust governed by the laws of the
State of Delaware. The Funds principal office is located
at One Corporate Center, Rye, New York,
10580-1422
and its telephone number is (800) GABELLI
(422-3554).
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives
The Funds primary investment objective is to provide a
high level of current income from interest, dividends and option
premiums. The Funds secondary investment objective is to
seek capital appreciation consistent with the Funds
strategy and its primary objective. To meet the objective of
providing a high level of current income, the Fund intends to
invest in income producing securities such as equity securities,
convertible securities and other securities and earn short-term
gains from a strategy of writing covered call options on equity
securities in its portfolio. The Fund will seek dividend income
through investments in equity securities such as common stock or
convertible preferred stock. The Fund will seek interest income
through investments in convertible or corporate bonds. Under
normal market conditions, the Fund will attempt to achieve its
objectives by investing at least 80% of its assets, which
includes the amount of any borrowing for investment purposes, in
securities of companies principally engaged in the natural
resources and gold industries. The Fund will invest at least 25%
of its assets in the securities of companies principally engaged
in the exploration, production or distribution of natural
resources, such as base metals, metals, paper, food and
agriculture, forestry products, water, gas, oil, sustainable
energy and other commodities as well as related transportation
companies and equipment manufacturers. The Fund will invest at
least 25% of its assets in the securities of companies
principally engaged in the exploration, mining, fabrication,
processing, distribution or trading of gold or the financing,
managing, controlling or operating of companies engaged in
gold-related activities. The Fund may invest without
limitation in the securities of domestic and foreign issuers.
The Fund expects that its assets will usually be invested in
several countries. To the extent that the natural resources and
gold industries are concentrated in any given geographic region,
such as Europe, North America or Asia, a relatively high
proportion of the Funds assets may be invested in that
particular region. Equity securities may include common stocks,
preferred stocks, convertible securities, warrants, depository
receipts and equity interests in trusts and other entities.
Other Fund investments may include investment companies,
securities of issuers subject to reorganization or other risk
arbitrage investments, certain derivative instruments, debt
(including obligations of the U.S. government) and money
market instruments.
As part of its investment strategy, the Fund intends to generate
current income from short-term gains through an option strategy
of writing (selling) covered call options on equity securities
in its portfolio. When the Fund sells a covered call option, it
generates current income from short-term gains in the form of
the premium paid by the buyer of the call option, but the Fund
forgoes the opportunity to participate in any increase in the
value of the underlying equity security above the exercise price
of the option.
Investment
Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser
normally will consider the following factors, among others:
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the industry of the issuer of a security;
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the ability of the Fund to generate current income from
short-term gains from writing covered call options on such
securities;
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the interest or dividend income generated by the securities;
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the potential for capital appreciation of the securities;
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the prices of the securities relative to other comparable
securities;
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18
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whether the securities are entitled to the benefits of call
protection or other protective covenants;
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the existence of any anti-dilution protections or guarantees of
the security; and
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the number and size of investments of the portfolio as to
issuers.
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The Investment Advisers investment philosophy with respect
to selecting investments in the gold industry and the natural
resources industries is to emphasize quality and value, as
determined by such factors as asset quality, balance sheet
leverage, management ability, reserve life, cash flow, and
commodity hedging exposure. In addition, in making stock
selections, the Investment Adviser looks for securities that it
believes may have a superior yield as well as capital gains
potential.
Certain
Investment Practices
Natural Resources Industries
Concentration.
Under normal market conditions,
the Fund will invest at least 25% of its assets in securities of
Natural Resources Companies. Natural Resources
Companies are those that are principally engaged in the
exploration, production or distribution of natural resources,
such as base metals, metals, paper, food and agriculture,
forestry products, gas, oil and other commodities as well as
related transportation companies and equipment manufacturers.
Related transportation companies and equipment manufacturers,
such as agriculture transportation vehicles and farm equipment
manufacturers, are vital components of the natural resource
industry and are therefore included within the definition of
Natural Resources Companies.
Principally engaged, as used in this prospectus, means a company
that derives at least 50% of its revenues or earnings or devotes
at least 50% of its assets to natural resources or gold related
activities, as the case may be.
Gold Industry Concentration.
Under normal
market conditions the Fund will invest at least 25% of its
assets in the securities of Gold Companies. Gold
Companies are those that are principally engaged in the
exploration, mining, fabrication, processing, distribution or
trading of gold, or the financing, managing, controlling or
operating of companies engaged in gold-related
activities. Companies principally engaged in the financing,
managing, controlling or operating of companies engaged in
gold-related activities include companies that own
or receive royalties on the production of gold; such companies
are vital components of the gold industry and are therefore
included within the definition of Gold Companies. The
Funds investments in Gold Companies will generally be in
the common equity of Gold Companies, but the Fund may also
invest in other securities of Gold Companies, such as preferred
stocks, securities convertible into common stocks, and
securities such as rights and warrants that have common stock
characteristics. The Fund will not invest in gold bullion and
therefore the Funds performance will not track directly
the price of gold.
In selecting investments in Gold Companies for the Fund, the
Investment Adviser will focus on stocks that are undervalued,
but which appear to have favorable prospects for growth. Factors
considered in this determination will include capitalization per
ounce of gold production, capitalization per ounce of
recoverable reserves, quality of management and ability to
create shareholder wealth. Because most of the worlds gold
production is outside of the United States, the Fund may have a
significant portion of its investments in Gold Companies in
securities of foreign issuers, including those located in
developed as well as emerging markets. The percentage of Fund
assets invested in particular countries or regions will change
from time to time based on the Investment Advisers
judgment. Among other things, the Investment Adviser will
consider the economic stability and economic outlook of these
countries and regions. See Risk Factors and Special
Considerations Industry Risks.
Covered Calls and Other Option
Transactions.
The Fund intends to provide current
income from short-term gains earned through an option strategy
which will normally consist of writing (selling) call options on
equity securities in its portfolio (covered calls),
but may, in amounts up to 5% of the Funds assets, consist
of writing uncovered call options on additional amounts of such
securities beyond the amounts held in its portfolio, on other
securities not held in its portfolio and on indices comprised of
Natural Resources Companies or Gold Companies or on exchange
traded funds comprised of such issuers and also may consist of
writing put options on securities of Natural Resource Companies
or Gold Companies. Any premiums received by the Fund from
writing options may result in short-term capital gains. Writing
a covered call is the
19
selling of an option contract entitling the buyer to purchase an
underlying security that the Fund owns, while writing an
uncovered call is the selling of such a contract entitling the
buyer to purchase a security the Fund does not own or in an
amount in excess of the amount the Fund owns. When the Fund
sells a call option, it generates current income from short-term
gains in the form of the premium paid by the buyer of the call
option, but the Fund forgoes the opportunity to participate in
any increase in the value of the underlying equity security
above the exercise price 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 buyer
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. When the Fund sells a put option, it generates
current income from short-term gains in the form of the premium
paid by the buyer of the put option, but the Fund will have the
obligation to buy the underlying security at the exercise price
if the price of the security decreases below the exercise price
of the option.
If the Fund has written a call option, it may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing a call option with the same terms 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 with the same terms as the option previously purchased.
There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium it received
from writing the option, or is more than the premium it paid to
purchase the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium it received from writing the option, or is less than the
premium it paid to purchase the option. Since call option prices
generally reflect increases in the price of the underlying
security, any loss resulting from the repurchase of a call
option may also be wholly or partially offset by unrealized
appreciation of the underlying security. Other principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price and
price volatility of the underlying security and the time
remaining until the expiration date of the option. Gains and
losses on investments in options depend, in part, on the ability
of the Investment Adviser to predict correctly the effect of
these factors. The use of options cannot serve as a complete
hedge since the price movement of securities underlying the
options will not necessarily follow the price movements of the
portfolio securities subject to the hedge.
An option position may be closed out only on an exchange that
provides a secondary market for an option with the same terms or
in a private transaction. Although the Fund will generally
purchase or write 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, in which case 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 Funds
writing and purchasing of put and call options, there can be no
assurance that the Fund will succeed in any option-writing
program it undertakes.
Uncovered Calls.
When the Fund writes an
uncovered call option or put option, it will segregate liquid
assets with its custodian in an amount equal to the amount,
adjusted daily, by which such option is in the money or will
treat the unsegregated amount as borrowings. See Risk
Factors and Special Considerations Risks Associated
with Uncovered Calls.
Foreign Securities.
Because many of the
worlds Natural Resources Companies and Gold Companies are
located outside of the U.S., the Fund may have a significant
portion of its investments in securities of foreign
20
issuers, which are generally denominated in foreign currencies.
See Risk Factors and Special Considerations
Foreign Securities Risk.
The Fund may also purchase sponsored American Depository
Receipts (ADRs) or U.S. dollar denominated
securities of foreign issuers. ADRs are receipts issued by
U.S. banks or trust companies in respect of securities of
foreign issuers held on deposit for use in the
U.S. securities markets.
Emerging Markets.
The Fund may invest without
limit in securities of emerging market issuers. These securities
may be U.S. dollar denominated or
non-U.S. dollar
denominated, including emerging market country currency
denominated. An emerging market country is any
country that is considered to be an emerging or developing
country by the International Bank for Reconstruction and
Development (the World Bank). Emerging market
countries generally include every nation in the world except the
U.S., Canada, Japan, Australia, New Zealand and most countries
located in Western Europe.
Illiquid Investments.
The Fund may invest in
securities for which there is no readily available trading
market or that are otherwise illiquid. Illiquid securities
include, among other things, securities legally restricted as to
resale such as commercial paper issued pursuant to
Section 4(2) of the Securities Act, securities traded
pursuant to Rule 144A of the Securities Act, written
over-the-counter
options, repurchase agreements with maturities in excess of
seven days, certain loan participation interests, fixed time
deposits which are not subject to prepayment or provide for
withdrawal penalties upon prepayment (other than overnight
deposits), and other securities whose disposition is restricted
under the federal securities laws. 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 (each member of the Board of Trustees
individually a Trustee), 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 exhibit weak demand for such securities.
It may be more difficult to sell unregistered securities at an
attractive price should their resale remain restricted than if
such securities were in the future to become publicly traded.
Where registration is desired, a considerable period may elapse
between a decision to sell the securities and the time when
registration is complete. Thus, the Fund may not be able to
obtain as favorable a price at the time of the decision to sell
as it might achieve in the future. The Fund may also acquire
securities with contractual restrictions on the resale of such
securities. Such restrictions might prevent their sale at a time
when such sale would otherwise be desirable.
Income Securities.
The Fund may invest in
other equity securities that are expected to periodically accrue
or generate income for their holders such as common and
preferred stocks of issuers that have historically paid periodic
dividends or otherwise made distributions to stockholders.
Unlike fixed income securities, dividend payments generally are
not guaranteed and so may be discontinued by the issuer at its
discretion or because of the issuers inability to satisfy
its liabilities. Further, an issuers history of paying
dividends does not guarantee that it will continue to pay
dividends in the future. In addition to dividends, under certain
circumstances the holders of common stock may benefit from the
capital appreciation of the issuer.
In addition, the Fund also may invest in fixed income securities
such as convertible securities, bonds, debentures, notes, stock,
short-term discounted Treasury Bills or certain securities of
the U.S. government sponsored instrumentalities, as well as
affiliated or unaffiliated money market mutual funds that invest
in those securities. Under normal market conditions, the Fund
may invest up to 35% of its assets in fixed income securities,
not including short-term discounted Treasury Bills or certain
short-term securities of U.S. government sponsored
instrumentalities. Fixed income securities obligate the issuer
to pay to the holder of the security a specified return, which
may be either fixed or reset periodically in accordance with the
terms of the security. Fixed income securities generally are
senior to an issuers common stock and their holders
generally are entitled to receive amounts due before any
distributions are made to common stockholders. Common stocks, on
the other hand, generally do not obligate an issuer to make
periodic distributions to holders.
The market value of fixed income securities, especially those
that provide a fixed rate of return, may be expected to rise and
fall inversely with interest rates and in general is affected by
the credit rating of the issuer, the issuers performance
and perceptions of the issuer in the market place. The market
value of callable or redeemable fixed
21
income securities may also be affected by the issuers call
and redemption rights. In addition, it is possible that the
issuer of fixed income securities may not be able to meet its
interest or principal obligations to holders. Further, holders
of non-convertible fixed income securities do not participate in
any capital appreciation of the issuer.
The Fund may also invest in obligations of government sponsored
instrumentalities. Unlike
non-U.S. government
securities, obligations of certain agencies and
instrumentalities of the U.S. government, such as the
Government National Mortgage Association, are supported by the
full faith and credit of the U.S. government;
others, such as those of the Export-Import Bank of the U.S., are
supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase
the agencys obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by
the credit of the instrumentality. No assurance can be given
that the U.S. government would provide financial support to
U.S. government sponsored instrumentalities if it is not
obligated to do so by law. Although the Fund may invest in all
types of obligations of agencies and instrumentalities of the
U.S. government, the Fund currently intends to invest only
in obligations of government sponsored instrumentalities that
are supported by the full faith and credit of the
U.S. government.
Convertible Securities.
A convertible security
is a bond, debenture, note, stock or other similar security that
may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price
or formula. Before conversion, convertible securities have
characteristics similar to non-convertible debt securities in
that they ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar
issuers. Convertible securities are senior in rank to common
stock in an issuers capital structure and, therefore,
generally entail less risk than the issuers common stock,
although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
The Fund believes that the characteristics of convertible
securities make them appropriate investments for an investment
company seeking a high level of total return on its assets.
These characteristics include the potential for capital
appreciation if the value of the underlying common stock
increases, the relatively high yield received from dividend or
interest payments as compared to common stock dividends and
decreased risks of decline in value, relative to the underlying
common stock due to their fixed income nature. As a result of
the conversion feature, however, the interest rate or dividend
preference on a convertible security is generally less than
would be the case if the securities were not convertible. During
periods of rising interest rates, it is possible that the
potential for capital gain on a convertible security may be less
than that of a common stock equivalent if the yield on the
convertible security is at a level that causes it to sell at a
discount.
Every convertible security may be valued, on a theoretical
basis, as if it did not have a conversion privilege. This
theoretical value is determined by the yield it provides in
comparison with the yields of other securities of comparable
character and quality that do not have a conversion privilege.
This theoretical value, which may change with prevailing
interest rates, the credit rating of the issuer and other
pertinent factors, often referred to as the investment
value, represents the securitys theoretical price
support level.
Conversion value is the amount a convertible
security would be worth in market value if it were to be
exchanged for the underlying equity security pursuant to its
conversion privilege. Conversion value fluctuates directly with
the price of the underlying equity security, usually common
stock. If, because of low prices for the common stock, the
conversion value is substantially below the investment value,
the price of the convertible security is governed principally by
the factors described in the preceding paragraph. If the
conversion value rises near or above its investment value, the
price of the convertible security generally will rise above its
investment value and, in addition, will sell at some premium
over its conversion value. This premium represents the price
investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation
due to the conversion privilege. Accordingly, the conversion
value of a convertible security is subject to equity risk, that
is, the risk that the price of an equity security will fall due
to general market and economic conditions, perceptions regarding
the industry in which the issuer participates or the issuing
companys particular circumstances. If the appreciation
potential of a convertible security is not realized, its
conversion value premium may not be recovered.
22
In its selection of convertible securities for the Fund, the
Investment Adviser will not emphasize either investment value or
conversion value, but will consider both in light of the
Funds overall investment objectives.
The Fund may convert a convertible security that it holds:
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when necessary to permit orderly disposition of the investment
when a convertible security approaches maturity or has been
called for redemption;
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to facilitate a sale of the position;
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if the dividend rate on the underlying common stock increases
above the yield on the convertible security;
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or
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whenever the Investment Adviser believes it is otherwise in the
best interests of the Fund.
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Convertible securities are generally not investment grade, that
is, not rated within the four highest categories by S&P and
Moodys. To the extent that such convertible securities and
other nonconvertible debt securities, which are acquired by the
Fund consistent with the factors considered by the Investment
Adviser as described in this prospectus, are rated lower than
investment grade or are not rated, there would be a greater risk
as to the timely repayment of the principal of, and timely
payment of interest or dividends on, those securities. It is
expected that not more than 25% of the Funds portfolio
will consist of securities rated CCC or lower by S&P or Caa
or lower by Moodys or, if unrated, would be of comparable
quality as determined by the Investment Adviser. Those
securities and securities rated BB or lower by S&P or Ba or
lower by Moodys are often referred to in the financial
press as junk bonds and may include securities of
issuers in default. Junk bonds are considered by the
rating agencies to be predominantly speculative with respect to
the issuers capacity to pay interest and repay principal,
and may involve major risk exposure to adverse conditions.
Securities rated BBB by S&P or Baa by Moodys, in the
opinion of the rating agencies, also have speculative
characteristics. Securities need not meet a minimum rating
standard in order to be acceptable for investment by the Fund.
The Funds investments in securities of issuers in default
at the time of investment will be limited to not more than 5% of
the total assets of the Fund. Further, the Fund will invest in
securities of issuers in default only when the Investment
Adviser believes that such issuers will emerge from bankruptcy
(if applicable) and the value of such securities will
appreciate. By investing in securities of issuers in default the
Fund bears the risk that such issuers will not emerge from
bankruptcy (if applicable), that the value of such securities
will not appreciate and that such issuers may not be able to
satisfy their obligations in the future.
The Fund has no independent limit on the amount of its net
assets it may invest in unregistered and otherwise illiquid
securities and other investments. The current intention of the
Investment Adviser is not to invest in excess of 15% of the
Funds net assets in illiquid convertible securities or
income securities. Shareholders will be notified if the
Investment Adviser changes its intention. Investments in
unregistered or otherwise illiquid securities entail certain
risks related to the fact that they cannot be sold publicly in
the United States without registration under the Securities Act
of 1933. See Risk Factors and Special
Considerations Convertible Securities Risk.
Lower Grade Securities.
The Fund may invest up
to 25% of its net assets in fixed-income and convertible
securities rated in the lower rating categories of recognized
statistical rating agencies, generally securities rated
CCC or lower by S&P or Caa by
Moodys, or non-rated securities of comparable quality as
determined by the Investment Adviser. These securities are
predominantly speculative with respect to the issuers
capacity to pay interest and repay principal, and involve major
risk exposure to adverse conditions. Debt securities that are
not rated or rated lower than BBB by S&P or
lower than Baa by Moodys (or unrated
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
issuers 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
23
higher quality bonds. In addition, such lower grade securities
and comparable unrated securities generally present a higher
degree of credit risk. The risk of loss due to default by these
issuers is significantly greater because such 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
issuers 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 issuers management and
regulatory matters.
In addition, the market value of securities in lower grade
categories is more volatile than that of higher quality
securities, and the markets in which such lower grade or unrated
securities are traded are more limited than those in which
higher rated securities are traded. The existence of limited
markets may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing its portfolio
and calculating its 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 rated debt obligations 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 bonds 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 not more than 5% of the total assets of the Fund 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 appreciate.
In addition to using statistical rating agencies and other
sources, the Investment Adviser will also perform 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.
Fixed income securities, including lower grade securities and
comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the
securities from their holders, such as the Fund. If an issuer
exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower
yielding security, thus resulting in a decreased return for the
Fund.
The market for lower grade and comparable unrated securities has
at various times, particularly during times of economic
recession, experienced substantial reductions in market value
and liquidity. Past recessions have adversely affected the
ability of certain issuers of such securities to repay principal
and pay interest thereon. The market for those securities could
react in a similar fashion in the event of any future economic
recession.
24
Other Derivative Instruments.
The Fund may
also utilize other types of derivative instruments, primarily
for hedging or risk management purposes. These instruments
include futures, forward contracts, options on such contracts
and interest rate, total return and other kinds of swaps. These
investment management techniques generally will not be
considered senior securities if the Fund establishes in a
segregated account cash or other liquid securities equal to the
Funds obligations in respect of such techniques. For a
further description of such derivative instruments, see
Investment Objectives and Policies Additional
Investment Policies in the SAI.
Risk Arbitrage.
The Fund may invest up to 15%
of its assets at the time of investment in securities pursuant
to risk arbitrage strategies or in other investment
funds managed pursuant to such strategies. Risk arbitrage
investments are made 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 total return significantly greater than the
brokerage and other transaction expenses involved. Risk
arbitrage strategies attempt to exploit merger activity to
capture the spread between current market values of securities
and their values after successful completion of a merger,
restructuring or similar corporate transaction. Transactions
associated with risk arbitrage strategies typically involve the
purchases or sales of securities in connection with announced
corporate actions which may include, but are not limited to,
mergers, consolidations, acquisitions, transfers of assets,
tender offers, exchange offers, re-capitalizations,
liquidations, divestitures, spin-offs and similar transactions.
However, a merger or other restructuring or tender or exchange
offer anticipated by the Fund and in which it holds an arbitrage
position may not be completed on the terms contemplated or
within the time frame anticipated, resulting in losses to the
Fund.
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 but may trade
at a discount or premium to what the stated or appraised value
of the security would be if the contemplated transaction were
approved or consummated. Such investments may be advantageous
when the discount significantly overstates the risk of the
contingencies involved; significantly undervalues the
securities, assets or cash to be received by shareholders 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 behind the offer
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. Risk arbitrage strategies may also involve short
selling, options hedging and other arbitrage techniques to
capture price differentials.
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 as
a form of hedging to offset potential declines in long positions
in the same or similar securities, including short sales of
securities in the Funds portfolio at the time of sale
(shorting against the box). The short sale of a
security is considered a speculative investment technique. At
the time of the sale, the Fund will own, or have the immediate
and unconditional right to acquire at no additional
25
cost, identical or similar securities or establish a hedge
against a security of the same issuer which may involve
additional cost, such as an in the money warrant.
Short sales against the box are subject to special
tax rules, one of the effects of which may be to accelerate the
recognition of income by the Fund. Other than with respect to
short sales against the box, the Fund will limit short sales of
securities to not more than 5% of the Funds assets. When
the Fund makes a short sale, it must deliver the security 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.
Repurchase Agreements.
Repurchase agreements
may be seen as loans by the Fund collateralized by 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, 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.
Registered Investment Companies.
The Fund may
invest in registered investment companies in accordance with the
1940 Act to the extent consistent with the Funds
investment objectives, including exchange traded funds that
concentrate in investments in securities of companies in the
natural resources or gold industries. The 1940 Act generally
prohibits the Fund from investing more than 5% of its assets in
any one other investment company or more than 10% of its assets
in all other investment companies. However, many exchange-traded
funds are exempt from these limitations.
Borrowings and Issuance of Preferred
Shares.
Although the Fund does not currently
anticipate doing so, the Fund may, with the approval of the
Board of Trustees, borrow money or issue preferred shares in an
effort to earn incremental total return for the holders of the
Funds common shares. The 1940 Act permits the Fund to
issue a single class of debt and a single class of preferred
stock. Under the 1940 Act, such debt or preferred shares may be
issued only if immediately after such issuance the value of the
Funds total assets (less ordinary course liabilities) is
at least 300% of the amount of any debt outstanding and at least
200% of the amount of any preferred stock and debt outstanding.
Under the 1940 Act the holders of any such debt or preferred
stock have certain mandatory voting rights and other protections
of their senior rights to the assets of the Fund.
Temporary Defensive Investments.
Although
under normal market conditions the Fund intends to invest at
least 80% of its assets in securities of companies principally
engaged in the natural resources and gold industries, 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 Moodys; and certificates
of deposit and bankers acceptances issued by domestic
branches of U.S. banks that are members of the Federal
Deposit Insurance Corporation. During temporary defensive
periods, the Fund may also invest to the extent permitted by
applicable law in shares of money market mutual funds. Money
market mutual funds are investment companies and the investments
in those companies by the Fund are in some cases subject to
applicable law. See Investment Restrictions in the
SAI. The Fund may find it more difficult to achieve the
long-term growth of capital component of its investment
objectives during temporary defensive periods.
Portfolio Turnover.
The Fund will buy and sell
securities to accomplish its investment objectives. The
investment policies of the Fund, including its strategy of
writing covered call options on securities in its portfolio, are
expected
26
to result in portfolio turnover that is higher than that of many
investment companies, may initially be higher than 100% and may
result in the Fund paying higher commissions than many
investment companies.
Portfolio turnover generally involves 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 in the portion of the Funds distributions that is
attributable to long-term capital gain.
Interest
Rate Transactions
If the Fund borrows money or issues variable rate preferred
shares, the Fund may enter into interest rate swap or cap
transactions in relation to all or a portion of such borrowings
or shares in order to manage the impact on its portfolio of
changes in the interest or dividend rate of such borrowings or
shares. Through these transactions the Fund may, for example,
obtain the equivalent of a fixed rate for such variable rate
preferred shares that is lower than the Fund would have to pay
if it issued fixed rate preferred shares.
The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different
from those associated with ordinary portfolio security
transactions. In an interest rate swap, the Fund would agree to
pay to the other party to the interest rate swap (which is known
as the counterparty) periodically a fixed rate
payment in exchange for the counterparty agreeing to pay to the
fund periodically a variable rate payment that is intended to
approximate the Funds variable rate payment obligation on
its borrowings auction rate preferred shares. In an interest
rate cap, the Fund would pay a premium to the counterparty to
the interest rate cap and, to the extent that a specified
variable rate index exceeds a predetermined fixed rate, would
receive from the counterparty payments of the difference based
on the notional amount of such cap. Interest rate swap and cap
transactions introduce additional risk because the Fund would
remain obligated to pay interest or preferred shares dividends
when due even if the counterparty defaulted. Depending on the
general state of short-term interest rates and the returns on
the Funds portfolio securities at that point in time, such
a default could negatively affect the Funds ability to
make interest payments or dividend payments on the preferred
shares. In addition, at the time an interest rate swap or cap
transaction reaches its scheduled termination date, there is a
risk that the Fund will not be able to be as favorable as on the
expiring transaction. If this occurs, it could have a negative
impact on the Funds ability to make interest payments or
dividend payments on the preferred shares. To the extent there
is a decline in interest rates, the value of the interest rate
swap or cap could decline, resulting in a decline in the asset
coverage for the borrowings or preferred shares. A sudden and
dramatic decline in interest rates may result in a significant
decline in the asset coverage. If the Fund fails to maintain the
required asset coverage on any outstanding preferred shares or
fails to comply with other covenants, the Fund may be required
to redeem some or all of these shares. Any redemption would
likely result in the Fund seeking to terminate early all or a
portion of any swap or cap transactions. Early termination of a
swap could result in a termination payment by the Fund to the
counterparty, while early termination of a cap could result in a
termination payment to the Fund.
The Fund will usually enter into swaps or caps on a net basis;
that is, the two payment streams will be netted out in a cash
settlement on the payment date or dates specified in the
instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund intends to
segregate cash or liquid securities having a value at least
equal to the value of the Funds net payment obligations
under any swap transaction, marked to market daily. The Fund
will monitor any such swap with a view to ensuring that the Fund
remains in compliance with all applicable regulatory, investment
policy and tax requirements.
27
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special
considerations associated with investing in the Fund:
Industry
Risks
Industry Risks.
The Funds investments
will be concentrated in the natural resources and gold
industries. Because the Fund is concentrated in these
industries, it may present more risks than if it were broadly
diversified over numerous industries and sectors of the economy.
A downturn in the natural resources or gold industries would
have a larger impact on the Fund than on an investment company
that does not concentrate in such industries.
Under normal market conditions the Fund will invest at least 25%
of its assets in securities of Natural Resources Companies. A
downturn in the indicated natural resources industries would
have a larger impact on the Fund than on an investment company
that does not invest significantly in such industries. Such
industries can be significantly affected by the supply of and
demand for the indicated commodities and related services,
exploration and production spending, government regulations,
world events and economic conditions. The base metals, metals,
paper, food and agriculture, forestry products, water, gas, oil,
sustainable energy and other commodities industries can be
significantly affected by events relating to international
political developments, the success of exploration projects,
commodity prices, and tax and government regulations. The stock
prices of Natural Resources Companies, some of which have
experienced substantial price increases in recent periods, may
also experience greater price volatility than other types of
common stocks. Securities issued by Natural Resources Companies
are sensitive to changes in the prices of, and in supply and
demand for, the indicated commodities. The value of securities
issued by Natural Resources Companies may be affected by changes
in overall market movements, changes in interest rates, or
factors affecting a particular industry or commodity, such as
weather, embargoes, tariffs, policies of commodity cartels and
international economic, political and regulatory developments.
The Investment Advisers judgments about trends in the
prices of these securities and commodities may prove to be
incorrect. It is possible that the performance of securities of
Natural Resources Companies may lag the performance of other
industries or the broader market as a whole.
Under normal market conditions the Fund will invest at least 25%
of its assets in securities of Gold Companies. Securities of
Gold Companies may experience greater volatility than companies
not involved in the gold industries. Investments related to gold
are considered speculative and are affected by a variety of
worldwide economic, financial and political factors. The price
of gold, which has experienced substantial increases in recent
periods, may fluctuate sharply, including substantial decreases,
over short periods of time due to changes in inflation or
expectations regarding inflation in various countries, the
availability of supplies of gold, changes in industrial and
commercial demand, gold sales by governments, central banks or
international agencies, investment speculation, monetary and
other economic policies of various governments and government
restrictions on private ownership of gold. In times of
significant inflation or great economic uncertainty, Gold
Companies have historically outperformed securities markets
generally. However, in times of stable economic growth,
traditional equity and debt investments could offer greater
appreciation potential and the value of gold and the prices of
securities of Gold Companies may be adversely affected, which
could in turn affect the Funds returns. Some Gold
Companies hedge, to varying degrees, their exposure to declines
in the price of gold. Such hedging limits a Gold Companys
ability to benefit from future rises in the price of gold. The
Investment Advisers judgments about trends in the prices
of securities of Gold Companies may prove to be incorrect. It is
possible that the performance of securities of Gold Companies
may lag the performance of other industries or the broader
market as a whole.
Supply and Demand Risk.
A decrease in the
production of or exploration of, gold, base metals, metals,
paper, food and agriculture, forestry products, gas, oil and
other commodities or a decrease in the volume of such
commodities available for transportation, mining, processing,
storage or distribution may adversely impact the financial
performance of the Funds investments. Production declines
and volume decreases could be caused by various factors,
including catastrophic events affecting production, depletion of
resources, labor difficulties, environmental proceedings,
increased regulations, equipment failures and unexpected
maintenance problems,
28
import supply disruption, increased competition from alternative
energy sources or commodity prices. Sustained declines in demand
for the indicated commodities could also adversely affect the
financial performance of Natural Resources Companies and Gold
Companies over the long-term. Factors which could lead to a
decline in demand include economic recession or other adverse
economic conditions, higher fuel taxes or governmental
regulations, increases in fuel economy, consumer shifts to the
use of alternative fuel sources, changes in commodity prices, or
weather.
Depletion and Exploration Risk.
Many Natural
Resources Companies and Gold Companies are either engaged in the
production or exploration of particular commodities or are
engaged in transporting, storing, distributing and processing
such commodities. To maintain or increase their revenue level,
these companies or their customers need to maintain or expand
their reserves through exploration of new sources of supply, the
development of existing sources, acquisitions, or long-term
contracts to acquire reserves. The financial performance of
Natural Resources Companies and Gold Companies may be adversely
affected if they, or the companies to whom they provide products
or services, are unable to cost effectively acquire additional
products or reserves sufficient to replace the natural decline.
Regulatory Risk.
Natural Resources Companies
and Gold Companies may be subject to extensive government
regulation in virtually every aspect of their operations,
including how facilities are constructed, maintained and
operated, environmental and safety controls, and in some cases
the prices they may charge for the products and services they
provide. Various governmental authorities have the power to
enforce compliance with these regulations and the permits issued
under them, and violators are subject to administrative, civil
and criminal penalties, including civil fines, injunctions or
both. Stricter laws, regulations or enforcement policies could
be enacted in the future, which would likely increase compliance
costs and may adversely affect the financial performance of
Natural Resources Companies and Gold Companies.
Commodity Pricing Risk.
The operations and
financial performance of Natural Resources Companies and Gold
Companies may be directly affected by the prices of the
indicated commodities, especially those Natural Resources
Companies and Gold Companies for whom the commodities they own
are significant assets. Commodity prices fluctuate for several
reasons, including changes in market and economic conditions,
levels of domestic production, impact of governmental regulation
and taxation, the availability of transportation systems and, in
the case of oil and gas companies in particular, conservation
measures and the impact of weather. Volatility of commodity
prices, which may lead to a reduction in production or supply,
may also negatively affect the performance of Natural Resources
Companies and Gold Companies which are solely involved in the
transportation, processing, storing, distribution or marketing
of commodities. Volatility of commodity prices may also make it
more difficult for Natural Resources Companies and Gold
Companies to raise capital to the extent the market perceives
that their performance may be directly or indirectly tied to
commodity prices.
Risks
Associated with Covered Calls and Other Option
Transactions
There are several risks associated with transactions in options
on securities. For example, there are significant differences
between the securities and options markets that could result in
an imperfect correlation between these markets, causing a given
covered call option transaction not to achieve its objectives. A
decision as to whether, when and how to use covered calls (or
other options) involves the exercise of skill and judgment, and
even a well-conceived transaction may be unsuccessful because of
market behavior or unexpected events. The use of options may
require the Fund to sell portfolio securities at inopportune
times or for prices other than current market values, may limit
the amount of appreciation the Fund can realize on an
investment, or may cause the Fund to hold a security it might
otherwise sell. As the writer of a covered call option, the Fund
forgoes, during the options life, the opportunity to
profit from increases in the market value of the security
covering the call option above the exercise price of the call
option, but has retained the risk of loss should the price of
the underlying security decline. Although such loss would be
offset in part by the option premium received, in a situation in
which the price of a particular stock on which the Fund has
written a covered call option declines rapidly and materially or
in which prices in general on all or a substantial portion of
the stocks on which the Fund has written covered call options
decline rapidly and materially, the Fund could sustain material
depreciation or loss in its net assets to the extent it does not
sell the underlying securities (which may
29
require it to terminate, offset or otherwise cover its option
position as well). The writer of an option has no control over
the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction
in order to terminate its obligation under the option and must
deliver the underlying security at the exercise price.
There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. Reasons for the
absence of a liquid secondary market for exchange-traded options
include the following: (i) there may be insufficient
trading interest; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes
or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange;
(v) the trading facilities of an exchange or the Options
Clearing Corporation (the OCC) may not be adequate
to handle current trading volume; or (vi) the relevant
exchange could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of
options (or a particular class or series of options). If trading
were discontinued, the secondary market on that exchange (or in
that class or series of options) would cease to exist. However,
outstanding options on that exchange that had been issued by the
OCC as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. The Funds
ability to terminate
over-the-counter
options may be more limited than with exchange-traded options
and may involve the risk that counterparties participating in
such transactions will not fulfill their obligations. If the
Fund were unable to close out a covered call option that it had
written on a security, it would not be able to sell the
underlying security unless the option expired without exercise.
The hours of trading for options may not conform to the hours
during which the underlying securities are traded. To the extent
that the options markets close before the markets for the
underlying securities, significant price and rate movements can
take place in the underlying markets that cannot be reflected in
the options markets. Call options are marked to market daily and
their value will be affected by changes in the value of and
dividend rates of the underlying common stocks, an increase in
interest rates, changes in the actual or perceived volatility of
the stock market and the underlying common stocks and the
remaining time to the options expiration. Additionally,
the exercise price of an option may be adjusted downward before
the options expiration as a result of the occurrence of
certain corporate events affecting the underlying equity
security, such as extraordinary dividends, stock splits, merger
or other extraordinary distributions or events. A reduction in
the exercise price of an option would reduce the Funds
capital appreciation potential on the underlying security.
Limitation on Covered Call Writing Risk.
The
number of covered call options the Fund can write is limited by
the number of shares of the corresponding common stock the Fund
holds. Furthermore, the Funds covered call options and
other options transactions will be subject to limitations
established by each of the exchanges, boards of trade or other
trading facilities on which such options are traded. These
limitations govern the maximum number of options in each class
which may be written or purchased by a single investor or group
of investors acting in concert, regardless of whether the
options are written or purchased on the same or different
exchanges, boards of trade or other trading facilities or are
held or written in one or more accounts or through one or more
brokers. As a result, the number of covered call options that
the Fund may write or purchase may be affected by options
written or purchased by it and other investment advisory clients
of the Investment Adviser. An exchange, board of trade or other
trading facility may order the liquidation of positions found to
be in excess of these limits, and it may impose certain other
sanctions.
Risks
Associated with Uncovered Calls
There are special risks associated with uncovered option writing
which expose the Fund to potentially significant loss. As the
writer of an uncovered call option, the Fund has no risk of loss
should the price of the underlying security decline, but bears
unlimited risk of loss should the price of the underlying
security increase above the exercise price until the Fund covers
its exposure. As with writing uncovered calls, the risk of
writing uncovered put options is substantial. The writer of an
uncovered put option bears a risk of loss if the value of the
underlying instrument declines below the exercise price. Such
loss could be substantial if there is a significant decline in
the value of the underlying instrument.
30
For combination writing, where the Fund writes both a put and a
call on the same underlying instrument, the potential risk is
unlimited. If a secondary market in options were to become
unavailable, the Fund could not engage in losing transactions
and would remain obligated until expiration or assignment.
Common
Stock Risk
Common stock of an issuer in the Funds portfolio may
decline in price for a variety of reasons, including if the
issuer fails to make anticipated dividend payments because,
among other reasons, the issuer of the security experiences a
decline in its financial condition. Common stock in which the
Fund will invest is structurally subordinated as to income and
residual value to preferred stock, bonds and other debt
instruments in a companys capital structure, in terms of
priority to corporate income, and therefore will be subject to
greater dividend risk than preferred stock or debt instruments
of such issuers. In addition, while common stock has
historically generated higher average returns than fixed income
securities, common stock has also experienced significantly more
volatility in those returns.
Foreign
Securities Risk
Because many of the worlds Natural Resources Companies and
Gold Companies are located outside of the U.S., the Fund may
have a significant portion of its investments in securities that
are traded in foreign markets and that are not subject to the
requirements of the U.S. securities laws, markets and
accounting requirements (Foreign Securities).
Investments in Foreign Securities involve certain considerations
and risks not ordinarily associated with investments in
securities of U.S. issuers. Foreign companies are not
generally subject to the same accounting, auditing and financial
standards and requirements as 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 U.S. 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, and 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.
Investments in Foreign Securities will expose the Fund to the
direct or indirect consequences of political, social or economic
changes in the countries that issue the securities or in which
the issuers are located. Certain countries in which the Fund may
invest have historically experienced, and may continue to
experience, high rates of inflation, high interest rates,
exchange rate fluctuations, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty
and unemployment. Many of these countries are also characterized
by political uncertainty and instability. The cost of servicing
external debt will generally be adversely affected by rising
international interest rates because many external debt
obligations bear interest at rates which are adjusted based upon
international interest rates.
The Fund also may purchase sponsored ADRs or U.S. dollar
denominated securities of foreign issuers. ADRs are receipts
issued by U.S. banks or trust companies in respect of
securities of foreign issuers held on deposit for use in the
U.S. securities markets. While ADRs may not necessarily be
denominated in the same currency as the securities into which
they may be converted, many of the risks associated with Foreign
Securities may also apply to ADRs. In addition, the underlying
issuers of certain depositary receipts, particularly unsponsored
31
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.
Convertible
Securities Risk
Convertible securities generally offer lower interest or
dividend yields than non-convertible securities of similar
quality. The market values of convertible securities tend to
decline as interest rates increase and, conversely, to increase
as interest rates decline. In the absence of adequate
anti-dilutive provisions in a convertible security, dilution in
the value of the Funds holding may occur in the event the
underlying stock is subdivided, additional equity securities are
issued for below market value, a stock dividend is declared or
the issuer enters into another type of corporate transaction
that has a similar effect.
Income
Risk
The income shareholders receive from the Fund is expected to be
based primarily on income from short-term gains that the Fund
earns from its investment strategy of writing covered calls and
dividends and other distributions received from its investments.
If the Funds covered call strategy fails to generate
sufficient income from short-term gains or the distribution
rates or yields of the Funds holdings decrease,
shareholders income from the Fund could decline.
Dilution
Risk for Convertible Securities.
In the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Funds
holding may occur in the event the underlying stock is
subdivided, additional equity securities are issued for below
market value, a stock dividend is declared, or the issuer enters
into another type of corporate transaction that has a similar
effect.
Lower
Grade Securities Risk
The Fund may invest up to 25% of its assets in fixed-income and
convertible securities rated in the lower rating categories of
recognized statistical rating agencies, such as securities rated
CCC or lower by S&P or Caa by
Moodys, or non-rated securities of comparable 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:
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greater volatility;
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greater credit risk and risk of default;
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potentially greater sensitivity to general economic or industry
conditions;
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potential lack of attractive resale opportunities
(illiquidity); and
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additional expenses to seek recovery from issuers who default.
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In addition, the prices of these lower grade securities are more
sensitive to negative developments, such as a decline in the
issuers 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 markets 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, subjective and not absolute standards of
quality. Securities ratings are based largely on the
issuers 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 issuers current financial condition.
32
As a part of its investments in lower grade securities, the Fund
may invest in 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, emerge from bankruptcy protection and the value of
these 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.
Emerging
Markets Risk
The Fund may invest without limit in securities of issuers whose
primary operations or principal trading market is in an
emerging market. An emerging market
country is any country that is considered to be an emerging or
developing country by the World Bank. Investing in securities of
companies in emerging markets may entail special risks relating
to potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment, the lack of hedging
instruments and restrictions on repatriation of capital
invested. Emerging securities markets are substantially smaller,
less developed, less liquid and more volatile than the major
securities markets. The limited size of emerging securities
markets and limited trading value compared to the volume of
trading in U.S. securities could cause prices to be erratic
for reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to
be unduly influenced by traders who control large positions.
Adverse publicity and investors perceptions, whether or
not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets.
Other risks include high concentration of market capitalization
and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of
investors and financial intermediaries; over-dependence on
exports, including natural resources and gold exports, making
these economies vulnerable to changes in commodity prices;
overburdened infrastructure and obsolete or unseasoned financial
systems; environmental problems; less developed legal systems;
and less reliable securities custodial services and settlement
practices.
Foreign
Currency Risk
The Fund expects to invest in companies whose securities are
denominated or quoted in currencies other than U.S. dollars
or have significant operations or markets outside of the
U.S. In such instances, the Fund will be exposed to
currency risk, including the risk of fluctuations in the
exchange rate between U.S. dollars (in which the
Funds shares are denominated) and such foreign currencies,
the risk of currency devaluations and the risks of
non-exchangeability and blockage. As
non-U.S. securities
may be purchased with and payable in currencies of countries
other than the U.S. dollar, the value of these assets
measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations. Fluctuations in currency rates may adversely affect
the ability of the Investment Adviser to acquire such securities
at advantageous prices and may also adversely affect the
performance of such assets.
Certain
non-U.S. currencies,
primarily in developing countries, have been devalued in the
past and might face devaluation in the future. Currency
devaluations generally have a significant and adverse impact on
the devaluing countrys economy in the short and
intermediate term and on the financial condition and results of
companies operations in that country. Currency
devaluations may also be accompanied by significant declines in
the values and liquidity of equity and debt securities of
affected governmental and private sector entities generally. To
the extent that affected companies have obligations denominated
in currencies other than the devalued currency, those companies
may also have difficulty in meeting those obligations under such
circumstances, which in turn could have an adverse effect upon
the value of the Funds investments in such companies.
There can be no assurance that current or future developments
with respect to foreign currency devaluations will not impair
the Funds investment flexibility, its ability to achieve
its investment objectives or the value of certain of its foreign
currency denominated investments.
Market
Discount Risk
Whether investors will realize gains or losses upon the sale of
common shares of the Fund will depend upon the market price of
the shares at the time of sale, which may be less or more than
the Funds net asset value
33
per share. Since the market price of the common shares will be
affected by such factors as the Funds dividend and
distribution levels (which are in turn affected by expenses),
dividend and distribution stability, net asset value, market
liquidity, the relative demand for and supply of the common
shares in the market, unrealized gains, general market and
economic conditions and other factors beyond the control of the
Fund, we cannot predict whether the common shares will trade at,
below or above net asset value or at, below or above the public
offering price. Common shares of closed-end funds often trade at
a discount from their net asset values and the Funds
common shares may trade at such a discount. This risk may be
greater for investors expecting to sell their common shares of
the Fund soon after completion of the public offering. The
common shares of the Fund are designed primarily for long-term
investors, and investors in the common shares should not view
the Fund as a vehicle for trading purposes.
Equity
Risk
Investing in the Fund involves equity risk, which is the risk
that the securities held by the Fund will fall in market value
due to adverse market and economic conditions, perceptions
regarding the industries in which the issuers of securities held
by the Fund participate and the particular circumstances and
performance of particular companies whose securities the Fund
holds. An investment in the Fund represents an indirect economic
stake in the securities owned by the Fund, which are for the
most part traded on securities exchanges or in the
over-the-counter
markets. The market value of these securities, like other market
investments, may move up or down, sometimes rapidly and
unpredictably. The net asset value of the Fund may at any point
in time be worth less than the amount at the time the
shareholder invested in the Fund, even after taking into account
any reinvestment of distributions.
Commodities-Linked
Equity Derivative Instrument Risk
The Fund may invest in structured notes that are linked to one
or more underlying commodities. Such structured notes provide
exposure to the investment returns of physical commodities
without actually investing directly in physical commodities.
Such structured notes in which the Fund may invest are hybrid
instruments that have substantial risks, including risk of loss
of all or a significant portion of their principal value.
Because the payments on these notes are linked to the price
change of the underlying commodities, these investments are
subject to market risks that relate to the movement of prices in
the commodities markets. They may also be subject to additional
special risks that do not affect traditional equity and debt
securities that may be greater than or in addition to the risks
of derivatives in general, including risk of loss of interest,
risk of loss of principal, lack of liquidity and risk of greater
volatility.
Distribution
Risk for Equity Income Portfolio Securities
In selecting equity income securities in which the Fund will
invest, the Investment Adviser will consider the issuers
history of making regular periodic distributions (
i.e.
,
dividends) to its equity holders. An issuers history of
paying dividends or other distributions, however, does not
guarantee that the issuer will continue to pay dividends or
other distributions in the future. The dividend income stream
associated with equity income securities generally is not
guaranteed and will be subordinate to payment obligations of the
issuer on its debt and other liabilities. Accordingly, an issuer
may forgo paying dividends on its equity securities. In
addition, because in most instances issuers are not obligated to
make periodic distributions to the holders of their equity
securities, such distributions or dividends generally may be
discontinued at the issuers discretion.
Interest
Rate Risk
Rising interest rates may adversely affect the financial
performance of Natural Resources Companies and Gold Companies by
increasing their costs of capital. This may reduce their ability
to execute acquisitions or expansion projects in a cost
effective manner.
During periods of declining interest rates, the issuer of a
preferred stock or fixed income security may be able to exercise
an option to prepay principal earlier than scheduled, forcing
the Fund to reinvest in lower yielding securities. This is known
as call or prepayment risk. Preferred stock and debt securities
frequently have call
34
features that allow the issuer to redeem the securities prior to
their stated maturities. An issuer may redeem such a security if
the issuer can refinance it at a lower cost due to declining
interest rates or an improvement in the credit standing of the
issuer. During periods of rising interest rates, the average
life of certain types of securities may be extended because of
slower than expected principal payments. This may prolong the
length of time the security pays a below market interest rate,
increase the securitys duration and reduce the value of
the security. This is known as extension risk.
Interest
Rate Risk for Fixed Income Securities
The primary risk associated with fixed income securities is
interest rate risk. A decrease in interest rates will generally
result in an increase in the value of a fixed income security,
while increases in interest rates will generally result in a
decline in its value. This effect is generally more pronounced
for fixed rate securities than for securities whose income rate
is periodically reset.
Further, while longer term fixed rate securities may pay higher
interest rates than shorter term securities, longer term fixed
rate securities, like fixed rate securities, also tend to be
more sensitive to interest rate changes and, accordingly, tend
to experience larger changes in value as a result of interest
rate changes.
Inflation
Risk
Inflation risk is the risk that the value of assets or income
from investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real
value of the Funds shares and distributions thereon can
decline. In addition, during any periods of rising inflation,
dividend rates of any variable rate preferred shares or debt
securities issued by the Fund would likely increase, which would
tend to further reduce returns to common shareholders.
Illiquid
Investments Risk
The Fund may invest in unregistered securities 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. An illiquid
investment is a security or other investment that cannot be
disposed of within seven days in the ordinary course of business
at approximately the value at which the Fund has valued the
investment. Unregistered securities often can be resold only in
privately negotiated transactions with a limited number of
purchasers or in a public offering registered under the
Securities Act of 1933. Considerable delay could be encountered
in either event and, unless otherwise contractually provided
for, the Funds 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 Funds inability to realize a favorable price
upon disposition of unregistered securities, and at times might
make disposition of such securities impossible. In addition, the
Fund may be unable to sell other illiquid investments when it
desires to do so, resulting in the Fund obtaining a lower price
or being required to retain the investment. Illiquid investments
generally must be valued at fair value, which is inherently less
precise than utilizing market values for liquid investments, and
may lead to differences between the price a security is valued
for determining the Funds net asset value and the price
the Fund actually receives upon sale.
Investment
Companies
The Fund may invest in the securities of other investment
companies, including exchange traded funds, to the extent
permitted by law. To the extent the Fund invests in the common
equity of investment companies, the Fund will bear its ratable
share of any such investment companys 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 the securities of other investment companies.
In these circumstances holders of the Funds common shares
will be in effect subject to duplicative investment expenses.
35
Special
Risks of Derivative Transactions
The Fund may participate in derivative transactions. Such
transactions entail certain execution, market, liquidity,
hedging and tax risks. Participation in the options or futures
markets, in currency exchange transactions and in other
derivatives transactions involves investment risks and
transaction costs to which the Fund would not be subject absent
the use of these strategies. If the Investment Advisers
prediction of movements in the direction of the securities,
foreign currency, interest rate or other referenced instruments
or markets is inaccurate, the consequences to the Fund may leave
the Fund in a worse position than if it had not used such
strategies. Risks inherent in the use of options, foreign
currency, futures contracts and options on futures contracts,
securities indices and foreign currencies include:
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dependence on the Investment Advisers ability to predict
correctly movements in the direction of the relevant measure;
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imperfect correlation between the price of the derivative
instrument and movements in the prices of the referenced assets;
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the fact that skills needed to use these strategies are
different from those needed to select portfolio securities;
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the possible absence of a liquid secondary market for any
particular instrument at any time;
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the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences;
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the possible inability of the Fund to purchase or sell a
security or instrument at a time that otherwise would be
favorable for it to do so, or the possible need for the Fund to
sell a security or instrument at a disadvantageous time due to a
need for the Fund to maintain cover or to segregate
securities in connection with the hedging techniques; and
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the creditworthiness of counterparties.
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Forward Currency Exchange Contracts.
There is
no independent limit on the Funds 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.
Swaps and
Related Derivatives
The Fund may enter into total rate of return, credit default or
other types of swaps and related derivatives for the purpose of
hedging and risk management. These transactions generally
provide for the transfer from one counterparty to another of
certain risks inherent in the ownership of a financial asset
such as a common stock or debt instrument. Such risks include,
among other things, the risk of default and insolvency of the
obligor of such asset, the risk that the credit of the obligor
or the underlying collateral will decline or the risk that the
common stock of the underlying issuer will decline in value. The
transfer of risk pursuant to a derivative of this type may be
complete or partial, and may be for the life of the related
asset or for a shorter period. These derivatives may be used for
investment purposes or as a risk management tool for a pool of
financial assets, providing the Fund with the opportunity to
gain or reduce exposure to one or more reference securities or
other financial assets (each, a Reference Asset)
without actually owning or selling such assets in order, for
example, to increase or reduce a concentration risk or to
diversify a portfolio. Conversely, these derivatives may be used
by the Fund to reduce exposure to an owned asset without
selling it.
36
Because the Fund would not own the Reference Assets, the Fund
may not have any voting rights with respect to the Reference
Assets, and in such cases all decisions related to the obligors
or issuers of the Reference Assets, including whether to
exercise certain remedies, will be controlled by those who do
hold the Reference Assets.
Total rate of return swaps and similar derivatives are subject
to many risks, including the possibility that the market will
move in a manner or direction that would have resulted in gain
for the Fund had the swap or other derivative not been utilized
(in which case it would have been better had the Fund not
engaged in the interest rate hedging transactions), the risk of
imperfect correlation between the risk sought to be hedged and
the derivative transactions utilized, the possible inability of
the counterparty to fulfill its obligations under the swap and
potential illiquidity of the derivative instrument utilized,
which may make it difficult for the Fund to close out or unwind
one or more swap or related transactions.
Total rate of return swaps and related derivatives are a
relatively recent development in the financial markets.
Consequently, there are certain legal, tax and market
uncertainties that present risks in entering into such
arrangements. There is currently little or no case law or
litigation characterizing total rate of return swaps or related
derivatives, interpreting their provisions, or characterizing
their tax treatment. In addition, additional regulations and
laws may apply to these types of derivatives that have not
previously been applied. There can be no assurance that future
decisions construing similar provisions to those in any swap
agreement or other related documents or additional regulations
and laws will not have an adverse effect on the Fund that
utilizes these instruments.
Dependence
on Key Personnel
The Investment Adviser is dependent upon the expertise of
Mr. Mario J. Gabelli. If the Investment Adviser were to
lose the services of Mr. Gabelli, it 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.
The Fund is dependent upon the expertise of Vincent
Hugonnard-Roche as the sole option strategist on the Funds
portfolio management team. If the Fund were to lose the services
of Mr. Roche, it could be temporarily adversely affected
until a suitable replacement could be found.
Long-Term
Objective; Not a Complete Investment Program
The Fund is intended for investors seeking a high level of
current income. The Fund is not meant to provide a vehicle for
those who wish to exploit short-term swings in the stock market.
An investment in shares of the Fund should not be considered a
complete investment program. Each shareholder should take into
account the Funds investment objectives as well as the
shareholders other investments when considering an
investment in the Fund.
Portfolio
Turnover Risk
The investment policies of the Fund, including its strategy of
writing covered call options on securities in its portfolio, are
expected to result in portfolio turnover that is higher than
that of many investment companies, and may initially be higher
than 100%. Increased portfolio turnover rates will result in
higher costs from brokerage commissions, dealer-mark-ups and
other transaction costs and may also may decrease the after-tax
return to individual investors in the Fund to the extent it
results in a decrease in the portion of the Funds
distributions that is attributable to long-term capital gain.
Management
Risk
The Fund is subject to management risk because its portfolio
will be actively managed. The Investment Adviser will apply
investment techniques and risk analyses in making investment
decisions for the Fund, but there can be no guarantee that these
will produce the desired results.
No
Operating History
The Fund is a non-diversified, closed-end management investment
company with no operating history.
37
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. As a
non-diversified investment company, the Fund may invest in the
securities of individual issuers to a greater degree than a
diversified investment company. As a result, the Fund may be
more vulnerable to events affecting a single issuer and
therefore, subject to greater volatility than a fund that is
more broadly diversified. Accordingly, an investment in the Fund
may present greater risk to an investor than an investment in a
diversified company.
Market
Disruption and Geopolitical Risk
The terrorist attacks on domestic U.S. targets on
September 11, 2001, the wars in Iraq and Afghanistan 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.
The nature, scope and duration of the war and occupation cannot
be predicted with any certainty. Similar events in the future or
other disruptions of financial markets could affect interest
rates, securities exchanges, auctions, secondary trading,
ratings, credit risk, inflation, energy prices and other factors
relating to the common shares.
Recent
Economic Events
While the U.S. and global markets had experienced extreme
volatility and disruption for an extended period of time, the
first, second and third quarters of 2010 witnessed more
stabilized economic activity as expectations for an economic
recovery increased. However, risks to a robust resumption of
growth persist: a weak consumer weighed down by too much debt
and increasing joblessness, the growing size of the federal
budget deficit and national debt, and the threat of inflation. A
return to unfavorable economic conditions could impair the
Funds ability to execute its investment strategies.
2011 U.S.
Federal Budget
The proposed U.S. federal budget for fiscal year 2011 calls
for the elimination of approximately $40 billion in tax
incentives widely used by oil, gas and coal companies and the
imposition of new fees on certain energy producers. The
elimination of such tax incentives and imposition of such fees
could adversely affect Natural Resources Companies in which the
Fund invests
and/or
the
natural resources sector generally.
Government
Intervention in Financial Markets Risk
The recent instability in the financial markets has led the
U.S. government and foreign governments to take a number of
unprecedented actions designed to support certain financial
institutions and segments of the financial markets that have
experienced extreme volatility, and in some cases a lack of
liquidity. U.S. federal and state governments and foreign
governments, their regulatory agencies or self regulatory
organizations may take additional actions that affect the
regulation of the securities in which the Fund invests, or the
issuers of such securities, in ways that are unforeseeable.
Issuers of corporate securities might seek protection under the
bankruptcy laws. Legislation or regulation may also change the
way in which the Fund itself is regulated. Such legislation or
regulation could limit or preclude the Funds ability to
achieve its investment objectives. The Investment Adviser will
monitor developments and seek to manage the Funds
portfolio in a manner consistent with achieving the Funds
investment objectives, but there can be no assurance that it
will be successful in doing so.
Anti-Takeover
Provisions
The Funds 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 Funds Governing
Documents.
Investment
Restrictions
The Fund has adopted certain investment limitations designed to
limit investment risk and maintain portfolio diversification.
These limitations are fundamental and may not be changed without
the approval of the holders of a majority, as defined in the
1940 Act, of the outstanding common shares and preferred shares,
if any,
38
voting together as a single class. See Investment
Restrictions in the SAI for a complete list of the
fundamental investment policies of the Fund. Should the Fund
decide to issue preferred shares in the future, it may become
subject to rating agency guidelines that are more limiting than
its fundamental investment restrictions in order to obtain and
maintain a desired rating on its preferred shares.
MANAGEMENT
OF THE FUND
General
The Funds Board of Trustees (who, with its officers, are
described in the SAI) has overall responsibility for the
management of the Fund. The Board of Trustees 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 agreement
with the Fund, the Investment Adviser, under the supervision of
the Board of Trustees, provides a continuous investment program
for the Funds 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 Trustees of the Fund who are officers or
employees of the Investment Adviser or its affiliates (the
Investment Advisory Agreement). As compensation for
its services and the related expenses borne by the Investment
Adviser, the Fund pays the Investment Adviser a fee, computed
weekly and payable monthly, equal, on an annual basis, to 1.00%
of the Funds average weekly net assets. The Funds
average weekly net assets will be deemed to be the average
weekly value of the Funds total assets minus the sum of
the Funds liabilities (such liabilities exclude the
aggregate liquidation preference of outstanding preferred shares
and accumulated dividends, if any, on those shares and the
outstanding principal amount of any debt securities the proceeds
of which were used for investment purposes, plus accrued and
unpaid interest thereon). For purposes of the calculation of the
fees payable to the Investment Adviser by the Fund, average
weekly net assets of the Fund are determined at the end of each
month on the basis of its average net assets for each week
during the month. The assets for each weekly period are
determined by averaging the net assets at the end of a week with
the net assets at the end of the prior week. A discussion
regarding the basis for the most recent approval of the
Investment Advisory Agreement by the Board of Trustees will be
available in the Funds annual or semi-annual report to
shareholders after the Fund commences operations.
The
Investment Adviser
Gabelli Funds, LLC serves as the Funds Investment Adviser
pursuant to the Investment Advisory Agreement with the Fund. The
Investment Adviser is a New York limited liability company with
principal offices located at One Corporate Center, Rye, New York
10580-1422
and is registered under the Investment Advisers Act of 1940 (the
Advisers Act). The Investment Adviser was organized
in 1999 and is the successor to Gabelli Funds, Inc., which was
organized in 1980. As of September 30, 2010, the Investment
Adviser acts as registered investment adviser to 25 management
investment companies with aggregate net assets of
$16.6 billion. The Investment Adviser, together with the
other affiliated investment advisers noted below had assets
under management totaling approximately $30.2 billion as of
September 30, 2010. GAMCO Asset Management 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
$12.4 billion under management as of September 30,
2010. Gabelli Securities, Inc., an affiliate of the Investment
Adviser, acts as investment adviser for investment partnerships
and entities having aggregate assets of approximately
$466 million as of September 30, 2010. Teton Advisors,
Inc., an affiliate of the Investment Adviser, acts as investment
manager to the GAMCO Westwood Funds and separately managed
accounts having aggregate assets of approximately
$667 million under management as of September 30, 2010.
The Investment Adviser is a wholly-owned subsidiary of GAMCO
Investors, 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 indirect ownership of a majority of the stock of
GGCP, Inc., which owns a majority of the capital stock of GAMCO
Investors, Inc.
39
Payment
of Expenses
The Investment Adviser is obligated to pay expenses associated
with providing the services contemplated by the Investment
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 and allocated costs of
the chief compliance officer function and officers of the Fund
who are employed by the Fund and are not employed by the
Investment Adviser (although the officers may receive
incentive-based compensation from affiliates of the Investment
Adviser), as well as the fees of all Trustees of the Fund who
are officers or employees of the Investment Adviser or its
affiliates.
In addition to the fees of the Investment Adviser, the Fund is
responsible for the payment of all its other expenses incurred
in the operation of the Fund, which include, among other things,
expenses for legal and the Independent Registered Public
Accounting Firms services, stock exchange listing fees,
costs of printing proxies, share certificates and shareholder
reports, charges of the Funds custodian, charges of the
transfer agent and distribution disbursing agent, Commission
fees, fees and expenses of Trustees who are not officers or
employees of the Investment Adviser or its affiliates,
accounting and printing costs, the Funds pro rata portion
of membership fees in trade organizations, the Funds pro
rata portion of the Chief Compliance Officers
compensation, fidelity bond coverage for the Funds
officers and employees, Trustees and officers liability policy,
interest, brokerage costs, taxes, expenses of qualifying the
Fund for sale in various states, expenses of personnel
performing shareholder servicing functions, litigation and other
extraordinary or non-recurring expenses and other expenses
properly payable by the Fund.
Selection
of Securities Intermediaries
The Investment 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. (Gabelli &
Company) or other broker-dealer affiliates of the
Investment Adviser and (ii) pay commissions to brokers
other than Gabelli & Company 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 investment advisory accounts or those of any investment
adviser affiliated with it. The SAI contains further information
about the Investment Advisory Agreement, including a more
complete description of the investment advisory and expense
arrangements, exculpatory and brokerage provisions, as well as
information on the brokerage practices of the Fund.
Portfolio
Management
Vincent Hugonnard-Roche serves as a Co-Lead Portfolio Manager
for the Fund and is primarily responsible for the
day-to-day
management of the Funds option strategy. Mr. Roche
has served as
Co-Lead
Portfolio Manager for The Gabelli Global Gold, Natural
Resources & Income Trust, a registered closed-end
investment company, since 2005. Mr. Roche joined GAMCO
Investors, Inc. in 2000 as Director of Quantitative Strategies
and Head of Risk Management. Prior thereto, Mr. Roche
worked at Credit Lyonnais in New York as a proprietary equity
analyst focused on Risk Arbitrage.
Caesar M.P. Bryan serves as a Co-Lead Portfolio Manager for the
Fund and is primarily responsible for the
day-to-day
management of the Gold Companies portion of the Funds
portfolio. Mr. Bryan joined GAMCO Investors, Inc. in 1994
and has been primarily responsible for the
day-to-day
investment management of the GAMCO Gold Fund, Inc. a registered
open-end investment company, since its inception in 1994.
Mr. Bryan has been Portfolio Manager of the GAMCO
International Growth Fund, Inc. a registered open-end investment
company, since 1995 and Co-Portfolio Manager of The GAMCO Global
Opportunity Fund, a registered open-end investment company,
since 1998. Mr. Bryan is also a Portfolio Manager for The
GAMCO Global Growth Fund, a registered open-end investment
company, and Co-Lead Portfolio Manager for The Gabelli Global
Gold, Natural Resources & Income Trust, a registered
closed-end investment company.
40
Christopher J. Marangi serves as a Co-Lead Portfolio Manager for
the Fund and is responsible for the
day-to-day
management of the Natural Resources Companies portion of the
Funds portfolio. Mr. Marangi joined
Gabelli & Company in 2003 as a research analyst and
currently leads the digital research team covering the global
media and telecommunications industries. Mr. Marangi
currently serves as the Associate Portfolio Manager of the
Gabelli Value Fund, a registered open-end investment company, as
the Associate Portfolio Manager of the Gabelli Asset Fund, a
registered open-end investment company, and as the Associate
Portfolio Manager for The Gabelli Global Multimedia Trust, a
registered closed-end investment company. Prior to joining the
firm, Mr. Marangi was an investment banking analyst at
J.P. Morgan & Co., and then an Associate at
Wellspring Capital Management, a private equity firm. He
graduated magna cum laude and Phi Beta Kappa from Williams
College and holds an MBA from Columbia Business School.
Kevin V. Dreyer serves as a Co-Lead Portfolio Manager for the
Fund and is responsible for the
day-to-day
management of the Natural Resources Companies portion of the
Funds portfolio. Mr. Dreyer joined
Gabelli & Company in 2005 as a research analyst and
currently leads the consumer research team. Mr. Dreyer
currently serves as the Associate Portfolio Manager of the
Gabelli Asset Fund, a registered open-end investment company,
and as the Associate Portfolio Manager for The Gabelli
Healthcare &
Wellness
Rx
Trust, a registered closed-end investment company. He holds an
MBA from Columbia Business School. Mr. Dreyer previously
worked as an investment banking analyst at Banc of America
Securities following his graduation from the University of
Pennsylvania.
The SAI provides additional information about the Portfolio
Managers compensation, other accounts managed by the
Portfolio Managers, and the Portfolio Managers ownership
of securities of the Fund.
Non-Resident
Trustees
Mario dUrso and Anthonie C. van Ekris are not
U.S. residents and substantially all of each of their
assets may be located outside of the United States. Messrs.
dUrso and van Ekris do not have agents for service of
process in the United States. As a result, it may be difficult
for U.S. investors to effect service of process upon
Messrs. dUrso and van Ekris within the United States or to
realize judgments of courts of the United States predicated upon
civil liabilities under the federal securities laws of the
United States. In addition, it is not certain that civil
liabilities predicated upon the federal securities laws on which
a valid judgment of a court in the United States is obtained
would be enforceable in the courts of the jurisdictions in which
Messrs. dUrso and van Ekris reside.
Sub-Administrator
The Investment Adviser has entered into a
sub-administration
agreement with BNY Mellon Investment Servicing (US) Inc. (the
Sub-Administrator)
pursuant to which the
Sub-Administrator
provides certain administrative services necessary for the
Funds 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 0.0275% of the first $10 billion of the aggregate
average net assets of the Fund and all other funds advised by
the Investment Adviser and Teton Advisors, Inc., and
administered by the
Sub-Administrator,
0.0125% of the aggregate average net assets exceeding
$10 billion and 0.01% 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
On April 24, 2008, the Investment Adviser entered into a
settlement with the SEC to resolve an inquiry regarding prior
frequent trading activity in shares of the GAMCO Global Growth
Fund (the Global Growth Fund) by one investor who
was banned from the Global Growth Fund in August 2002. In the
administrative settlement order, the SEC found that the
Investment Adviser had willfully violated Section 206(2) of
the Advisers Act Section 17(d) of the 1940 Act and
Rule 17d-1
thereunder, and had willfully aided and abetted and caused
violations of Section 12(d)(1)(B)(i) of the 1940 Act. Under
the terms of the settlement, the Investment Adviser, while
neither admitting nor denying the SECs findings and
allegations, paid $16 million
41
(which included a $5 million civil monetary penalty),
approximately $12.8 million of which is in the process of
being paid to shareholders of the Global Growth Fund in
accordance with a plan developed by an independent distribution
consultant and approved by the independent directors of the
Global Growth Fund and acceptable to the staff of the SEC, and
agreed to cease and desist from future violations of the
above-referenced federal securities laws and rule. The SEC order
also noted the cooperation that the Investment Adviser had given
the staff of the SEC during its inquiry. The settlement did not
have a material adverse impact on the Investment Adviser. On the
same day, the SEC filed a civil action against the Executive
Vice President and Chief Operating Officer of the Investment
Adviser, alleging violations of certain federal securities laws
arising from the same matter. The officer is also an officer of
the Fund, the Global Growth Fund and other funds in the
Gabelli/GAMCO fund complex. The officer denied the allegations
and is continuing in his positions with the Investment Adviser
and the funds. The court dismissed certain claims and found that
the SEC was not entitled to pursue various remedies against the
officer while leaving one remedy in the event the SEC were able
to prove violations of law. The court subsequently dismissed
without prejudice the remaining remedy against the officer,
which would allow the SEC to appeal the courts rulings. On
October 29, 2010, the SEC filed its appeal with the
U.S. Court of Appeals for the Second Circuit regarding the
lower courts orders. The Investment Adviser currently
expects that any resolution of the action against the officer
will not have a material adverse impact on the Investment
Adviser or its ability to fulfill its obligations under the
Investment Advisory Agreement.
PORTFOLIO
TRANSACTIONS
Principal transactions are not entered into with affiliates of
the Fund. However, Gabelli & Company, 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 may be paid commissions. For a
more detailed discussion of the Funds brokerage allocation
practices, see Portfolio Transactions in the SAI.
DISTRIBUTIONS
AND DIVIDENDS
The Fund intends to make regular monthly cash distributions of
all or a portion of its investment company taxable income (which
includes ordinary income and short-term capital gains) to common
shareholders. The Fund also intends to make annual distributions
of its net capital gain (which is the excess of net
long-term capital gains over net short-term capital losses). The
Fund will pay common shareholders annually all, or at least 90%,
of its investment company taxable income. Various factors will
affect the level of the Funds investment company taxable
income, such as its asset mix, and use of covered call
strategies. To permit the Fund to maintain more stable monthly
distributions, the Fund may from time to time distribute less
than the entire amount of income earned in a particular period,
which would be available to supplement future distributions. As
a result, the distributions paid by the Fund for any particular
monthly period may be more or less than the amount of income
actually earned by the Fund during that period. However, as the
Fund is covered by an exemption from the 1940 Act which allows
the Board of Trustees to implement a managed distribution
policy, the Board of Trustees in the future may determine to
cause the Fund to distribute a fixed percentage of the
Funds average net asset value or market price per common
share over a specified period of time at or about the time of
distribution or to distribute a fixed dollar amount. The Board
of Trustees has no present intention to implement such a policy.
Because the Funds income will fluctuate and the
Funds distribution policy may be changed by the Board of
Trustees at any time, there can be no assurance that the Fund
will pay distributions or dividends at a particular rate. See
Distributions and Dividends in the SAI.
Shareholders will automatically have all distributions and
dividends reinvested in common shares of the Fund issued by the
Fund or purchased in the open market in accordance with the
Funds dividend reinvestment plan unless an election is
made to receive cash. See Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan.
42
AUTOMATIC
DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLAN
Under the 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 the transfer agent,
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
the transfer agent as dividend disbursing agent. A participant
in the Plan may elect to receive all dividends in cash by
contacting the Plan agent in writing at the address specified
below or by calling the Plan agent at
(800) 937-5449.
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 distribution, participants in the Plan
will receive newly issued common shares. The number of shares to
be issued will be computed at a per share rate equal to 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 distribution
payment date or, if that date is not a trading day on the NYSE,
the next trading day. If the net asset value of the common
shares at the time of valuation exceeds the market price of the
common shares, participants will receive shares purchased by the
Plan agent in the open market. If the Fund should declare a
distribution payable only in cash, the Plan agent will buy the
common shares for such Plan in the open market, on the NYSE or
elsewhere, for the participants accounts, except that the
Plan agent will terminate purchases in the open market and
instead the Fund will distribute newly issued shares at a per
share rate equal to 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 plus estimated brokerage
commissions exceeds net asset value.
The automatic reinvestment of dividends and other distributions
will not relieve participants of any U.S. federal, state or
local income tax that may be payable (or required to be
withheld) on such dividends or other distributions.
Participants in the Plan have the option of making additional
cash payments to the Plan agent, semi-monthly, for investment in
the shares at the then current market price. Such payments may
be made in any amount from $250 to $10,000. The Plan agent 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. The Plan agent will charge each shareholder who
participates $.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 the Plan agent in a manner that ensures that
the Plan agent will receive these payments approximately ten
(10) days before the 15th of each month. A participant
may without charge withdraw a voluntary cash payment by written
notice, if the notice is received by the Plan agent at least
48 hours before such payment is to be invested.
The Plan agent 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 the Plan agent in noncertificated
form in the name of the participant. A Plan participant may send
its share certificates to the Plan agent so that the shares
represented by such certificates will be held by the Plan agent
in the participants shareholder account under the Plan.
In the case of shareholders such as banks, brokers or nominees,
that hold shares for others who are the beneficial owners, the
Plan agent 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
shareholders name and held for the account of beneficial
owners who participate in the Plan.
43
A Plan participant may terminate his or her account under the
Plan by notifying the Plan agent in writing to the address
specified below or by telephone at
(800) 937-5449.
A termination will be effective immediately if notice is
received by the Plan agent not less than ten (10) days
prior to any dividend or distribution record date. If such
notice is received less than ten (10) days prior to any
dividend or distribution record date, then such termination
shall be immediately effective with respect to all shares then
held in such Plan participants shareholder account except
that shares to be received pursuant to the reinvestment of
dividends or distributions shall be sold by the Plan agent on
the first trading day after such shares have been posted to such
terminating Plan participants shareholder account. If the
Plan participant elects by written notice to the Plan agent in
advance of such termination to have the Plan agent sell part or
all of such Plan participants shares and remit the
proceeds to him or her, the Plan agent is authorized to deduct
$2.50 per transaction plus brokerage commissions for this
transaction from the proceeds.
The Fund reserves the right to amend or terminate its Plan as
applied to any voluntary cash payments made and any 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 distribution. The Plan also may be amended or
terminated by the Plan agent on at least 90 days written
notice to the participants in such Plan.
For more information about the Plan you may contact the Plan
agent in writing at Gabelli Funds,
C/O American
Stock Transfer & Trust Company, 59 Maiden Lane, New York,
New York 10038, or by calling the Plan agent at
(800) 937-5449.
DESCRIPTION
OF THE SHARES
The following is a brief description of the terms of the
common shares. This description does not purport to be complete
and is qualified by reference to the Funds Agreement and
Declaration of Trust and its By-Laws.
Common
Shares
The Fund is an unincorporated statutory trust organized under
the laws of Delaware pursuant to a Certificate of Trust dated as
of June 26, 2008. The Fund is authorized to issue an
unlimited number of common shares of beneficial interest, par
value $.001 per share. Each common share of beneficial interest
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
monthly on the common shares of beneficial interest, it is not
obligated to do so. All common shares of beneficial interest 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.
Any additional offering of common shares of beneficial interest
will be subject to the requirements of the 1940 Act, which
provides that common stock may not be issued at a price below
the then current net asset value, exclusive of sales load,
except in connection with an offering to existing holders of
common stock or with the consent of a majority of the
Funds outstanding voting securities.
The Funds common shares of beneficial interest are
expected to be approved for listing on the NYSE, subject to
notice of issuance, under the symbol GNT.
The Funds net asset value per share will be reduced
immediately following the offering of common shares by the
amount of the sales load and offering expenses paid by the Fund.
See Use of Proceeds. Unlike open-end funds,
closed-end funds like the Fund do not continuously offer shares
and do not provide daily redemptions. Rather, if a shareholder
determines to buy additional common shares or sell shares
already held, the shareholder may do so by trading through a
broker on the NYSE or otherwise.
Shares of closed-end investment companies often trade on an
exchange at prices lower than net asset value. Because the
market value of the common shares may be influenced by such
factors as dividend and distribution levels (which are in turn
affected by expenses), dividend and distribution stability, net
asset value, market liquidity, relative demand for and supply of
such shares in the market, unrealized gains, general market and
economic conditions and other factors beyond the control of the
Fund, the Fund cannot assure you that
44
common shares will trade at a price equal to or higher than net
asset value in the future. The common shares are designed
primarily for long-term investors and you should not purchase
the common shares if you intend to sell them soon after purchase.
The Funds common shareholders will vote as a single class
to elect the Board of Trustees and on additional matters with
respect to which the 1940 Act, the Funds Declaration of
Trust, By-Laws or resolutions adopted by the Board of Trustees
provide for a vote of the Funds common shareholders. See
Anti-Takeover Provisions of the Funds Governing
Documents.
Book
Entry
The common shares will initially be held in the name of
Cede & Co. as nominee for the Depository
Trust Company (DTC). The Fund will treat
Cede & Co. as the holder of record of the common
shares for all purposes. In accordance with the procedures of
DTC, however, purchasers of common shares will be deemed the
beneficial owners of shares purchased for purposes of
distributions, voting and liquidation rights. Purchasers of
common shares may obtain registered certificates by contacting
the transfer agent.
Leverage
The Fund does not currently anticipate borrowing from banks or
other financial institutions, issuing preferred shares or
otherwise levering the common shares. However, the Fund will
monitor interest rates and market conditions and anticipates
that it may leverage the common shares at some point in the
future if the Board of Trustees determines that it is in the
best interest of the common shareholders. Subject to market
conditions and such determinations by the Board of Trustees, the
Fund may issue preferred shares in an aggregate amount of up to
50% of the Funds assets under management. There can be no
assurance that preferred shares representing such percentage, or
any percentage, of the assets of the Fund will actually be
issued.
As provided in the 1940 Act and subject to certain exceptions,
the Fund may issue debt or preferred shares with the condition
that immediately after issuance the value of its total assets,
less certain ordinary course liabilities, exceed 300% of the
amount of the debt outstanding and exceed 200% of the sum of the
amount of debt and preferred shares outstanding. Any such debt
or preferred shares may be convertible in accordance with
Commission guidelines, which may permit the Fund to obtain
leverage at attractive rates.
The concept of leveraging is based on the premise that so long
as the cost of the leverage on the assets to be obtained by the
leverage is lower than the return earned by the Fund on these
leveraged assets, the common shareholders will benefit from the
incremental return. Should the differential between the return
produced by the underlying assets and the cost of leverage
narrow, the incremental return will be reduced.
Furthermore, if the cost of the leverage on the leveraged assets
exceeds the return earned by the Fund on these leveraged assets,
the net asset value of the Fund will be diminished.
An issuance of preferred shares may subject the Fund to certain
restrictions on investments imposed by guidelines of one or more
rating agencies that may issue ratings for any preferred shares
issued by the Fund.
Liquidation Preference.
In the event of any
voluntary or involuntary liquidation, dissolution or winding up
of the Fund, the holders of preferred shares will be entitled to
receive a preferential liquidating distribution, which is
expected to equal the original purchase price per preferred
share plus accrued and unpaid dividends, whether or not
declared, before any distribution of assets is made to holders
of common shares. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders
of preferred shares will not be entitled to any further
participation in any distribution of assets by the Fund.
Voting Rights.
The 1940 Act requires that the
holders of any preferred shares, voting separately as a single
class, have the right to elect at least two trustees at all
times. The remaining trustees will be elected by holders of
common shares and preferred shares, voting together as a single
class. In addition, subject to the prior rights, if any, of the
holders of any other class of senior securities outstanding, the
holders of any preferred shares have the right to elect a
majority of the Board of Trustees at any time dividends on any
preferred shares are unpaid for two years. The 1940 Act also
requires that, in addition to any approval by shareholders that
45
might otherwise be required, the approval of the holders of a
majority of any outstanding preferred shares, voting separately
as a class, would be required to (1) adopt any plan of
reorganization that would adversely affect the preferred shares,
and (2) take any action requiring a vote of security
holders under Section 13(a) of the 1940 Act, including,
among other things, changes in the Funds classification as
a closed-end investment company or changes in its fundamental
investment restrictions. As a result of these voting rights, the
Funds ability to take any such actions may be impeded to
the extent that there are any preferred shares outstanding. The
Board of Trustees presently intends that, except as otherwise
indicated in this Prospectus and except as otherwise required by
applicable law, holders of preferred shares will have equal
voting rights with holders of common shares (one vote per share,
unless otherwise required by the 1940 Act) and will vote
together with holders of common shares as a single class.
The affirmative vote of the holders of a majority of the
outstanding preferred shares, voting as a separate class, will
be required to amend, alter or repeal any of the preferences,
rights or powers of holders of preferred shares so as to affect
materially and adversely such preferences, rights or powers, or
to increase or decrease the authorized number of preferred
shares. The class vote of holders of preferred shares described
above will in each case be in addition to any other vote
required to authorize the action in question.
Mandatory Redemption Relating to Asset Coverage
Requirements.
The Fund will be mandatorily
required to redeem preferred shares within a specified time
frame in the event that:
|
|
|
the Fund fails to maintain the asset coverage requirements
specified under the 1940 Act on a quarterly valuation date and
such failure is not cured within a specified time frame
following such failure; or
|
|
|
the Fund fails to maintain the asset coverage requirements as
calculated in accordance with the applicable rating agency
guidelines as of any monthly valuation date, and such failure is
not cured within a specified time frame.
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The redemption price for preferred shares subject to mandatory
redemption will be the liquidation preference plus an amount
equal to any accumulated but unpaid distributions (whether or
not earned or declared) to the date fixed for redemption, plus
(in the case of fixed rate preferred shares or variable rate
preferred shares having a dividend period of more than one year)
any applicable redemption premium determined by the Board of
Trustees and included in the Statement of Preferences.
The number of preferred shares that will be redeemed in the case
of a mandatory redemption will equal the minimum number of
outstanding preferred shares, the redemption of which, if such
redemption had occurred immediately prior to the opening of
business on the applicable cure date, would have resulted in the
relevant asset coverage requirement having been met or, if the
required asset coverage cannot be so restored, all of the
preferred shares. In the event that preferred shares are
redeemed due to a failure to satisfy the 1940 Act asset coverage
requirements, the Fund may, but is not required to, redeem a
sufficient number of preferred shares so that the Funds
assets exceed the asset coverage requirements under the 1940 Act
after the redemption by 10% (that is, 220% asset coverage). In
the event that preferred shares are redeemed due to a failure to
satisfy applicable rating agency guidelines, the Fund may, but
is not required to, redeem a sufficient number of preferred
shares so that the Funds discounted portfolio value (as
determined in accordance with the applicable rating agency
guidelines) after redemption exceeds the asset coverage
requirements of each applicable rating agency by up to 10% (that
is, 110% rating agency asset coverage). In addition, as
discussed under Optional Redemption of the
preferred shares below, the Fund generally may redeem
variable rate preferred shares subject to a variable rate, in
whole or in part, at its option at any time (usually on a
dividend or distribution payment date), other than during a
non-call period.
If the Fund does not have funds legally available for the
redemption of, or is otherwise unable to redeem, all the
preferred shares to be redeemed on any redemption date, the Fund
will redeem on such redemption date that number of shares for
which it has legally available funds, or is otherwise able to
redeem, from the holders whose shares are to be redeemed ratably
on the basis of the redemption price of such shares, and the
remainder of those shares to be redeemed will be redeemed on the
earliest practicable date on which the Fund will have funds
legally available for the redemption of, or is otherwise able to
redeem, such shares upon written notice of redemption.
46
If fewer than all of the Funds outstanding preferred
shares are to be redeemed, the Fund, at its discretion and
subject to the limitations of the Governing Documents and 1940
Act, will select one or more series of preferred shares from
which shares will be redeemed and the amount of preferred shares
to be redeemed from each such series. If less than all preferred
shares of a series are to be redeemed, such redemption will be
made as among the holders of that series pro rata in accordance
with the respective number of shares of such series held by each
such holder on the record date for such redemption (or by such
other equitable method as the Fund may determine). If fewer than
all the preferred shares held by any holder are to be redeemed,
the notice of redemption mailed to such holder will specify the
number of shares to be redeemed from such holder, which may be
expressed as a percentage of shares held on the applicable
record date.
Optional Redemption of fixed rate preferred
shares.
Fixed rate preferred shares will not be
subject to optional redemption by the Fund until the date, if
any, specified in the terms of such preferred shares. Commencing
on such date and thereafter, the Fund may at any time redeem
such fixed rate preferred shares in whole or in part for cash at
a redemption price per share equal to the initial liquidation
preference per share plus accumulated and unpaid distributions
(whether or not earned or declared) to the redemption date.
Optional Redemption of variable rate preferred
shares.
The Fund generally may redeem variable
rate preferred shares, if issued, in whole or in part, at its
option at any time (usually on a dividend or distribution
payment date), other than during a non-call period. The Fund may
designate a non-call period in certain circumstances. In the
case of such preferred shares having a dividend period of one
year or less, the redemption price per share will equal the
initial liquidation preference plus an amount equal to any
accumulated but unpaid distributions thereon (whether or not
earned or declared) to the redemption date, and in the case of
such preferred shares having a dividend period of more than one
year, the redemption price per share will equal the initial
liquidation preference plus any redemption premium applicable
during such dividend period.
The discussion above describes the possible offering of
preferred shares by the Fund. If the Board of Trustees
determines to proceed with such an offering, the terms of the
preferred shares may be the same as, or different from, the
terms described above, subject to applicable law and the
Funds Agreement and Declaration of Trust. The Board of
Trustees, without the approval of the holders of common shares,
may authorize an offering of preferred shares or may determine
not to authorize such an offering, and may fix the terms of the
preferred shares to be offered.
In the event the Fund issues preferred shares, the Fund intends
to apply for ratings for any preferred shares from Moodys
and/or
S&P. In order to obtain and maintain the required ratings,
the Fund will be required to comply with investment quality,
diversification and other guidelines established by Moodys
and/or
S&P. Such guidelines will likely be more restrictive than
the restrictions set forth above. The Fund does not anticipate
that such guidelines would have a material adverse effect on the
Funds holders of common shares or its ability to achieve
its investment objectives. No minimum rating is required for the
issuance of preferred shares by the Fund. Moodys and
S&P receive fees in connection with their ratings issuances.
ANTI-TAKEOVER
PROVISIONS OF THE FUNDS GOVERNING DOCUMENTS
The Fund presently has provisions in its Governing Documents
which could have the effect of limiting, in each case,
(i) the ability of other entities or persons to acquire
control of the Fund, (ii) the Funds freedom to engage
in certain transactions or (iii) the ability of the
Funds Trustees or shareholders to amend the Governing
Documents or effectuate changes in the Funds management.
These provisions of the Governing Documents of the Fund may be
regarded as anti-takeover provisions. The Board of
Trustees 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 Funds Trustees expires each year, one class
of the Funds 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 of Trustees. 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
47
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 no
less than two-thirds of the aggregate number of votes entitled
to be cast for the election of such Trustee. Special voting
requirements of 75% of the outstanding voting shares (in
addition to any required class votes) apply to certain mergers
or a sale of all or substantially all of the Funds 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, after completion of the offering, 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:
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merger or consolidation of the Fund with or into any other
entity;
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issuance of any securities of the Fund to any person or entity
for cash, other than pursuant to the 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;
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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);
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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
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the purchase of the Funds 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 the Funds By-Laws. The Trustees have authority to
adopt, amend and repeal the Funds 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).
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
Commission. For the full text of these provisions see
Additional Information.
48
CLOSED-END
FUND STRUCTURE
The Fund is a non-diversified, closed-end management investment
company (commonly referred to as a closed-end fund). Closed-end
funds differ from open-end funds (which are generally referred
to as mutual funds) in that closed-end funds generally list
their shares for trading on a stock exchange and do not redeem
their shares at the request of the shareholder. This means that
if you wish to sell your shares of a closed-end fund you must
trade them on the market like any other stock at the prevailing
market price at that time. In a mutual fund, if the shareholder
wishes to sell shares of the fund, the mutual fund will redeem
or buy back the shares at net asset value. Also,
mutual funds generally offer new shares on a continuous basis to
new investors, and closed-end funds generally do not. The
continuous inflows and outflows of assets in a mutual fund can
make it difficult to manage the funds investments. By
comparison, closed-end funds are generally able to stay more
fully invested in securities that are consistent with their
investment objectives, to have greater flexibility to make
certain types of investments and to use certain investment
strategies such as financial leverage and investments in
illiquid securities.
Shares of closed-end funds often trade at a discount to their
net asset value. Because of this possibility and the recognition
that any such discount may not be in the interest of
shareholders, the Board of Trustees might consider from time to
time engaging in open-market repurchases, tender offers for
shares or other programs intended to reduce a discount. We
cannot guarantee or assure, however, that the Board of Trustees
will decide to engage in any of these actions. Nor is there any
guarantee or assurance that such actions, if undertaken, would
result in the shares trading at a price equal or close to net
asset value per share. The Board of Trustees might also consider
converting the Fund to an open-end mutual fund, which would also
require a supermajority vote of the shareholders of the Fund and
a separate vote of any outstanding preferred shares. We cannot
assure you that the Funds common shares will not trade at
a discount.
REPURCHASE
OF COMMON SHARES
The Fund is a non-diversified, closed-end management investment
company and as such its shareholders do not, and will not, have
the right to require the Fund to repurchase their shares. The
Fund, however, may repurchase its common shares from time to
time as and when it deems such a repurchase advisable. The Board
of Trustees has authorized the consideration of such repurchases
to be made when the Funds common shares are trading at a
discount from net asset value of 10% or more (or such other
percentage as the Board of Trustees may determine from time to
time). Pursuant to the 1940 Act, the Fund may repurchase its
common shares on a securities exchange (provided that the Fund
has informed its shareholders within the preceding six months of
its intention to repurchase such shares) or pursuant to tenders
and may also repurchase shares privately if the Fund meets
certain conditions regarding, among other things, distribution
of net income for the preceding fiscal year, status of the
seller, price paid, brokerage commissions, prior notice to
shareholders of an intention to purchase shares and purchasing
in a manner and on a basis that does not discriminate against
the other shareholders through their interest in the Fund.
When the Fund repurchases its common shares for a price below
net asset value, the net asset value of the common shares that
remain outstanding shares will be enhanced, but this does not
necessarily mean that the market price of the outstanding common
shares will be affected, either positively or negatively. The
repurchase of common shares will reduce the total assets of the
Fund available for investment and may increase the Funds
expense ratio.
NET ASSET
VALUE
The net asset value of the Funds shares is computed based
on the market value of the securities it holds and is determined
daily as of the close of the regular trading day on the NYSE.
For purposes of determining the Funds net asset value per
share, portfolio securities listed or traded on a nationally
recognized securities exchange or traded in the
U.S. over-the-counter
market for which market quotations are readily available are
valued at the last quoted sale price or a markets official
closing price as of the close of business on the day the
securities are being valued. If there were no sales that day,
the security is valued at the average of the
49
closing bid and asked prices, or, if there were no asked prices
quoted on that day, then the security is valued at the closing
bid price on that day. If no bid or asked prices are quoted on
such day, the security is valued at the most recently available
price, or, if the Board of Trustees so determines, by such other
method as the Board of Trustees shall determine in good faith to
reflect its fair market value. Portfolio securities traded on
more than one national securities exchange or market are valued
according to the broadest and most representative market, as
determined by the Investment Adviser.
Portfolio securities primarily traded on a foreign market are
generally valued at the preceding closing values of such
securities on the relevant market, but may be fair valued
pursuant to procedures established by the Board of Trustees if
market conditions change significantly after the close of the
foreign market but prior to the close of business on the day the
securities are being valued. Debt instruments with remaining
maturities of 60 days or less that are not credit impaired
are valued at amortized cost, unless the Board of Trustees
determines such amount does not reflect fair value, in which
case these securities will be fair valued as determined by the
Board of Trustees. Debt instruments having a maturity greater
than 60 days for which market quotations are readily
available are valued at the latest average of the bid and asked
prices. If there were no asked prices quoted on such day, the
security is valued using the closing bid price. Futures
contracts are valued at the closing settlement price of the
exchange or board of trade on which the applicable contract is
traded.
Options are valued using market quotations. When market
quotations are not readily available, options are valued from
broker quotes. In limited circumstances when neither market
quotations nor broker quotes are readily available, options are
valued using a Black-Scholes model.
Securities and assets for which market quotations are not
readily available are fair valued as determined by the Board of
Trustees. Fair valuation methodologies and procedures may
include, but are not limited to: analysis and review of
available financial and non-financial information about the
company; comparisons to the valuation and changes in valuation
of similar securities, including a comparison of foreign
securities to the equivalent U.S. dollar value ADR
securities at the close of the U.S. exchange; and
evaluation of any other information that could be indicative of
the value of the security.
The Fund obtains valuations on the basis of prices provided by a
pricing service approved by the Board of Trustees. All other
investment assets, including restricted and not readily
marketable securities, are valued in good faith at fair value
under procedures established by and under the general
supervision and responsibility of the Funds Board of
Trustees.
In addition, whenever developments in one or more securities
markets after the close of the principal markets for one or more
portfolio securities and before the time as of which the Fund
determines its net asset value would, if such developments had
been reflected in such principal markets, likely have more than
a minimal effect on the Funds net asset value per share,
the Fund may fair value such portfolio securities based on
available market information as of the time the Fund determines
its net asset value.
NYSE Closings.
The holidays (as observed) on
which the NYSE is closed, and therefore days upon which
shareholders cannot purchase or sell shares, currently are: New
Years Day, Martin Luther King, Jr. Day,
Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when a holiday falls on a
Saturday or Sunday, respectively.
50
LIMITATION
ON TRUSTEES AND OFFICERS LIABILITY
The Governing Documents provide 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
applicable law. However, nothing in the Governing Documents
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 persons willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her position.
TAXATION
The following discussion is a brief summary of certain
U.S. federal income tax considerations affecting the Fund
and its shareholders. A more complete discussion of the tax
rules applicable to the Fund and its shareholders can be found
in the SAI that is incorporated by reference into this
prospectus. This discussion assumes you are a U.S. person
(as defined for U.S. federal income tax purposes) and that
you hold your common shares as capital assets. This discussion
is based upon current provisions of the Internal Revenue Code of
1986, as amended (the Code), the Treasury
regulations promulgated thereunder and judicial and
administrative authorities, all of which are subject to change
or differing interpretations by the courts or the Internal
Revenue Service (the IRS), possibly with retroactive
effect. No assurance can be given that the IRS would not assert,
or that a court would not sustain, a position different from any
of the tax aspects set forth below. No attempt is made to
discuss state, local or foreign tax consequences to investors in
the Fund, nor to present a detailed explanation of all
U.S. federal tax concerns affecting the Fund and its
shareholders (including shareholders owning large positions in
the Fund).
The discussion set forth herein does not constitute tax
advice and potential 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 intends to elect to be treated, and to qualify
annually, as a regulated investment company under Subchapter M
of the Code. Accordingly, the Fund must, among other things,
meet the following requirements regarding the source of its
income and the diversification of its assets:
(i) derive in each taxable year at least 90% of its gross
income from the following sources, which are referred to herein
as Qualifying Income: (a) dividends, interest
(including tax-exempt 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 foreign currencies; and
(b) interests in publicly traded partnerships that are
treated as partnerships for U.S. federal income tax
purposes and that derive less than 90% of their gross income
from the items described in clause (a) above (each a
Qualified Publicly Traded Partnership).
(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 Funds total assets is represented by
cash and cash items (including receivables),
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 Funds 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 Funds total assets is invested in the
securities (other than U.S. government securities and the
securities of other regulated investment companies) of
(I) any one issuer, (II) 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 or
(III) any one or more Qualified Publicly Traded
Partnerships.
Income from the Funds investments in grantor trusts that
are not Qualified Publicly Traded Partnerships (if any) will be
Qualifying Income to the extent it is attributable to items of
income of such trust that would be Qualifying Income if earned
directly by the Fund.
51
The Funds investments in partnerships, including in
Qualified Publicly Traded Partnerships, may result in the
Funds being subject to state, local or foreign income,
franchise or withholding tax liabilities.
As a regulated investment company, the Fund generally will not
be subject to U.S. federal income tax on income and gains
that the Fund distributes to its shareholders, provided that it
distributes each taxable year at least the sum of (i) 90%
of the Funds 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 capital gain
(as defined below), reduced by deductible expenses) determined
without regard to the deduction for dividends paid and
(ii) 90% of the Funds net tax-exempt interest (the
excess of its gross tax-exempt interest over certain disallowed
deductions). The Fund intends to distribute substantially all of
such income at least annually. The Fund will be subject to
income tax at regular corporate rates on any taxable income or
gains that it does not distribute to its shareholders.
The Code imposes a 4% nondeductible excise tax on the Fund to
the extent the Fund does not distribute by the end of any
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 and (ii) 98.2%
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 Funds fiscal year). In addition, the minimum
amounts that must be distributed in any year to avoid the excise
tax will be increased or decreased to reflect any
under-distribution or over-distribution, as the case may be,
from previous years. 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 Funds taxable income and capital
gain will be distributed to entirely avoid the imposition of the
excise tax. In that event, the Fund will be liable for the
excise tax only on the amount by which it does not meet the
foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates
without any deduction for distributions to shareholders.
Taxation
of Shareholders
Distributions paid to you by the Fund from its net capital gain
(i.e., the excess of net long-term capital gain over net
short-term capital loss), if any, that the Fund reports as
capital gains dividends (capital gain dividends) are
taxable as long-term capital gains, regardless of how long you
have held your common shares. All other dividends paid to you by
the Fund (including dividends from short-term capital gains)
from its current or accumulated earnings and profits
(ordinary income dividends) are generally subject to
tax as ordinary income.
Special rules apply, however, to ordinary income dividends paid
to individuals with respect to taxable years beginning on or
before December 31, 2012. If you are an individual, any
such ordinary income dividend that you receive from the Fund
generally will be eligible for taxation at the reduced federal
rates applicable to long-term capital gains to the extent that
(i) the ordinary income dividend is attributable to
qualified dividend income (i.e., generally dividends
paid by U.S. corporations and certain foreign corporations)
received by the Fund, (ii) the Fund satisfies certain
holding period and other requirements with respect to the stock
on which such qualified dividend income was paid and
(iii) you satisfy certain holding period and other
requirements with respect to your common shares. There can be no
assurance as to what portion of the Funds ordinary income
dividends will constitute qualified dividend income. In
addition, the favorable treatment currently afforded to
qualified dividend income will not apply to taxable years
beginning after December 31, 2012, unless extended by
legislation.
Any distributions you receive that are in excess of the
Funds current or accumulated earnings and profits will be
treated as a tax-free return of capital to the extent of your
adjusted tax basis in your common shares, and thereafter as
capital gain from the sale of common shares. The amount of any
Fund distribution that is treated as a tax-free return of
capital will reduce your adjusted tax basis in your common
shares, thereby increasing your potential gain or reducing your
potential loss on any subsequent sale or other disposition of
your common shares.
52
Dividends and other taxable distributions are taxable to you
even though they are reinvested in additional common shares of
the Fund. Dividends and other distributions paid by the Fund are
generally treated under the Code as received by you at the time
the dividend or distribution is made. If, however, the Fund pays
you a dividend in January that was declared in the previous
October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be
treated for tax purposes as being paid by the Fund and received
by you on December 31 of the year in which the dividend was
declared.
The Fund will send you information after the end of each year
setting forth the amount and tax status of any distributions
paid to you by the Fund.
The sale or other disposition of common shares of the Fund will
generally result in capital gain or loss to you, and will be
long-term capital gain or loss if you have held such common
shares for more than one year at the time of sale. Any loss upon
the sale or exchange of common shares held for six months or
less will be treated as long-term capital loss to the extent of
any capital gain dividends received (including amounts credited
as an undistributed capital gain dividend) by you with respect
to such common shares. Any loss you realize on a sale or
exchange of common shares will be disallowed if you acquire
other common shares (whether through the automatic reinvestment
of dividends or otherwise) within a
61-day
period beginning 30 days before and ending 30 days
after your sale or exchange of the common shares. In such case,
your tax basis in the common shares acquired will be adjusted to
reflect the disallowed loss.
The Fund may be required to withhold, for federal backup
withholding tax purposes, a portion of the dividends,
distributions and redemption proceeds payable to shareholders
who fail to provide the Fund (or its agent) with their correct
taxpayer identification number (in the case of individuals,
generally, their social security number) or to make required
certifications, or who have been notified by the IRS that they
are subject to backup withholding. Certain shareholders are
exempt from backup withholding. Backup withholding is not an
additional tax and any amount withheld may be refunded or
credited against your federal income tax liability, if any,
provided that you timely furnish the required information to the
IRS. In addition, the Fund may be required to withhold on
distributions to
non-U.S. shareholders.
CUSTODIAN,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
The Bank of New York Mellon, located at 135 Santilli Highway,
Everett, Massachusetts 02149, serves as the custodian of the
Funds assets pursuant to a custody agreement. Under the
custody agreement, the Custodian holds the Funds assets in
compliance with the 1940 Act. For its services, the Custodian
will receive a monthly fee paid by the Fund based upon, among
other things, the average value of the total assets of the Fund,
plus certain charges for securities transactions and out of
pocket expenses.
American Stock Transfer & Trust Company, located at 59
Maiden Lane, New York, New York 10038, serves as the Funds
dividend disbursing agent, as agent under the Funds Plan
and as transfer agent and registrar for the common shares of the
Fund.
53
UNDERWRITERS
Under the terms and subject to the conditions contained in an
underwriting agreement dated the date of this prospectus, the
underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Citigroup Global Markets Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated are acting as
representatives, have severally agreed to purchase, and the Fund
has agreed to sell to them, severally, the number of common
shares indicated below:
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Number of
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Common
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Name
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Shares
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Morgan Stanley & Co. Incorporated
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Citigroup Global Markets Inc.
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Gabelli & Company, Inc.
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J.J.B. Hilliard, W.L. Lyons, LLC
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Janney Montgomery Scott LLC
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Ladenburg Thalmann & Co. Inc.
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Maxim Group LLC
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Stifel, Nicolaus & Company, Incorporated
|
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Wunderlich Securities, Inc.
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Total
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The underwriters are offering the common shares subject to their
acceptance of the common shares from the Fund and subject to
prior sale. The underwriting agreement provides that the
obligations of the several underwriters to pay for and accept
delivery of the common shares offered by this prospectus are
subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the common shares offered
by this prospectus if any such common shares are taken. However,
the underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option
described below.
The underwriters initially propose to offer part of the common
shares directly to the public at the public offering price
listed on the cover page of this prospectus and part of the
common shares to certain dealers at a price that represents a
concession not in excess of $ per
common share under the public offering price. Any underwriter
may allow, and such dealers may reallow, a concession not in
excess of $ per common share to
other underwriters or to certain dealers. After the initial
offering of the common shares, the offering price and other
selling terms may from time to time be varied by the
representatives. The underwriting discounts and commissions
(sales load) of $.90 per common share are equal to 4.5% of the
public offering price. Investors must pay for any common shares
purchased on or
before ,
2011.
The Fund has granted the underwriters an option, exercisable for
45 days from the date of this prospectus, to purchase up to
an aggregate
of
additional common shares at the public offering price listed on
the cover page of this prospectus, less underwriting discounts
and commissions. The underwriters may exercise this option
solely for the purpose of covering over-allotments, if any, made
in connection with the offering of the common shares offered by
this prospectus. To the extent the option is exercised, each
underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of the
additional common shares as the number listed next to the
underwriters name in the preceding table bears to the
total number of common shares listed next to the names of all
underwriters in the preceding table. If the underwriters
option is exercised in full, the total price to the public would
be $ , the total underwriting
discounts and commissions would be
$ and total proceeds to the Fund
would be $ .
54
The following table shows the underwriting discounts and
commissions the Fund will pay in connection with this offering.
The information assumes either no exercise or full exercise by
the underwriters of their over-allotment option. However, the
underwriters are not required to take or pay for the common
shares covered by the underwriters over-allotment option.
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Per Common Share
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Total
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Without
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With
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Without
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With
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Over-allotment
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Over-allotment
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Over-allotment
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Over-allotment
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Public offering price
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$
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20.00
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$
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20.00
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$
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$
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Sales load
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$
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.90
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|
$
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.90
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$
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$
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Proceeds, before expenses, to the Fund
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$
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19.10
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$
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19.10
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$
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|
$
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Offering expenses paid by the Fund (other than sales load) will
not exceed $.04 per share of common stock sold in this offering.
The Investment Adviser has agreed to pay the amount of the
Funds offering expenses (other than sales load) that
exceed $.04 per common share. The aggregate offering expenses
(excluding sales load) are estimated to be
$ in total,
$ of which will be borne by the
Fund (or $ if the
Underwriters exercise their over-allotment option in full). See
Summary of Fund Expenses.
The fees described below under Additional
Compensation to Be Paid by the Investment Adviser are not
reimbursable to the Investment Adviser by the Fund, and are
therefore not reflected in expenses payable by the Fund.
The Underwriters have informed us that they do not intend sales
to discretionary accounts to exceed five percent of the total
number of common shares offered by them.
Our common stock is expected to be approved for listing on the
NYSE under the trading symbol GNT. In order to meet
requirements for listing the common shares on the NYSE, the
Underwriters have undertaken to sell lots of 100 or more shares
to a minimum of 400 beneficial owners in the United States, the
minimum stock price will be at least $4.00 at the time of
listing on the NYSE, at least 1,100,000 common shares will be
publicly held in the United States and the aggregate market
value of publicly held shares in the United States will be at
least $60 million. The minimum investment requirement is
100 common shares ($2,000).
The Fund and the Investment Adviser have each agreed that,
without the prior written consent of Morgan Stanley &
Co. Incorporated, Citigroup Global Markets Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated on behalf of the
underwriters, the Fund will not, during the period ending
180 days after the date of this prospectus:
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offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase lend or otherwise
transfer or dispose of, directly or indirectly, any shares of
common stock or any securities convertible into or exercisable
or exchangeable for shares of common stock;
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file any registration statement with the Securities and Exchange
Commission relating to the offering of any shares of common
stock or any securities convertible into or exercisable or
exchangeable for common stock; or
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enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences
of ownership of the common stock;
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whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or
otherwise. Notwithstanding the foregoing, if (i) during the
last 17 days of the
180-day
restricted period, the Fund issues an earnings release or
announces material news or a material event relating to the
Fund; or (ii) prior to the expiration of the
180-day
restricted period, the Fund announces that it will release
earnings results during the
16-day
period beginning on the last day of the
180-day
restricted period, the restrictions described above shall
continue to apply until the expiration of the
18-day
period beginning on the date of the earnings release or the
announcement of the material news or material event. These
lock-up
agreements will not apply to the shares of common stock to be
sold pursuant to the underwriting agreement or any shares of
common stock issued pursuant to the Funds Dividend
Reinvestment Plan or any preferred share issuance, if any.
55
In order to facilitate the offering of the common shares, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the common shares.
Specifically, the underwriters may sell more shares than they
are obligated to purchase under the underwriting agreement,
creating a short position. A short sale is covered if the short
position is no greater than the number of shares available for
purchase by the underwriters under the over-allotment option
(exercisable for 45 days from the date of the prospectus).
The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the
open market. In determining the source of shares to close out a
covered short position, the underwriters will consider, among
other things, the open market price of shares compared to the
price available under the over-allotment option. The
underwriters may also sell an amount of common shares in excess
of the over-allotment option, creating a naked short position.
The underwriters must close out any naked short position by
purchasing common shares in the open market. A naked short
position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of
the common shares in the open market after pricing that could
adversely affect investors who purchase in this offering. As an
additional means of facilitating this offering, the Underwriters
may bid for, and purchase, common shares in the open market to
stabilize the price of the common shares. Finally, the
underwriting syndicate may also reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the
common shares in the offering, if the syndicate repurchases
previously distributed common shares in transactions to cover
syndicate short positions or to stabilize the price of the
common shares. Any of these activities may raise or maintain the
market price of the common shares above independent market
levels or prevent or retard a decline in the market price of the
common shares. The underwriters are not required to engage in
these activities and may end any of these activities at any time.
Prior to this offering, there has been no public or private
market for the common shares or any other of our securities.
Consequently, the offering price for the common shares was
determined by negotiation among the Fund, the Investment Adviser
and the representatives. There can be no assurance, however,
that the price at which the shares of common stock trade after
this offering will not be lower than the price at which they are
sold by the underwriters or that an active trading market in the
common shares will develop and continue after this offering.
We anticipate that the representatives and certain other
underwriters may from time to time act as brokers and dealers in
connection with the execution of its portfolio transactions
after they have ceased to be underwriters and, subject to
certain restrictions, may act as such brokers while they are
underwriters.
In connection with this offering, certain of the underwriters or
selected dealers may distribute prospectuses electronically.
The Fund, the Investment Adviser and the underwriters have
agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933.
Prior to the public offering of common shares, the Investment
Adviser purchased common shares from us in an amount satisfying
the net worth requirements of Section 14(a) of the 1940
Act. As of the date of this prospectus, the Investment Adviser
owned 100% of the outstanding common shares of beneficial
interest of the Fund. The Investment Adviser may be deemed to
control the Fund until such time as it owns less than 25% of the
outstanding common shares of beneficial interest of the Fund,
which is expected to occur as of the completion of the offering
of common shares.
The principal business address of Morgan Stanley & Co.
Incorporated is 1585 Broadway, New York, New York
10036. The principal business address of Citigroup Global
Markets Inc. is 388 Greenwich Street, New York,
New York 10013. The principal business address of Merrill
Lynch, Pierce, Fenner & Smith Incorporated is One Bryant
Park, New York, New York 10036.
The Underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, principal
investment, hedging, financing and brokerage activities. Certain
of the Underwriters or their respective affiliates from time to
time have provided in the past, and may provide in the future,
investment banking, securities trading, hedging, brokerage
activities, commercial lending and financial advisory services
to us, certain of our executive officers and our affiliates and
the Investment Adviser and its affiliates in the ordinary course
of business, for which they have received, and may receive,
customary fees and expenses.
56
No action has been taken in any jurisdiction (except in the
United States) that would permit a public offering of the common
shares, or the possession, circulation or distribution of this
prospectus or any other material relating to us or the common
shares in any jurisdiction where action for that purpose is
required. Accordingly, the common shares may not be offered or
sold, directly or indirectly, and neither this prospectus nor
any other offering material or advertisements in connection with
the common shares may be distributed or published, in or from
any country or jurisdiction except in compliance with the
applicable rules and regulations of any such country or
jurisdiction.
Additional
Compensation to be Paid by the Investment Adviser
The Investment Adviser (and not the Fund) has agreed to pay,
from its own assets, a structuring fee to Morgan Stanley &
Co. Incorporated in the amount of
$ , Citigroup Global Markets Inc.
in the amount of $ , and Merrill
Lynch, Pierce, Fenner & Smith Incorporated in the amount of
$ . In contrast to the underwriting
discounts and commissions (earned under the underwriting
agreement by the underwriting syndicate as a group), the
structuring fees will be paid by the Investment Adviser for
advice relating to the structure, design and organization of the
Fund. These services are unrelated to the Investment
Advisers function of advising the Fund as to its
investments in securities or use of investment strategies and
investment techniques.
The Investment Adviser (and not the Fund) may also pay certain
qualifying underwriters a structuring fee, sales incentive fee
or additional compensation in connection with this offering.
Total underwriting compensation determined in accordance with
FINRA rules is summarized as follows. The sales load that we
will pay of $.90 per share is equal to 4.5% of gross proceeds.
The Investment Adviser (and not the Fund) will pay structuring
fees as described above. The sum of all compensation to the
underwriters in connection with this public offering of common
shares, including the sales load, the structuring fees or sales
incentive fees and all forms of additional payments to the
underwriters and the amounts paid by the Fund to reimburse
certain underwriters and certain other expenses, will not exceed
9.0% of the total public offering price of the common shares
sold in this offering.
57
LEGAL
MATTERS
Certain legal matters in connection with the offering of the
common shares will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to the Fund, and by
Simpson Thacher & Bartlett LLP, counsel to the
Underwriters. Simpson Thacher & Bartlett LLP may rely
as to certain matters of Delaware law on the opinion of Skadden,
Arps, Slate, Meagher & Flom LLP.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP serves as the independent registered
public accounting firm of the Fund and will annually audit the
financial statements of the Fund. PricewaterhouseCoopers LLP is
located at 300 Madison Avenue, New York, New York 10017.
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 Commission. Reports, proxy statements and other
information filed by the Fund with the Commission pursuant to
the informational requirements of such Acts can be inspected and
copied at the public reference facilities maintained by the
Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The 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 Commission.
The Funds common shares have been approved for listing on
the NYSE, under the symbol GNT, subject to notice of
issuance. Reports, proxy statements and other information
concerning the Fund and filed with the SEC by the Fund will be
available for inspection at the offices of the NYSE,
20 Broad Street, New York, New York 10005.
This prospectus constitutes part of a Registration Statement
filed by the Fund with the 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 Commission.
Each such statement is qualified in its entirety by such
reference. The complete Registration Statement may be obtained
from the Commission upon payment of the fee prescribed by its
rules and regulations or free of charge through the
Commissions 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, the 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.
58
TABLE OF
CONTENTS OF SAI
An SAI dated as
of ,
2011, has been filed with the 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:
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3
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3
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13
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15
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27
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28
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28
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29
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35
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F-1
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F-2
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A-1
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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.
59
Shares
The Gabelli Natural Resources,
Gold & Income Trust
Common Shares of Beneficial
Interest
$20.00 per Share
MORGAN STANLEY
CITI
BofA MERRILL LYNCH
GABELLI & COMPANY, INC.
J.J.B. HILLIARD, W.L. LYONS, LLC
JANNEY MONTGOMERY SCOTT
LADENBURG THALMANN & CO. INC.
MAXIM GROUP LLC
STIFEL NICOLAUS WEISEL
WUNDERLICH SECURITIES
PROSPECTUS
,
2011
Until ,
2011 (25 days after the date of this prospectus) all
dealers that buy, sell or trade the common shares, whether or
not participating in this offering, may be required to deliver a
Prospectus. This is in addition to each dealers obligation
to deliver a prospectus when acting as an underwriter and with
respect to its unsold allotments or subscriptions.
STATEMENT
OF ADDITIONAL INFORMATION
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT COMPLETE AND MAY BE CHANGED. THE FUND 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 Natural Resources, Gold & Income Trust,
(the Fund) is a non-diversified, closed-end
management investment company registered under the Investment
Company Act of 1940, as amended (the 1940 Act). The
Funds primary investment objective is to provide a high
level of current income from interest, dividends and option
premiums. The Funds secondary investment objective is to
seek capital appreciation consistent with the Funds
strategy and its primary objective. An investment in the Fund is
not appropriate for all investors. We cannot assure you that the
Funds objectives will be achieved. Gabelli Funds, LLC
serves as Investment Adviser to the Fund. See
Management of the Fund.
This Statement of Additional Information (the SAI)
does not constitute a prospectus, but should be read in
conjunction with the Funds prospectus relating thereto
dated ,
2011, and as it may be supplemented (the
Prospectus). This SAI does not include all
information that a prospective investor should consider before
investing in the Funds common shares, and investors should
obtain and read the prospectus prior to purchasing such shares.
A copy of the Funds Registration Statement, including the
prospectus and any supplement, may be obtained from the
Securities and Exchange Commission (the Commission)
upon payment of the fee prescribed, or inspected at the
Commissions office or via its website
(http://www.sec.gov)
at no charge.
This Statement of Additional Information is
dated ,
2011.
1
TABLE OF
CONTENTS
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2
THE
FUND
The Gabelli Natural Resources, Gold & Income Trust is
a non-diversified, closed-end management investment company
organized under the laws of the State of Delaware. The
Funds common shares of beneficial interest, par value
$0.001 per share, have been approved for listing on the New York
Stock Exchange (NYSE) under the symbol
GNT, subject to notice of issuance.
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives and Policies
The Funds primary investment objective is to provide a
high level of current income from interest, dividends and option
premiums. The Funds secondary investment objective is to
seek capital appreciation consistent with the Funds
strategy and its primary objective. To meet the objective of
providing a high level of current income, the Fund intends to
invest in income producing securities such as equity securities,
convertible securities and other securities and earn short-term
gains from a strategy of writing covered call options on equity
securities in its portfolio. The Fund will seek dividend income
through investments in equity securities such as common stock or
convertible preferred stock. The Fund will seek interest income
through investments in convertible or corporate bonds. Under
normal market conditions, the Fund will attempt to achieve its
objectives by investing at least 80% of its assets, which
includes the amount of any borrowing for investment purposes, in
securities of companies principally engaged in the natural
resources and gold industries.
The Fund will invest at least 25% of its assets in the
securities of companies principally engaged in the exploration,
production or distribution of natural resources, such as base
metals, metals, paper, food and agriculture, forestry products,
water, gas, oil, sustainable energy and other commodities as
well as related transportation companies and equipment
manufacturers. Related transportation companies and equipment
manufacturers, such as agriculture transportation vehicles and
farm equipment manufacturers, are vital components of the
natural resource industry. The Fund will invest at least 25% of
its assets in the securities of companies principally engaged in
the exploration, mining, fabrication, processing, distribution
or trading of gold or the financing, managing, controlling or
operating of companies engaged in gold-related
activities. Companies principally engaged in the financing,
managing, controlling or operating of companies engaged in
gold-related activities include companies that own
or receive royalties on the production of gold; such companies
are vital components of the gold industry.
Principally engaged, as used in this SAI, means a company that
derives at least 50% of its revenues or earnings or devotes at
least 50% of its assets to the indicated businesses. Equity
securities may include common stocks, preferred stocks,
convertible securities, warrants, depository receipts and equity
interests in trusts and other entities. Other Fund investments
may include investment companies, including exchange-traded
funds, securities of issuers subject to reorganization or other
risk arbitrage investments, derivative instruments, debt
(including obligations of the U.S. government) and money
market instruments. As part of its investment strategy, the Fund
intends to generate current income from short-term gains through
an option strategy of writing (selling) covered call options on
equity securities in its portfolio. When the Fund sells a
covered call option, it generates current income from short-term
gains in the form of the premium paid by the buyer of the call
option, but the Fund forgoes the opportunity to participate in
any increase in the value of the underlying equity security
above the exercise price of the option.
The Fund is not intended for those who wish to exploit
short-term swings in the stock market.
The Investment Advisers investment philosophy with respect
to selecting investments in the gold industry and the natural
resources industries is to emphasize quality, value and
favorable prospects for growth, as determined by such factors as
asset quality, balance sheet leverage, management ability,
reserve life, cash flow and commodity hedging exposure. In
addition, in making stock selections, the Investment Adviser
looks for securities that it believes may provide attractive
yields, as well as capital gains potential and that allow the
Fund to generate current income from short-term gains from
writing covered calls on such stocks.
3
Derivative
Instruments
Options.
The Fund may, from time to time,
subject to guidelines of the Board of Trustees and the
limitations set forth in the Prospectus, 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 Funds portfolio.
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 option on the
same instrument as the call option written where the exercise
price of the call option held is (i) equal to or less than
the exercise price of the call option written or
(ii) greater than the exercise price of the call option
written if the difference is maintained by the Fund in cash,
U.S. government securities or other high-grade short-term
obligations in a segregated account with its custodian. A call
option is uncovered if the underlying security
covered by the call is not held by the Fund. A put option is
covered if the Fund maintains cash or other liquid
securities with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put
option on the same instrument as the put option written where
the exercise price of the put option held is equal to or greater
than the exercise price of the put option written.
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 of the option. Gains and
losses on investments in options depend, in part, on the ability
of the Investment Adviser to correctly predict the effect of
these factors. The use of options cannot serve as a complete
hedge since the price movement of securities underlying the
options will not necessarily follow the price movements of the
portfolio securities subject to the hedge.
An option position may be closed out only on an exchange that
provides a secondary market for an option 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, in which case
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
4
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.
To the extent that the Fund purchases options pursuant to a
hedging strategy, the Fund will be subject to the following
additional risks. If a put or call option purchased by the Fund
is not sold when it has remaining value, and if the market price
of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or
equal to the exercise price (in the case of a call), the Fund
will lose its entire investment in the option.
Where a put or call option on a particular security is purchased
to hedge against price movements in that or a related security,
the price of the put or call option may move more or less than
the price of the security. If restrictions on exercise are
imposed, the Fund may be unable to exercise an option it has
purchased. If the Fund is unable to close out an option that it
has purchased on a security, it will have to exercise the option
in order to realize any profit, or the option may expire
worthless.
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 Funds
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
option, or less than, in the case of a put option, the exercise
price of the option.
The Funds successful use of options on indices depends
upon its ability to predict the direction of the market and is
subject to various additional risks. The correlation between
movements in the index and the price of the securities being
hedged against is imperfect and the risk from imperfect
correlation increases as the composition of the Fund diverges
from the composition of the relevant index. Accordingly, a
decrease in the value of the securities being hedged against may
not be wholly offset by a gain on the exercise or sale of a
securities index put option held by the Fund.
Options on Foreign Currencies.
Instead of
purchasing or selling currency futures (as described below), the
Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies or by writing put options or
call options on currencies either on exchanges or in OTC
markets. A put option gives the Fund the right to sell a
currency at the exercise price until the option expires. A call
option gives the Fund the right to purchase a currency at the
exercise price until the option expires. Both types of options
serve to insure against adverse currency price movements in the
underlying portfolio assets designated in a given currency. The
Funds 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 that 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 that 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 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
5
under the Commodity Exchange Act. Accordingly, the Funds
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.
The Fund will not enter into futures contracts or options on
futures contracts unless (i) the aggregate initial margins
and premiums do not exceed 5% of the fair market value of its
assets and (ii) the aggregate market value of its
outstanding futures contracts and the market value of the
currencies and futures contracts subject to outstanding options
written by the Fund, as the case may be, do not exceed 50% of
its total assets. It is anticipated that these investments, if
any, will be made by the Fund solely for the purpose of hedging
against changes in the value of its portfolio securities and in
the value of securities it intends to purchase. Such investments
will only be made if they are economically appropriate to the
reduction of risks involved in the management of the Fund. In
this regard, the Fund may enter into futures contracts or
options on futures for the purchase or sale of securities
indices or other financial instruments including but not limited
to U.S. government securities.
A sale of a futures contract (or a short
futures position) means the assumption of a contractual
obligation to deliver the securities underlying the contract at
a specified price at a specified future time. A
purchase of a futures contract (or a
long futures position) means the assumption of a
contractual obligation to acquire the securities underlying the
contract at a specified price at a specified future time.
Certain futures contracts, including stock and bond index
futures, are settled on a net cash payment basis rather than by
the sale and delivery of the securities underlying the futures
contracts.
No consideration will be paid or received by the Fund upon the
purchase or sale of a futures contract. Initially, the Fund will
be required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange or
board of trade on which the contract is traded and brokers or
members of such board of trade may charge a higher amount). This
amount is known as the initial margin and is in the
nature of a performance bond or good faith deposit on the
contract. Subsequent payments, known as variation
margin, to and from the broker will be made daily as the
price of the index or security underlying the futures contract
fluctuates. At any time prior to the expiration of the futures
contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate its existing
position in the contract.
An option on a futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior
to the expiration of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writers futures margin account
attributable to that contract, which represents the amount by
which the market price of the futures contract exceeds, in the
case of a call option, or is less than, in the case of a put
option, the exercise price of the option on the futures
contract. The potential loss related to the purchase of an
option on a futures contract is limited to the premium paid for
the option (plus transaction costs). Because the value of the
option purchased is fixed at the point of sale, there are no
daily cash payments by the purchaser to reflect changes in the
value of the underlying contract; however, the value of the
option does change daily and that change would be reflected in
the net assets of the Fund.
Futures and options on futures entail certain risks, including
but not limited to the following: no assurance that futures
contracts or options on futures can be offset at favorable
prices, possible reduction of the yield of the Fund due to the
use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of
liquidity due to daily limits on price fluctuations, imperfect
correlation between the contracts and the securities being
hedged, 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 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
Funds custodian (the Custodian) 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
6
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 that 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 Funds portfolio securities. Such a
sale would have an effect similar to selling an equivalent value
of the Funds portfolio securities. If interest rates
increase, the value of the Funds 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 Funds Custodian,
assets sufficient to cover the Funds 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 Funds portfolio against the risk of rising
interest rates and a consequent reduction in the value of
portfolio securities.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities that
are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is below the exercise
price, the Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that
may have occurred in the Funds 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
7
changes in the value of its futures positions, the Funds
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 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
Funds 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 Funds 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 Funds 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 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 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.
8
The dealings of the Fund in forward foreign currency 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 and dividends.
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 that the Investment
Adviser believes to be creditworthy institutions.
Special Risk Considerations Relating to Futures and Options
Thereon.
The Funds 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 Advisers expectations are not met, the Fund
will be in a worse position than if a hedging strategy had not
been pursued. For example, if the Fund has hedged against the
possibility of an increase in interest rates that would
adversely affect the price of securities in its portfolio and
the price of such securities increases instead, the Fund will
lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash to meet daily variation margin requirements,
it may have to sell securities to meet the requirements. These
sales may be, but will not necessarily be, at increased prices
that reflect the rising market. The Fund may have to sell
securities at a time when it is disadvantageous to do so.
Additional Risks of Foreign Options, Futures Contracts,
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, securities of foreign issuers
(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
9
in the Funds 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) less trading volume.
Exchanges on which options, futures, options on futures and
forward contracts are traded may impose limits on the positions
that the Fund may take in certain circumstances.
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 Funds 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.
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.
Repurchase Agreements.
The Fund may enter into
repurchase agreements. A repurchase agreement is an instrument
under which the purchaser (i.e., the Fund) acquires a debt
security and the seller agrees, at the time of the sale, to
repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchasers
holding period. This results in a fixed rate of return insulated
from market fluctuations during such period. The underlying
securities are ordinarily U.S. Treasury or other government
obligations or high quality money market instruments. The Fund
will require that the value of such underlying securities,
together with any other collateral held by the Fund, always
equals or exceeds the amount of the repurchase obligations of
the counterparty. The Funds risk is primarily that, if the
seller defaults, the proceeds from the disposition of the
underlying securities and other collateral for the sellers
obligation are less than the repurchase price. If the seller
becomes insolvent, the Fund might be delayed in or prevented
from selling the collateral. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate
the collateral. To the extent that the proceeds from any sale of
such collateral upon a default in the obligation to repurchase
are less than the repurchase price, the Fund will experience a
loss.
The Investment Adviser, acting under the supervision of the
Board of Trustees, 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.
If the financial institution which is a party to the repurchase
agreement 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 Funds ability to sell
the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities.
Consistent with
applicable regulatory requirements and the Funds
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, cash equivalents or other
liquid securities 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.
10
The Funds loans of portfolio securities will be
collateralized in accordance with applicable regulatory
requirements and no loan will cause the value of all loaned
securities to exceed 20% of the value of the Funds total
assets. The Funds ability to lend portfolio securities may
be limited by rating agency guidelines.
A loan generally may 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 fail financially. However,
these loans of portfolio securities will only be made to firms
deemed by the Investment Adviser to be creditworthy and when the
income that 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 counterparty 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 Funds
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 Funds
investment in such loaned securities. The Fund will pay
reasonable finders, administrative and custodial fees in
connection with a loan of its securities.
When Issued, Delayed Delivery Securities and Forward
Commitments.
The Fund may enter into forward
commitments for the purchase or sale of securities, including on
a when issued or delayed delivery basis,
in excess of customary settlement periods for the type of
security involved. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization
or debt restructuring (i.e., a when, as and if issued security).
When such transactions are negotiated, the price is fixed at the
time of the commitment, with payment and delivery taking place
in the future, generally a month or more after the date of the
commitment. While it will only enter into a forward commitment
with the intention of actually acquiring the security, the Fund
may sell the security before the settlement date if it is deemed
advisable by the Investment Adviser.
Securities purchased under a forward commitment are subject to
market fluctuation, and no interest (or dividends) accrues to
the Fund prior to the settlement date. The Fund will segregate
with its Custodian cash or other liquid securities in an
aggregate amount at least equal to the amount of its outstanding
forward commitments.
Leverage.
The Fund has no present intention to
issue senior securities or borrow money. However, the Fund may
incur leverage through the use of certain investment management
techniques (e.g., purchasing when-issued securities,
the entering into of firm or standby commitment agreements, the
use of reverse repurchase agreements and selling short,
uncovered sales of put and call options, among
others). Upon the use of such techniques, the Fund will
establish in a segregated account cash or other liquid
securities equal to the Funds obligations in respect of
such techniques. Such investment management techniques are
speculative and involve certain risks, including the possibility
of higher volatility of the net asset value of the common shares
and potentially more volatility in the market value of the
common shares. During periods in which leverage results in
greater total Fund assets, the fees paid to the Investment
Adviser for advisory services will be higher than if the Fund
did not incur such leverage because the fees paid will be
calculated on any assets attributable to the incurrence of
leverage. So long as the rate of return, net of applicable Fund
expenses, on the investments exceeds amounts paid to implement
such techniques, the usage of such techniques will generate more
income than will be needed to pay any resulting payments. The
Fund reserves the right to borrow money or issue senior
securities in the future. The Board of Trustees may determine
that the use of leverage or issuance of preferred shares is
appropriate and the Fund may do so in the future.
11
The use of leverage, which can be described as exposure to
changes in price at a ratio greater than the amount of equity
invested, either through the issuance of preferred shares,
borrowing or other forms of market exposure, magnifies both the
favorable and unfavorable effects of price movements in the
investments made by the Fund. To the extent the Fund determines
to employ leverage in its investment operations, the Fund will
be subject to substantial risks of loss. There can be no
assurance that borrowings or the issuance of preferred shares
will result in a higher yield or return to the holders of the
common shares.
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Preferred Share Risk.
The issuance of
preferred shares causes the net asset value and market value of
the common shares to become more volatile. If the dividend rate
on the preferred shares approaches the net rate of return on the
Funds investment portfolio, the benefit of leverage to the
holders of the common shares would be reduced. If the dividend
rate on the preferred shares exceeds the net rate of return on
the Funds portfolio, the leverage will result in a lower
rate of return to the holders of common shares than if the Fund
had not issued preferred shares.
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Any decline in the net asset value of the Funds
investments would be borne entirely by the holders of common
shares. Therefore, if the market value of the Funds
portfolio declines, the leverage will result in a greater
decrease in net asset value to the holders of common shares than
if the Fund were not leveraged. This greater net asset value
decrease will also tend to cause a greater decline in the market
price for the common shares. The Fund might be in danger of
failing to maintain the required asset coverage of the preferred
shares or of losing its ratings on the preferred shares or, in
an extreme case, the Funds current investment income might
not be sufficient to meet the dividend requirements on the
preferred shares. In order to counteract such an event, the Fund
might need to liquidate investments in order to fund a
redemption of some or all of the preferred shares.
In addition, the Fund would pay (and the holders of common
shares will bear) all costs and expenses relating to the
issuance and ongoing maintenance of the preferred shares,
including higher advisory fees.
Holders of preferred shares may have different interests than
holders of common shares and may at times have disproportionate
influence over the Funds affairs. Holders of preferred
shares, voting separately as a single class, would have the
right to elect two members of the Board of Trustees at all times
and in the event dividends become two full years in arrears
would have the right to elect a majority of the trustees until
such arrearage is completely eliminated. In addition, preferred
shareholders have class voting rights on certain matters
including changes in fundamental investment restrictions and
conversion of the fund to open-end status and accordingly can
veto any such changes.
Restrictions imposed on the declarations and payment of
dividends or other distributions to the holders of the
Funds common shares and preferred shares, both by the 1940
Act and by requirements imposed by rating agencies, might impair
the Funds ability to maintain its qualification as a regulated
investment company for federal income tax purposes. While the
Fund intends to redeem any preferred shares it may issue 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 Internal Revenue Code of 1986, as amended (the
Code), there can be no assurance that such actions
can be effected in time to meet the Code requirements.
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Portfolio Guidelines of Rating Agencies for Preferred Shares
and/or
Credit Facility
. In order to obtain and maintain
attractive credit quality ratings for preferred shares or
borrowings, the Fund must comply with investment quality,
diversification and other guidelines established by the relevant
rating agencies. These guidelines could affect portfolio
decisions and may be more stringent than those imposed by the
1940 Act.
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Until the Fund borrows or issues preferred shares, the
Funds common shares will not be leveraged, and the risks
and special considerations related to leverage described in this
prospectus will not apply. Such leveraging of the common shares
cannot be fully achieved until the proceeds resulting from the
use of leverage have been invested in accordance with the
Funds investment objectives and policies.
Master Limited Partnerships.
MLPs in which the
Fund may invest will be limited partnerships (or limited
liability companies taxable as partnerships), the units of which
will generally be listed and traded on a
12
U.S. securities exchange. MLPs normally derive income and
gains from the exploration, development, mining or production,
processing, refining, transportation (including pipeline
transporting gas, oil, or products thereof), or the marketing of
mineral or natural resources. MLPs generally have two classes of
owners, the general partner and limited partners. When investing
in an MLP, the Fund intends to purchase publicly traded common
units issued to limited partners of the MLP. The general partner
typically controls the operations and management of the MLP.
MLPs are typically structured such that common units and general
partner interests have first priority to receive quarterly cash
distributions up to an established minimum amount (minimum
quarterly distributions or MQD). Common and
general partner interests also accrue arrearages in
distributions to the extent the MQD is not paid. Once common and
general partner interests have been paid, subordinated units
receive distributions of up to the MQD; however, subordinated
units do not accrue arrearages. Distributable cash in excess of
the MQD paid to both common and subordinated units is
distributed to both common and subordinated units generally on a
pro rata basis. The general partner is also eligible to receive
incentive distributions if the general partner operates the
business in a manner that results in distributions paid per
common unit surpassing specified target levels.
MLPs, like other types of Natural Resources Companies, are
exposed to pricing risk, supply and demand risk and depletion
and exploration risk with respect to their underlying
commodities, among other risks. An investment in MLP units
involves risks that differ from an investment in the common
stock of a corporation. Holders of MLP units have limited
control and voting rights on matters affecting the partnership.
In addition, there are certain tax risks associated with an
investment in MLP units and conflicts of interest may exist
between common unit holders and the general partner, including
those arising from incentive distribution payments.
INVESTMENT
RESTRICTIONS
The Fund operates under the following restrictions that
constitute fundamental policies that, except as otherwise noted,
cannot be changed without the affirmative vote of the holders of
a majority of the outstanding voting securities of the Fund
voting together as a single class. In the event the Fund were to
issue any preferred shares, the approval of a majority of such
shares voting as a separate class would also be required. Such
majority vote requires the lesser of (i) 67% of the
Funds applicable shares represented at a meeting at which
more than 50% of the applicable shares outstanding are
represented, whether in person or by proxy, or (ii) more
than 50% of the Funds applicable shares outstanding.
Except as otherwise noted, all percentage limitations set forth
below apply 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) other than with respect to its concentrations in
Natural Resources Companies and Gold Companies, 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 and investments in the gold and
base industries and the natural resources industries;
(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,
up to 20% of the Funds total assets, 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;
13
(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.
In addition, the Funds investment objectives and its
policies of investing at least 25% of its assets in normal
circumstances in Natural Resources Companies and in Gold
Companies are fundamental policies. Unless specifically stated
as such, no policy of the Fund is fundamental and each policy
may be changed by the Board of Trustees without shareholder
approval.
14
MANAGEMENT
OF THE FUND
Trustees
and Officers
Overall responsibility for management and supervision of the
Fund rests with its Board of Trustees. The Board of Trustees
approves all significant agreements between the Fund and the
companies that furnish the Fund with services, including
agreements with the Investment Adviser, the Funds
custodian and the Funds 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.
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Number of
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Other
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Portfolios
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Term of Office
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Directorships
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in Fund Complex
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Name (and Age), Position with the
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and Length of
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Principal Occupation(s)
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Held by
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Overseen by
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Fund and Business
Address
(1)
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Time
Served
(2)
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During Past Five Years
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Trustee During Past Five Years
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Trustee
(3)
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Independent
Trustees
(4)
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Anthony J. Colavita (75)
Trustee
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Since 2008***
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President of the law firm of Anthony J. Colavita, P.C.
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None
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34
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James P. Conn (72)
Trustee
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Since 2008*
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Former Managing Director and Chief Investment Officer of
Financial Security Assurance Holdings Ltd. (insurance holding
company) (1992 1998)
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Director of First Republic Bank (banking) through January 2008
and La Quinta Corp. (hotels) through January 2006
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18
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Mario dUrso (70)
Trustee
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Since 2008**
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Chairman of Mittel Capital Markets S.p.A. (2001-2008); Senator
in the Italian Parliament (1996 2001)
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None
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5
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Vincent D. Enright (67)
Trustee
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Since 2008*
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Former Senior Vice President and Chief Financial Officer of
KeySpan Energy Corp (public utility) (1994 1998)
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Director of Echo Therapeutics, Inc. (therapeutics and
diagnostics) and until September 2006, Director of Aphton
Corporation (pharmaceuticals)
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16
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Frank J. Fahrenkopf, Jr. (71)
Trustee
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Since 2008***
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President and Chief Executive Officer of the American Gaming
Association; Co-Chairman of the Commission on Presidential
Debates; Former Chairman of the Republican National Committee
(1983 1989)
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Director of First Republic Bank (banking)
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6
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Michael J. Melarkey (61)
Trustee
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Since 2008**
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Partner in the law firm of Avansino, Melarkey, Knobel, Mulligan
& McKenzie
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Director of Southwest Gas Corporation (natural gas utility)
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5
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Kuni Nakamura (41)
Trustee
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Since 2008*
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President of Advanced Polymer, Inc. (chemical wholesale company)
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None
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9
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Anthonie C. van Ekris (76)
Trustee
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Since 2008**
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Chairman and Chief Executive Officer of BALMAC International,
Inc. (commodities and futures trading)
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Director of Aurado Energy Inc. (oil and gas operations) through
2005
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20
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15
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Number of
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Other
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Portfolios
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Term of Office
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Directorships
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in Fund Complex
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Name (and Age), Position with the
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and Length of
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Principal Occupation(s)
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Held by
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Overseen by
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Fund and Business
Address
(1)
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Time
Served
(2)
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During Past Five Years
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Trustee During Past Five Years
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Trustee
(3)
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Salvatore J. Zizza (65)
Trustee
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Since 2008***
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Chairman of Zizza & Company, Ltd. (consulting)
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Director of Harbor BioSciences, Inc. (biotechnology) and
Trans-Lux Corporation (business services); Director and Chief
Executive Officer of General Employment Enterprises, Inc.
(staffing); Chairman of each of BAM (manufacturing); Bergen Cove
Realty Inc. (real estate); Bion Environmental Technologies
(technology) (2005-2008); Director of Earl Scheib Inc.
(automotive painting) through April 2009
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28
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Term of Office
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Name (and Age), Position with the
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and Length of
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Principal Occupation(s)
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Fund and Business
Address
(1)
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Time
Served
(2)
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During Past Five Years
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Officers
(5)
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Bruce N. Alpert (59)
Principal Executive Officer and President
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Since 2008
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Executive Vice President (since 1999) and Chief Operating
Officer (since 1988) of Gabelli Funds, LLC since 1988; Director
of Teton Advisors, Inc. since 1998; Chairman of Teton Advisors,
Inc. 2008-2010 and President from 1998-2008; Senior Vice
President of GAMCO Investors, Inc. since 2008; Officer of all of
the registered investment companies in the Gabelli/GAMCO Fund
Complex
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Carter W. Austin (44)
Vice President
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Since 2008
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Vice President of other
closed-end
funds in the Gabelli/GAMCO Fund Complex; Vice President of
Gabelli Funds, LLC since 1996
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Peter D. Goldstein (57)
Chief Compliance Officer
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Since 2008
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Director of Regulatory Affairs for GAMCO Investors, Inc. since
2004; Chief Compliance Officer of all of the registered
investment companies in the Gabelli/GAMCO Fund Complex
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Agnes Mullady (52)
Principal Financial Officer, Treasurer and Secretary
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Since 2008
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Senior Vice President of GAMCO Investors, Inc. since 2009; Vice
President of Gabelli Funds, LLC since 2007; Officer of all of
the registered investment companies in the Gabelli/GAMCO Fund
Complex; Senior Vice President of U.S. Trust Company, N.A. and
Treasurer and Chief Financial Officer of Excelsior Funds from
2004 2005
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David I. Schacter (57)
Vice President
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Since 2008
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Vice President of other closed-end funds in the Gabelli/GAMCO
Fund Complex; Vice President of Gabelli & Company, Inc.
since 1999
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(footnotes appear on following page)
16
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(1)
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Address: One Corporate Center, Rye,
NY
10580-1422,
unless otherwise noted.
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(2)
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The Funds 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 is as follows:
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*
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Term continues until the
Funds 2011 Annual Meeting of Shareholders and until their
successors are duly elected and qualified.
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**
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Term continues until the
Funds 2012 Annual Meeting of Shareholders and until their
successors are duly elected and qualified.
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***
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Term continues until the
Funds 2013 Annual Meeting of Shareholders and until their
successors are duly elected and qualified.
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(3)
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The Fund Complex
or the Gabelli/GAMCO Fund Complex includes all
the registered funds that are considered part of the same fund
complex as the Fund because they have common or affiliated
investment advisers.
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(4)
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Trustees who are not considered to
be interested persons of the Fund as defined in the
1940 Act are considered to be Independent Trustees.
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(5)
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Each officer will hold office for
an indefinite term until the date he or she resigns or retires
or until his or her successor is elected and qualified.
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The Board of Trustees believes that each Trustees
experience, qualifications, attributes or skills on an
individual basis and in combination with those of other Trustees
lead to the conclusion that each Trustee should serve in such
capacity. Among the attributes or skills common to all Trustees
are their ability to review critically and to evaluate, question
and discuss information provided to them, to interact
effectively with the other Trustees, the Investment Adviser, the
sub-administrator,
other service providers, counsel and the Funds independent
registered public accounting firm, and to exercise effective and
independent business judgment in the performance of their duties
as Trustees. Each Trustees ability to perform his duties
effectively has been attained in large part through the
Trustees business, consulting or public service positions
and through experience from service as a member of the Board of
Trustees and one or more of the other funds in the Gabelli/GAMCO
Fund Complex, public companies, or non-profit entities or
other organizations as set forth above and below. Each
Trustees ability to perform his duties effectively also
has been enhanced by his education, professional training and
other life experiences.
Anthony J.
Colavita, Esq.
Mr. Colavita is a
practicing attorney with over 49 years of experience,
including in the area of business law. He is the Chair of the
Funds Nominating Committee and is a member of the
Funds Proxy Voting Committee. Mr. Colavita also
serves on comparable or other board committees with respect to
other funds in the Fund Complex on whose boards he sits.
Mr. Colavita also serves as a Trustee of a charitable
remainder uni-trust. He formerly served as a Commissioner of the
New York State Thruway Authority and as a Commissioner of the
New York State Bridge Authority. He served for ten years as the
elected Supervisor of the Town of Eastchester, New York,
responsible for ten annual municipal budgets of approximately
eight million dollars per year. Mr. Colavita formerly
served as Special Counsel to the New York State Assembly for
five years and as a Senior Attorney with the New York State
Insurance Department. He was also formerly Chairman of the
Westchester County Republican Party and the New York State
Republican Party. Mr. Colavita received his Bachelor of
Arts from Fairfield University and his Juris Doctor from Fordham
University School of Law.
James P. Conn.
Mr. Conn, the lead
independent Trustee of the Fund, is a member of the Funds
Proxy Voting Committee. Mr. Conn also serves on comparable
or other board committees for other funds in the
Fund Complex on whose boards he sits. He was a senior
business executive of an insurance holding company for much of
his career, including service as Chief Investment Officer, and
has been a director of several public companies in banking and
other industries, for some of which he was lead Director
and/or
Chair
of various committees. Mr. Conn received his Bachelor of
Science in Business Administration from Santa Clara
University.
Mario dUrso.
Mr. dUrso was
formerly a Senator and Undersecretary of Commerce in the Italian
government. He is a member of the board of other funds in the
Fund Complex. He is a former Chairman of Mittel Capital
Market S.p.A., a boutique investment bank headquartered in
Italy, and a former Partner and Managing Director of Kuhn
Loeb & Co. and Shearson Lehman Brothers Co. He
previously served as President of The Italy Fund, a closed-end
fund investing mainly in Italian listed and non-listed
companies. Mr. dUrso received his Masters Degree in
comparative law from George Washington University and was
formerly a practicing attorney in Italy.
17
Vincent D. Enright.
Mr. Enright was a
senior executive and Chief Financial Officer (CFO)
of an energy public utility for a total of four years. In
accordance with his experience as a CFO, he is a member of the
Funds Audit Committee. Mr. Enright is also Chairman
of the Funds Proxy Voting Committee, a member of both
multi-fund ad hoc Compensation Committees (described below under
Board of Trustees Leadership Structure and Oversight
Responsibilities) and serves on comparable or other board
committees with respect to other funds in the Fund Complex
on whose boards he sits. Mr. Enright is also a Director of
a therapeutic and diagnostic company and serves as Chairman of
its compensation committee and as a member of its audit
committee. He was also a Director of a pharmaceutical company.
Mr. Enright received his Bachelor of Science from Fordham
University and completed the Advanced Management Program at
Harvard University.
Frank J.
Fahrenkopf, Jr.
Mr. Fahrenkopf is the
President and Chief Executive Officer of the American Gaming
Association (AGA), the trade group for the gaming
industry. He is a member of the Funds Audit Committee and
serves in this same capacity with respect to other funds in the
Fund Complex. He presently is Co-Chairman of the Commission
on Presidential Debates, which is responsible for the
widely-viewed Presidential debates during the quadrennial
election cycle. Additionally, he serves as a board member of the
International Republican Institute (IRI), which he founded in
1984. He served for many years as Chairman of the Pacific
Democrat Union and Vice Chairman of the International Democrat
Union, a worldwide association of political parties from the
United States, Great Britain, France, Germany, Canada, Japan,
Australia and 20 other nations. Prior to becoming the AGAs
first chief executive in 1995, Mr. Fahrenkopf was a partner
in the law firm of Hogan & Hartson, where he chaired
the International Trade Practice Group and specialized in
regulatory, legislative and corporate matters for multinational,
foreign and domestic clients. He also served as Chairman of the
Republican National Committee for six years during Ronald
Reagans presidency. He is the former Chairman and remains
a member of the Finance Committee of the Culinary Institute of
America. He additionally has over 20 years experience
as a member of the board of directors of a bank.
Mr. Fahrenkopf received his Bachelor of Arts from the
University of Nevada, Reno and his Juris Doctor from Boalt Hall
School of Law, U.C. Berkeley.
Michael J. Melarkey.
Mr. Melarkey is a
practicing attorney specializing in business, estate planning
and gaming regulatory work with over 34 years of
experience. He is a member of the Funds Nominating
Committee. Mr. Melarkey also serves in this same capacity
with respect to some of the other funds in the Fund Complex
on whose boards he sits. Mr. Melarkey also is a member of
the multi-fund ad hoc Compensation Committee relating to certain
officers of the closed-end funds in the Fund Complex. He is
currently a Director of a natural gas utility company and chairs
its Nominating and Corporate Governance Committee.
Mr. Melarkey also acts as a Trustee and officer for several
private charitable organizations, is an owner of two northern
Nevada casinos and a real estate development company, and acts
as a Trustee of one and an officer of another private oil and
gas company. Mr. Melarkey received his Bachelor of Arts
from the University of Nevada, Reno, his Juris Doctor from the
University of San Francisco School of Law and his Masters
of Law in Taxation from New York University Law School.
Kuni Nakamura.
Mr. Nakamura is the
President and sole shareholder of Advanced Polymer, Inc., a
chemical wholesale company. Mr. Nakamura also serves on the
boards of other funds in the Fund Complex. Additionally, he
is the sole shareholder of a real estate holding company and a
member of both a boat holding company and a chemical wholesale
company. Mr. Nakamura was previously a Board member of the
LGL Group. Mr. Nakamura has been involved in various
organizations for underprivileged children, such as Big
Brother-Big Sister, the Fresh Air Fund and Andrus Dyckman
Childrens Home. He is also involved in various capacities
with The University of Pennsylvania, the Japan Society and Mercy
College as an advisor to the PACT Program. Mr. Nakamura is
a graduate of the University of Pennsylvania The
Wharton School with a Bachelors degree in Economics and
Multinational Management.
Anthonie C. Van Ekris.
Mr. van Ekris has been
the Chairman and Chief Executive Officer of a global
import/export company for 19 years. Mr. van Ekris serves on
the boards of other funds in the Fund Complex and is the
Chairman of one such funds Nominating Committee and also
is a member of the Proxy Voting Committee of some funds in the
Fund Complex. He has over 55 years of experience as
Chairman
and/or
Chief
Executive Officer of public and private companies involved in
the international trading or commodity trading businesses and
had also served in both these capacities for nearly
20 years for a large public jewelry chain. Mr. van Ekris
18
was formerly a Director of an oil and gas operations company and
served on the boards of a number of public companies, and served
for more than 10 years on the Advisory Board of the
Salvation Army of Greater New York.
Salvatore J. Zizza.
Mr. Zizza is the
Chairman of a consulting firm. He is the Chair of the
Funds Audit Committee and has been designated the
Funds Audit Committee Financial Expert. Mr. Zizza is
also a member of the Funds Nominating Committee and both
multi-fund ad hoc Compensation Committees. In addition, he
serves on comparable or other board committees, including as
lead independent director, with respect to other funds in the
Fund Complex on whose boards he sits. Besides serving on
the boards of many funds within the Fund Complex, he is
currently a Director of two other public companies and has
previously served on the boards of several other public
companies. He also previously served as the Chief Executive of a
large NYSE-listed construction company. Mr. Zizza received
his Bachelor of Arts and his Master of Business Administration
from St. Johns University, which also has awarded him an
Honorary Doctorate in Commercial Sciences.
Board of
Trustees Leadership Structure and Oversight
Responsibilities
Overall responsibility for general oversight of the Fund rests
with the Board of Trustees. The Board of Trustees does not have
a Chairman. The Board of Trustees has appointed Mr. Conn as
the lead independent Trustee. The lead independent Trustee
presides over executive sessions of the Trustees and also serves
between meetings of the Board of Trustees as a liaison with
service providers, officers, counsel and other Trustees on a
wide variety of matters including scheduling agenda items for
Board meetings. Designation as such does not impose on the lead
independent Trustee any obligations or standards greater than or
different from other Trustees. The Board of Trustees has
established a Nominating Committee and an Audit Committee to
assist the Board of Trustees in the oversight of the management
and affairs of the Fund. The Board of Trustees also has an ad
hoc Proxy Voting Committee that exercises beneficial ownership
responsibilities on behalf of the Fund in selected situations.
From time to time the Board of Trustees establishes additional
committees or informal working groups, such as pricing
committees related to securities offerings by the Fund, to deal
with specific matters or assigns one of its members to
participate with Trustees or directors of other funds in the
Gabelli/GAMCO Fund Complex on special committees or working
groups that deal with complex-wide matters, such as the
multi-fund ad hoc Compensation Committee relating to
compensation of the Chief Compliance Officer for all the funds
in the Fund Complex and a separate
multi-fund Compensation Committee relating to certain
officers of the closed-end funds in the Fund Complex.
All of the Funds Trustees are independent Trustees, and
the Board of Trustees believes they are able to provide
effective oversight of the Funds service providers. In
addition to providing feedback and direction during Board
meetings, the Trustees meet regularly in executive session and
chair all committees of the Board of Trustees.
The Funds operations entail a variety of risks including
investment, administration, valuation and a range of compliance
matters. Although the Investment Adviser, the
sub-administrator
and the officers of the Fund are responsible for managing these
risks on a
day-to-day
basis within the framework of their established risk management
functions, the Board of Trustees also addresses risk management
of the Fund through its meetings and those of the committees and
working groups. In particular, as part of its general oversight,
the Board of Trustees reviews with the Investment Adviser at
Board meetings the levels and types of risks, including options
risk, being undertaken by the Fund, and the Audit Committee
discusses the Funds risk management and controls with the
independent registered public accounting firm engaged by the
Fund. The Board of Trustees reviews valuation policies and
procedures and the valuations of specific illiquid securities.
The Board of Trustees also receives periodic reports from the
Funds Chief Compliance Officer regarding compliance
matters relating to the Fund and its major service providers,
including results of the implementation and testing of the
Funds and such providers compliance programs. The
Board of Trustees oversight function is facilitated by
management reporting processes that are designed to provide
visibility to the Board of Trustees about the identification,
assessment and management of critical risks and the controls and
policies and procedures used to mitigate those risks. The Board
of Trustees reviews its role in supervising the Funds risk
management from time to time and may make changes in its
discretion at any time.
19
The Board of Trustees has determined that its leadership
structure is appropriate for the Fund because it enables the
Board of Trustees to exercise informed and independent judgment
over matters under its purview, allocates responsibility among
committees in a manner that fosters effective oversight and
allows the Board of Trustees to devote appropriate resources to
specific issues in a flexible manner as they arise. The Board of
Trustees periodically reviews its leadership structure as well
as its overall structure, composition and functioning and may
make changes in its discretion at any time.
Board of
Trustees Committees
The Trustees serving on the Funds Nominating Committee are
Anthony J. Colavita (Chair), Michael J. Melarkey and Salvatore
J. Zizza. The Nominating Committee is responsible for
recommending qualified candidates to the Board of Trustees 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.
Salvatore J. Zizza (Chair), Frank J. Fahrenkopf, Jr. and
Vincent D. Enright, who are not interested persons
of the Fund as defined in the 1940 Act, serve on the Funds
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
Funds financial statements and the audit thereof and
acting as a liaison between the Board of Trustees and the
Funds independent registered public accounting firm.
The Fund 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
Funds portfolio for such period as the Board of Trustees
may determine. The Trustees serving on the Funds Proxy
Voting Committee are Vincent D. Enright (Chair), James P. Conn
and Anthony J. Colavita.
The Fund does not have a standing compensation committee.
Beneficial
Ownership of Shares Held in the Fund and the Family of
Investment Companies for each Trustee
Set forth in the table below is the dollar range of equity
securities in the Fund beneficially owned by each Trustee and
the aggregate dollar range of equity securities in the
Fund Complex beneficially owned by each Trustee.
|
|
|
|
|
|
|
|
|
Dollar Range of
|
|
Aggregate Dollar Range
|
|
|
Equity
|
|
of Equity Securities
|
|
|
Securities Held in the
|
|
Held in Family of
|
Name of Trustee
|
|
Fund*
(1)
|
|
Investment
Companies*
(1)(2)
|
|
Independent Trustee:
|
|
|
|
|
|
|
Anthony J. Colavita
|
|
A
|
|
|
E
|
|
James P. Conn
|
|
A
|
|
|
E
|
|
Mario dUrso
|
|
A
|
|
|
E
|
|
Vincent D. Enright
|
|
A
|
|
|
E
|
|
Frank J. Fahrenkopf, Jr.
|
|
A
|
|
|
B
|
|
Michael J. Melarkey
|
|
A
|
|
|
E
|
|
Kuni Nakamura
|
|
A
|
|
|
C
|
|
Anthonie C. van Ekris**
|
|
A
|
|
|
E
|
|
Salvatore J. Zizza
|
|
A
|
|
|
E
|
|
|
|
|
A.
|
|
None
|
B.
|
|
$1 $10,000
|
C.
|
|
$10,001 $50,000
|
D.
|
|
$50,001 $100,000
|
E.
|
|
Over $100,000
|
All shares were valued as of December 31, 2010.
|
20
|
|
|
**
|
|
Mr. van Ekris beneficially owns
less than 1% of the common stock of LICT Corp., having a value
of $63,600 as of December 31, 2010. LICT Corp. may be
deemed to be controlled by Mario J. Gabelli and in that event
would be deemed to be under common control with the Funds
Adviser.
|
|
(1)
|
|
This information has been furnished
by each Trustee as of December 31, 2010. Beneficial
Ownership is determined in accordance with
Rule 16a-1(a)(2)
of the Securities Exchange Act of 1934, as amended (the
1934 Act).
|
|
(2)
|
|
The term Family of Investment
Companies includes two or more, registered funds that
share the same investment adviser or principal underwriter and
hold themselves out to investors, as related companies for
purposes of investment and investor services. Currently the
registered funds that comprise the Fund Complex are
identical to those that comprise the Family of Investment
Companies.
|
Remuneration
of Trustees and Officers
The Fund pays each Trustee who is not affiliated with the
Investment Adviser or its affiliates an annual retainer of
$3,000 plus $1,000 for each Board of Trustees meeting attended
in person ($500 if attended telephonically) together with each
Trustees actual
out-of-pocket
expenses relating to attendance at such meetings. All Board of
Trustees committee members receive $500 per committee meeting
attended.
The following table shows, for the year ended December 31,
2010, the compensation Trustees earned in their capacity as
trustees for other funds in the Gabelli Fund Complex.
COMPENSATION
TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Compensation
|
|
|
|
|
from the Fund
|
|
|
Estimated
|
|
and
|
|
|
Compensation
|
|
Fund Complex
|
Name of Trustee
|
|
From the Fund
|
|
Paid to
Trustees
(1)(2)
|
|
Independent Trustee:
|
|
|
|
|
|
|
|
|
Anthony J. Colavita
|
|
$
|
0
|
|
|
$
|
254,500
|
(35)
|
James P. Conn
|
|
$
|
0
|
|
|
$
|
144,500
|
(17)
|
Mario dUrso
|
|
$
|
0
|
|
|
$
|
46,500
|
(4)
|
Vincent D. Enright
|
|
$
|
0
|
|
|
$
|
131,000
|
(15)
|
Frank J. Fahrenkopf, Jr.
|
|
$
|
0
|
|
|
$
|
73,500
|
(5)
|
Michael J. Melarkey
|
|
$
|
0
|
|
|
$
|
50,000
|
(4)
|
Kuni Nakamura
|
|
$
|
0
|
|
|
$
|
48,500
|
(9)
|
Anthonie C. van Ekris
|
|
$
|
0
|
|
|
$
|
124,000
|
(19)
|
Salvatore J. Zizza
|
|
$
|
0
|
|
|
$
|
212,000
|
(27)
|
|
|
|
(1)
|
|
Represents the total compensation
paid to such persons during the fiscal year ended
December 31, 2010 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 parentheses represents the
number of such investment companies and portfolios.
|
|
(2)
|
|
No Trustees deferred any portion of
compensation paid in calendar year 2010.
|
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 applicable 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 persons willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her position.
21
Investment
Advisory and Administrative Arrangements
Gabelli Funds, LLC serves as the Funds Investment Adviser
pursuant to an investment advisory agreement between the Fund
and the Investment Adviser (the Investment Advisory
Agreement). The Investment Adviser is a New York limited
liability company with principal offices located at One
Corporate Center, Rye, New York
10580-1422
and is registered under the Investment Advisers Act of 1940. The
Investment Adviser was organized in 1999 and is the successor to
Gabelli Funds, Inc., which was organized in 1980. As of
September 30, 2010, the Investment Adviser acted as
registered investment adviser to 25 management investment
companies with aggregate net assets of $16.6 billion. The
Investment Adviser, together with the other affiliated
investment advisers noted below had assets under management
totaling approximately $30.2 billion as of
September 30, 2010. GAMCO Asset Management 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 $12.4 billion under
management as of September 30, 2010. Gabelli Securities,
Inc., an affiliate of the Investment Adviser, acts as investment
adviser for investment partnerships and entities having
aggregate assets of approximately $466 million as of
September 30, 2010. Teton Advisors, Inc., an affiliate of
the Investment Adviser, acts as investment manager to the GAMCO
Westwood Funds and separately managed accounts having aggregate
assets of approximately $667 million under management as of
September 30, 2010.
Affiliates of the Investment Adviser may, in the ordinary course
of their business, acquire for their own account or for the
accounts of their investment 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 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 investment
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
investment advisory accounts managed by its affiliates for their
unaffiliated clients are allocated pursuant to procedures,
approved by the Board of Trustees, 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 that are investment management clients of GAMCO Asset
Management Inc. In addition, portfolio companies or their
officers or trustees may be minority shareholders of the
Investment Adviser or its affiliates.
The Investment Adviser is a wholly-owned subsidiary of GAMCO
Investors, 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 and voting
power of GGCP, Inc., which owns a majority of the capital stock
and voting power of GAMCO Investors, Inc.
Under the terms of the Investment Advisory Agreement, the
Investment Adviser manages the portfolio of the Fund in
accordance with its stated investment objectives 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 Funds Board of Trustees. In addition,
under the Investment Advisory Agreement, the Investment Adviser
oversees the administration of all aspects of the Funds
business and affairs and provides, or arranges for others to
provide, at the Investment Advisers expense, certain
enumerated services, including maintaining the Funds books
and records, preparing reports to the Funds shareholders
and supervising the calculation of the net asset value of the
Funds shares. 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, underwriting compensation and reimbursements
22
in connection with sales of its securities, the costs of
utilizing a third party to monitor and collect class action
settlements on behalf of the Fund, compensation to an
administrator for certain SEC filings on behalf of the Fund, the
fees and expenses of Trustees who are not officers or employees
of the Investment Adviser of its affiliates, compensation and
other expenses of employees of the Fund as approved by the
Trustees, the pro rata costs of the Funds Chief Compliance
Officer, charges of the custodian, any
sub-custodian
and transfer agent and dividend paying agent, expenses in
connection with the Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan, accounting and pricing costs,
membership fees in trade associations, expenses for legal and
independent accountants services, costs of printing
proxies, share certificates and shareholder reports, fidelity
bond coverage for Fund officers and employees, Trustee and
officers errors and omissions insurance coverage, and
stock exchange listing fees will be an expense of the Fund
unless the Investment Adviser voluntarily assumes responsibility
for such expenses.
The Investment Advisory Agreement combines investment advisory
and certain administrative responsibilities into one agreement.
For services rendered by the Investment Adviser on behalf of the
Fund under the Funds Investment Advisory Agreement, the
Fund pays the Investment Adviser a fee computed weekly and paid
monthly at the annual rate of 1.00% of the average weekly net
assets of the Fund. The Funds average weekly net assets
will be deemed to be the average weekly value of the Funds
total assets minus the sum of the Funds liabilities (such
liabilities exclude the aggregate liquidation preference of
outstanding preferred shares and accumulated dividends, if any,
on those shares and the outstanding principal amount of any debt
securities the proceeds of which were used for investment
purposes, plus accrued and unpaid interest thereon). For
purposes of the calculation of the fees payable to the
Investment Adviser by the Fund, average weekly net assets of the
Fund are determined at the end of each month on the basis of its
average net assets for each week during the month. The assets
for each weekly period are determined by averaging the net
assets at the end of a week with the net assets at the end of
the prior week.
The Investment 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 of judgment or
mistake of law or for any loss suffered by the Fund. As part of
the Investment Advisory Agreement, the Fund has agreed that the
name Gabelli is the Investment Advisers
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 Investment Advisory Agreement will
remain in effect with respect into the Fund from year to year if
approved annually (i) by the 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 Investment Advisory Agreement, by vote cast in
person at a meeting called for the purpose of voting on such
approval. There is no deduction for the liquidation preference
of any outstanding preferred shares.
The Investment Advisory Agreement was approved by a majority of
the Board of Trustees, including a majority of the Trustees who
are not interested persons (as defined in the 1940
Act), at an in-person meeting of the Board of Trustees held on
August 20, 2008 and its terms re-visited and approved by a
majority of the Board of Trustees, including a majority of the
Trustees who are not interested persons (as defined
the 1940 Act), at an in-person meeting of the Board of Trustees
held on January 20, 2011. The Investment Advisory Agreement will
become effective on the day the Fund commences operations and
will continue in effect for two years and thereafter will
continue for successive annual periods, provided such
continuance is specifically approved at least annually in
accordance with the requirements of the 1940 Act. A discussion
regarding the basis for the most recent approval of the
Investment Advisory Agreement by the Board of Trustees will be
available in the Funds annual or semi-annual report to
shareholders after the Fund commences operations.
The Investment 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 Funds outstanding voting securities.
23
Portfolio
Manager Information
Other
Accounts Managed
The information below lists the number of other accounts for
which each portfolio manager was primarily responsible for the
day-to-day
management as of the year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed
|
|
|
|
|
|
|
|
|
|
|
|
|
with
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory
|
|
Total Assets
|
|
|
|
|
|
Total Number
|
|
|
|
|
Fee
|
|
with Advisory
|
|
Name of Portfolio Manager or
|
|
|
|
of Accounts
|
|
Total
|
|
|
Based on
|
|
Fee Based on
|
|
Team Member
|
|
Type of Accounts
|
|
Managed
|
|
Assets
|
|
|
Performance
|
|
Performance
|
|
|
1. Vincent Hugonnard-Roche
|
|
|
Registered Investment Companies:
|
|
|
|
1
|
|
|
|
1.1B
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
|
1
|
|
|
|
25.4M
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Other Accounts:
|
|
|
|
1
|
|
|
|
339.9K
|
|
|
|
0
|
|
|
|
0
|
|
2. Caesar M.P. Bryan
|
|
|
Registered Investment Companies:
|
|
|
|
5
|
|
|
|
2.0B
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
|
2
|
|
|
|
10.4M
|
|
|
|
2
|
|
|
|
10.4M
|
|
|
|
|
Other Accounts:
|
|
|
|
10
|
|
|
|
64.3M
|
|
|
|
0
|
|
|
|
0
|
|
3. Kevin V. Dreyer
|
|
|
Registered Investment Companies:
|
|
|
|
3
|
|
|
|
2.8B
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Other Accounts:
|
|
|
|
1
|
|
|
|
231.0K
|
|
|
|
0
|
|
|
|
0
|
|
4. Christopher J. Marangi
|
|
|
Registered Investment Companies:
|
|
|
|
3
|
|
|
|
3.4B
|
|
|
|
1
|
|
|
|
160.6M
|
|
|
|
|
Other Pooled Investment Vehicles:
|
|
|
|
1
|
|
|
|
25.4M
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Other Accounts:
|
|
|
|
3
|
|
|
|
698.7K
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
*
|
|
Represents the portion of assets
for which the portfolio manager has primary responsibility in
the accounts indicated. The accounts indicated may contain
additional assets under the primary responsibility of other
portfolio managers.
|
Potential
Conflicts of Interest
Actual or apparent conflicts of interest may arise when a
portfolio manager for a fund also has
day-to-day
management responsibilities with respect to one or more other
funds or accounts. These potential conflicts include:
Allocation of Limited Time and Attention.
A
portfolio manager who is responsible for managing multiple funds
or other accounts may devote unequal time and attention to the
management of those funds or accounts. As a result, the
portfolio manager may not be able to formulate as complete a
strategy or identify equally attractive investment opportunities
for each of those accounts as might be the case if he or she
were to devote substantially more attention to the management of
a single fund.
Allocation of Limited Investment
Opportunities.
If a portfolio manager identifies
an investment opportunity that may be suitable for multiple
funds or other accounts, a fund may not be able to take full
advantage of that opportunity because the opportunity may be
allocated among several of these funds or accounts.
Pursuit of Differing Strategies.
At times, a
portfolio manager may determine that an investment opportunity
may be appropriate for only some of the funds or accounts for
which he or she exercises investment responsibility, or may
decide that certain of the funds or accounts should take
differing positions with respect to a particular security. In
these cases, the portfolio manager may place separate
transactions for one or more funds or accounts which may affect
the market price of the security or the execution of the
transaction, or both, to the detriment of one or more other
funds or accounts.
24
Selection of Broker/Dealers.
A portfolio
manager may be able to select or influence the selection of the
brokers and dealers that are used to execute securities
transactions for the funds or accounts that they supervise. In
addition to providing execution of trades, some brokers and
dealers provide portfolio managers with brokerage and research
services which may result in the payment of higher brokerage
fees than might otherwise be available. These services may be
more beneficial to certain funds or accounts of the Investment
Adviser and its affiliates than to others. Although the payment
of brokerage commissions is subject to the requirement that the
Investment Adviser determines in good faith that the commissions
are reasonable in relation to the value of the brokerage and
research services provided to the fund, a portfolio
managers decision as to the selection of brokers and
dealers could yield disproportionate costs and benefits among
the funds or other accounts that the Investment Adviser and its
affiliates manage. In addition, with respect to certain types of
accounts (such as pooled investment vehicles and other accounts
managed for organizations and individuals) the Investment
Adviser may be limited by the client concerning the selection of
brokers or may be instructed to direct trades to particular
brokers. In these cases, the Investment Adviser or its
affiliates may place separate, non-simultaneous transactions in
the same security for the Fund and another account that may
temporarily affect the market price of the security or the
execution of the transaction, or both, to the detriment of the
Fund or the other account.
Variation in Compensation.
A conflict of
interest may arise where the financial or other benefits
available to the portfolio manager differ among the funds or
accounts that he or she manages. If the structure of the
Investment Advisers management fee or the portfolio
managers compensation differs among funds or accounts
(such as where certain funds or accounts pay higher management
fees or performance-based management fees), the portfolio
manager may be motivated to favor certain funds or accounts over
others. The portfolio manager also may be motivated to favor
funds or accounts in which he or she has an investment interest,
or in which the Investment Adviser or its affiliates have
investment interests. Similarly, the desire to maintain assets
under management or to enhance a portfolio managers
performance record or to derive other rewards, financial or
otherwise, could influence the portfolio manager in affording
preferential treatment to those funds or other accounts that
could most significantly benefit the portfolio manager.
The Investment Adviser and the Fund have adopted compliance
policies and procedures that are designed to address the various
conflicts of interest that may arise for the Investment Adviser
and its staff members. However, there is no guarantee that such
policies and procedures will be able to detect and prevent every
situation in which an actual or potential conflict may arise.
Compensation
Structure
The compensation of the portfolio managers is reviewed annually
and structured to enable the Investment Adviser to attract and
retain highly qualified professionals in a competitive
environment. The portfolio managers named above receive a
compensation package that includes a minimum draw or base
salary, equity-based incentive compensation via awards of stock
options, and incentive based variable compensation based on a
percentage of net revenues received by the Investment Adviser
for managing the Fund to the extent that it exceeds a minimum
level of compensation. This method of compensation is based on
the premise that superior long-term performance in managing a
portfolio will be rewarded through growth of assets through
appreciation and cash flow. Incentive based equity compensation
is based on an evaluation of quantitative and qualitative
performance evaluation criteria. Mr. Bryan,
Mr. Dreyer, Mr. Marangi and Mr. Roche also may
receive discretionary bonuses based primarily on qualitative
performance evaluation criteria.
Compensation for managing other accounts is based on a
percentage of net revenues received by the Investment Adviser
for managing the account. Compensation for managing the pooled
investment vehicles and other accounts that have a
performance-based fee will have two components. One component of
the fee is based on a percentage of net revenues received by the
Investment Adviser for managing the account or pooled investment
vehicle. The second component of the fee is based on absolute
performance from which a percentage of such fee is paid to the
portfolio manager.
25
Ownership
of Securities
As of the date of this SAI, the portfolio managers of the Fund
own no equity securities of the Fund.
Portfolio
Holdings Information
Employees of the Investment Adviser and its affiliates will
often have access to information concerning the portfolio
holdings of the Fund. The Fund and the Investment Adviser have
adopted policies and procedures that require all employees to
safeguard proprietary information of the Fund, which includes
information relating to the Funds portfolio holdings as
well as portfolio trading activity of the Investment Adviser
with respect to the Fund (collectively, Portfolio Holdings
Information). In addition, the Fund and the Investment
Adviser have adopted policies and procedures providing that
Portfolio Holdings Information may not be disclosed except to
the extent that it is (a) made available to the general
public by posting on the Funds website or filed as a part
of a required filing on
Form N-Q
or N-CSR or (b) provided to a third party for legitimate
business purposes or regulatory purposes, that has agreed to
keep such data confidential under terms approved by the
Investment Advisers legal department or outside counsel,
as described below. The Investment Adviser will examine each
situation under (b) with a view to determine that release
of the information is in the best interest of the Fund and its
shareholders and, if a potential conflict between the Investment
Advisers interests and the Funds interests arises,
to have such conflict resolved by the Chief Compliance Officer
or those Trustees who are not considered to be interested
persons, as defined in the 1940 Act (the Independent
Trustees). These policies further provide that no officer
of the Fund or employee of the Investment Adviser shall
communicate with the media about the Fund without obtaining the
advance consent of the Chief Executive Officer, Chief Operating
Officer, or General Counsel of the Investment Adviser.
Under the foregoing policies, the Fund currently may disclose
Portfolio Holdings Information in the circumstances outlined
below. Disclosure generally may be either on a monthly or
quarterly basis with no time lag in some cases and with a time
lag of up to 60 days in other cases (with the exception of
proxy voting services which require a regular download of data):
(1) To regulatory authorities in response to requests for
such information and with the approval of the Chief Compliance
Officer of the Fund;
(2) To mutual fund rating and statistical agencies and to
persons performing similar functions where there is a legitimate
business purpose for such disclosure and such entity has agreed
to keep such data confidential at least until it has been made
public by the Investment Adviser;
(3) To service providers of the Fund, as necessary for the
performance of their services to the Fund and to the Board of
Trustees, when such entity has agreed to keep such data
confidential until at least it has been made public by the
Investment Adviser. The Funds current service providers
that may receive such information are its administrator,
sub-administrator,
custodian, independent registered public accounting firm, legal
counsel and financial printers;
(4) To firms providing proxy voting and other proxy
services provided such entity has agreed to keep such data
confidential until at least it has been made public by the
Investment Adviser;
(5) To certain broker dealers, investment advisers, and
other financial intermediaries for purposes of their performing
due diligence on the Fund and not for dissemination of this
information to their clients or use of this information to
conduct trading for their clients. Disclosure of Portfolio
Holdings Information in these circumstances requires the broker,
dealer, investment adviser, or financial intermediary to agree
to keep such information confidential until at least it has been
made public by the Investment Adviser and is further subject to
prior approval of the Chief Compliance Officer of the Fund and
shall be reported to the Board of Trustees at the next quarterly
meeting; and
(6) To consultants for purposes of performing analysis of
the Fund, which analysis may be used by the consultant with its
clients or disseminated to the public, provided that such entity
shall have agreed to keep such information confidential at least
until it has been made public by the Investment Adviser.
26
As of the date of this SAI, the Fund makes information about its
portfolio securities available to its administrator,
sub-administrator,
custodian, and proxy voting service on a daily basis, with no
time lag, to its typesetter on a quarterly basis with a ten day
time lag, to its financial printers on a quarterly basis with a
forty-five day time lag, and to its independent registered
public accounting firm and legal counsel on an as needed basis
with no time lag. The names of the Funds administrator,
custodian, independent registered public accounting firm and
legal counsel are set forth in this SAI. The Funds proxy
service is ADP Investor Communication Services.
Bowne & Co. Inc. provides typesetting services for the
Fund, and the Fund selects from a number of financial printers
who have agreed to keep such information confidential until at
least it has been made public by the Investment Adviser.
Other than these arrangements with the Funds service
providers and proxy voting service, the Fund does not have any
ongoing arrangements to make available information about the
Funds portfolio securities prior to such information being
disclosed in a publicly available filing with the Commission
that is required to include this information.
Disclosures made pursuant to a confidentiality agreement are
subject to periodic confirmation by the Chief Compliance Officer
of the Fund that the recipient has utilized such information
solely in accordance with the terms of the agreement. Neither
the Fund, nor the Investment Adviser, nor any of the Investment
Advisers affiliates, will accept on behalf of itself, its
affiliates, or the Fund any compensation or other consideration
in connection with the disclosure of portfolio holdings of the
Fund. The Board of Trustees will review such arrangements
annually with the Funds Chief Compliance Officer.
DISTRIBUTIONS
AND DIVIDENDS
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 Funds average net asset value or
market price per common share over a specified period of time at
or about the time of distribution or the distribution of a fixed
dollar amount. The exemption also permits the Fund to make such
distributions with respect to its senior securities, if any, in
accordance with such shares terms. As of the date of this
SAI, the Fund has not adopted a distribution policy that would
subject it to such exemption.
Were such a policy adopted, to the extent the Funds total
distributions for a year exceed its net investment company
taxable income (interest, dividends and net short-term capital
gains in excess of expenses) and net realized long-term capital
gains for that year, the excess would generally constitute a
tax-free return of capital up to the amount of a
shareholders tax basis in the common shares. Any
distributions which (based upon the Funds full year
performance) constitute a tax-free return of capital would
reduce a shareholders tax basis in the common shares,
thereby increasing such shareholders potential gain or
reducing his or her potential loss on the sale of the common
shares. Any amounts distributed to a shareholder in excess of
the basis in the common shares would generally be taxable to the
shareholder as capital gain. See Taxation.
Distribution notices provided by the Fund to its shareholders
will clearly indicate what portion of the periodic distributions
would constitute net income, net capital gains, and return of
capital. The final determination of the source of such
distributions for federal income tax purposes will be made
shortly after year end based on the Funds actual net
investment company taxable income and net capital gain for that
year and would be communicated to shareholders promptly. In the
event that the Fund distributes amounts in excess of its
investment company taxable income and net capital gain, such
distributions will decrease the Funds total assets and,
therefore, have the likely effect of increasing the Funds
expense ratio as the Funds fixed expenses will become a
larger percentage of the Funds 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.
27
PORTFOLIO
TRANSACTIONS
Subject to policies established by the Board of Trustees, the
Investment Adviser is responsible for placing purchase and sale
orders and the allocation of brokerage on behalf of the Fund.
Transactions in securities are in most cases effected on
U.S. stock exchanges and involve the payment of negotiated
brokerage commissions. 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, 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
Commission thereunder, as well as other regulatory requirements,
the Board of Trustees has determined that portfolio transactions
may be executed through Gabelli & Company, 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,
the affiliated broker-dealers charge the Fund a rate consistent
with that charged to comparable unaffiliated customers in
similar transactions and comparable to rates charged by other
broker-dealers for 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 firms
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 Investment 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 a manner deemed fair and equitable over time to all of the
accounts, including the Fund.
PORTFOLIO
TURNOVER
Portfolio turnover rate is calculated by dividing the lesser of
an investment companys 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. The portfolio turnover rate may
vary from year to year and will not be a factor when the
Investment Adviser determines that portfolio changes are
appropriate. For example, an increase in the Funds
participation in risk arbitrage situations would increase the
Funds portfolio turnover rate. A higher rate of portfolio
turnover may also result in taxable gains being passed to
shareholders sooner than would otherwise be the case. The
investment policies of the Fund,
28
including its strategy of writing covered call options on
securities in its portfolio, are expected to result in portfolio
turnover that is higher than that of many investment companies,
may initially be higher than 100% and may result in the Fund
paying higher commissions than many investment companies.
TAXATION
The following discussion is a brief summary of certain
U.S. federal income tax considerations affecting the Fund
and its shareholders. Except as expressly provided otherwise,
this discussion assumes you are a U.S. person (as defined
for U.S. federal income tax purposes) and that you hold
your common shares as capital assets. This discussion is based
upon current provisions of the Internal Revenue Code of 1986, as
amended (the Code), the Treasury regulations
promulgated thereunder and judicial and administrative
authorities, all of which are subject to change or differing
interpretations by the courts or the Internal Revenue Service
(the IRS), possibly with retroactive effect. No
assurance can be given that the IRS would not assert, or that a
court would not sustain, a position different from any of the
tax aspects set forth below. No attempt is made to discuss
state, local or foreign tax consequences to investors in the
Fund, nor to present a detailed explanation of all federal tax
concerns affecting the Fund and its shareholders (including
shareholders owning large positions in the Fund).
The discussions set forth herein and in the Prospectus do not
constitute tax advice and potential investors are urged to
consult their own tax advisers to determine the specific tax
consequences to them of investing in the Fund.
Taxation
of the Fund
The Fund intends to elect to be treated, and to qualify
annually, as a regulated investment company under Subchapter M
of the Code. Accordingly, the Fund must, among other things,
meet the following requirements regarding the source of its
income and the diversification of its assets:
(i) The Fund must derive in each taxable year at least 90%
of its gross income from the following sources, which are
referred to herein as Qualifying Income:
(a) dividends, interest (including tax-exempt 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 foreign currencies; and (b) interests in
publicly traded partnerships that are treated as partnerships
for U.S. federal income tax purposes and that derive less
than 90% of their gross income from the items described in
clause (a) above (each, a Qualified Publicly Traded
Partnership).
(ii) The Fund must 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 Funds total assets is
represented by cash and cash items (including receivables),
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 Funds 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 Funds total assets is invested in the
securities (other than U.S. government securities and the
securities of other regulated investment companies) of
(I) any one issuer, (II) 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 or
(III) any one or more Qualified Publicly Traded
Partnerships.
Income from the Funds investments in grantor trusts and
equity interests of MLPs that are not Qualified Publicly Traded
Partnerships (if any) will be Qualifying Income to the extent it
is attributable to items of income of such trust or MLP that
would be Qualifying Income if earned directly by the Fund. The
Funds investments in partnerships, including in Qualified
Publicly Traded Partnerships, may result in the Funds
being subject to state, local or foreign income, franchise or
withholding tax liabilities.
As a regulated investment company, the Fund generally will not
be subject to U.S. federal income tax on income and gains
that the Fund distributes to its shareholders, provided that it
distributes each taxable year at
29
least the sum of (i) 90% of the Funds 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 capital gain (as defined below), reduced by
deductible expenses) determined without regard to the deduction
for dividends paid and (ii) 90% of the Funds net
tax-exempt interest income (the excess of its gross tax-exempt
interest over certain disallowed deductions). The Fund intends
to distribute substantially all of such income at least
annually. The Fund will be subject to income tax at regular
corporate rates on any taxable income or gains that it does not
distribute to its shareholders.
The Code imposes a 4% nondeductible federal excise tax on the
Fund to the extent the Fund does not distribute by the end of
any 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) 98.2% 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 Funds 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 gain in the manner necessary
to minimize imposition of the 4% excise tax, there can be no
assurance that sufficient amounts of the Funds taxable
income and capital gain will be distributed to entirely avoid
the imposition of the excise tax. In that event, the Fund will
be liable for the excise 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 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 by the
Funds shareholders on December of the year the
distributions are declared, rather than when the distributions
are actually received.
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, and
such distributions will be taxable to the shareholders as
ordinary dividends to the extent of the Funds current or
accumulated earnings and profits. Such dividends, however, would
be eligible (provided certain holding period and other
requirements are met) (i) to be treated as qualified
dividend income in the case of shareholders taxed as individuals
with respect to taxable years beginning on or before
December 31, 2012 and (ii) for the dividends received
deduction in the case of corporate shareholders. The Fund could
be required to recognize unrealized gains, pay taxes and make
distributions (which could be subject to interest charges)
before requalifying for taxation as a regulated investment
company. If the Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a
regulated investment company. If the Fund failed to qualify as a
regulated investment company for a period greater than two
taxable years, the Fund may be required to recognize and pay tax
on any net built-in gains with respect to certain of its assets
(i.e., the excess of the aggregate gains, including items of
income, over aggregate losses that would have been realized with
respect to such assets 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 regulated investment company in a subsequent year.
Certain of the Funds 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 (including
the dividends received deduction, if any), (ii) convert
lower taxed long-term capital gains and qualified dividend
income, if any, into higher taxed short-term capital gains 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, (vi) adversely alter the characterization
of certain complex financial transactions, and
(vii) produce income that will not qualify as good income
for purposes of the 90% annual gross income requirement
described above. The Fund will monitor its transactions and may
make certain tax elections and may be required to borrow money
or dispose of securities to mitigate the effect of these rules
and prevent disqualification of the Fund as a regulated
investment company.
30
The MLPs in which the Fund may invest are expected to be treated
as partnerships for U.S. federal income tax purposes. The
cash distributions received by the Fund from an MLP may not
correspond to the amount of income allocated to the Fund by the
MLP in any given taxable year. If the amount of income allocated
by an MLP to the Fund exceeds the amount of cash received by the
Fund from such MLP, the Fund may have difficulty making
distributions to its shareholders in the amounts necessary to
satisfy the requirements for maintaining its status as a
regulated investment company or avoiding U.S. federal
income or excise taxes. Accordingly, the Fund may have to
dispose of securities under disadvantageous circumstances in
order to generate sufficient cash to satisfy the distribution
requirements.
The Fund expects that the income derived by the Fund from the
MLPs in which it invests will be Qualifying Income. If, however,
an MLP in which the Fund invests is not a Qualified Publicly
Traded Partnership, the income derived by the Fund from such
investment may not be Qualifying Income and, therefore, could
adversely affect the Funds status as a regulated
investment company. The Fund intends to monitor its investments
in MLPs to prevent the disqualification of the Fund as a
regulated investment company.
Gain or loss on the sale of securities by the Fund will
generally 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.
The premium received by the Fund for writing a call option is
not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If
the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the
premium received is short-term capital gain or loss. If a call
option written by the Fund is exercised, thereby requiring the
Fund to sell the underlying security, the premium will increase
the amount realized upon the sale of the security and any
resulting gain or loss will be long-term or short-term,
depending upon the holding period of the security. With respect
to a put or call option that is purchased by the Fund, if the
option is sold, any resulting gain or loss will be a capital
gain or loss, and will be short-term or long-term, depending
upon the holding period for the option. If the option expires,
the resulting loss is a capital loss and is short-term or
long-term, depending upon the holding period for the option. If
the option is exercised, the cost of the option, in the case of
a call option, is added to the basis of the purchased security
and, in the case of a put option, reduces the amount realized on
the underlying security in determining gain or loss. Because the
Fund does not have control over the exercise of the call options
it writes, such exercises or other required sales of the
underlying securities may cause the Fund to realize capital
gains or losses at inopportune times.
The Funds transactions in foreign currencies, forward
contracts, options, futures contracts (including options and
futures contracts on foreign currencies) and short sales, to the
extent permitted, will be subject to special provisions of the
Code (including provisions relating to hedging
transactions, straddles and constructive
sales) that may, among other things, affect the character
of gains and losses realized by the Fund (i.e., may affect
whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These
rules could therefore affect the character, amount and timing of
distributions to common shareholders. Certain of these
provisions may also (a) require the Fund to
mark-to-market
certain types of the positions in its portfolio (i.e., treat
them as if they were closed out at the end of each year),
(b) cause the Fund to recognize income without receiving
cash with which to pay dividends or make distributions in
amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes, (c) treat dividends that
would otherwise constitute qualified dividend income as
non-qualified dividend income
and/or
(d) treat dividends that would otherwise be eligible for
the corporate dividends-received deduction as ineligible for
such treatment.
The Funds investment in so-called section 1256
contracts, such as regulated futures contracts, most
foreign currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special
tax rules. All section 1256 contracts held by the Fund at
the end of its taxable year are required to be marked to their
market value, and any unrealized gain or loss on those positions
will be included in the Funds income as if each position
had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined with
any gain or loss realized by the Fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not
part
31
of a hedging transaction or a straddle,
60% of the resulting net gain or loss will be treated as
long-term capital gain or loss, and 40% of such net gain or loss
will be treated as short-term capital gain or loss, regardless
of the period of time the positions were actually held by the
Fund.
If the Fund purchases shares in certain foreign investment
entities called passive foreign investment companies
(PFICs), the Fund may be subject to federal income
tax on a portion of any excess distribution or gain
from the disposition of such shares even if such income is
distributed as a taxable dividend by the Fund to the
shareholders. Additional charges in the nature of interest may
be imposed on the Fund in respect of deferred taxes arising from
such distributions or gains. Elections may be available to the
Fund to mitigate the effect of this tax and the additional
charges, but such elections generally accelerate the recognition
of income without the receipt of cash. Dividends paid by PFICs
are not treated as qualified dividend income, as discussed below
under Taxation of Shareholders.
If the Fund invests in the stock of a PFIC, 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 recognize income that 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 net investment income as is required in order to avoid
Fund-level U.S. federal income taxation on its
distributed 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 required distributions to the
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 (with such accrued income
increasing the amount the Fund must distribute in order to
qualify as a regulated investment company or avoid the 4% excise
tax). The Fund may also invest in securities rated in the medium
to lower rating categories of nationally recognized rating
organizations, and in unrated securities (high yield
securities). A portion of the interest payments on such
high yield securities may be treated as dividends for certain
U.S. federal income tax purposes.
Under section 988 of the Code, gains or losses attributable
to fluctuations in exchange rates between the time the Fund
accrues income or receivables or expenses or other liabilities
denominated in a foreign currency and the time the Fund actually
collects such income or receivables or pays such liabilities or
expenses are generally treated as ordinary income or loss.
Similarly, gains or losses on foreign currency forward contracts
and the disposition of debt securities denominated in a foreign
currency, to the extent attributable to fluctuations in exchange
rates between the acquisition and disposition dates, are also
treated as ordinary income or loss.
Dividends or other income (including, in some cases, capital
gains) received by the Fund from investments in foreign
securities may be subject to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes in some
cases. If more than 50% of the Funds total assets at the
close of its taxable year consists of stock or securities of
foreign corporations, the Fund may elect for U.S. federal
income tax purposes to treat foreign income taxes paid by it as
paid by its shareholders. The Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years.
If the Fund were to make such an election, shareholders of the
Fund would be required to take into account an amount equal to
their pro rata portions of such foreign taxes in computing their
taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction (subject to
limitations which may be significant) or as a foreign tax credit
(subject to limitations which may be significant) against their
U.S. federal income liability. Shortly after any year for
which it makes such an election, the Fund will report to its
shareholders the amount per share of such foreign income tax
that must be included in each shareholders gross income
and the amount that may be available for the deduction or credit.
Taxation
of Shareholders
The Fund will either distribute or retain for reinvestment all
or part of its net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss). If any
such gain is retained, the Fund will be
32
subject to U.S. federal income tax at regular corporate
rates on 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 common shares of the Fund by the excess of the amount
described in clause (i) over the amount described in clause
(ii).
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
Funds earnings and profits, whether paid in cash or
reinvested in Fund shares. Such distributions (if reported 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 Funds income
consists of dividend income from U.S. corporations and
(ii) in the case of individual shareholders, as qualified
dividend income eligible to be taxed at long-term capital gain
rates to the extent that the Fund receives qualified dividend
income. Qualified dividend income is, in general, dividend
income from taxable domestic corporations and certain qualified
foreign corporations. These special rules relating to the
taxation of ordinary income dividends paid by regulated
investment companies to individual taxpayers generally apply to
taxable years beginning on or before December 31, 2012.
Thereafter, the Funds dividends, other than capital gains
dividends, will be fully taxable at ordinary income rates unless
further Congressional action is taken. There can be no assurance
as to what portion of the Funds distributions will qualify
for favorable treatment as qualified dividend income, or whether
Congress will extend such treatment to taxable years beginning
after December 31, 2012.
Distributions of net capital gain reported as capital gain
distributions, if any, are taxable to shareholders at rates
applicable to long-term capital gain, whether paid in cash or
reinvested in Fund shares, and regardless of how long the
shareholder has held the Funds common shares. Capital gain
distributions are not eligible for the dividends received
deduction.
If, for any calendar year, the total distributions exceed both
current earnings and profits and accumulated earnings and
profits, the excess will generally be treated as a tax-free
return of capital up to the amount of a shareholders tax
basis in the common shares. The amount treated as a tax-free
return of capital will reduce a shareholders tax basis in
the common shares, thereby increasing such shareholders
potential gain or reducing his or her potential loss on the sale
of the common shares. Any amounts distributed to a shareholder
in excess of his or her basis in the common shares will be
taxable to the shareholder as capital gain (assuming your common
shares are held as a capital asset).
Shareholders may be entitled to offset their capital gain
distributions (but not distributions eligible for qualified
dividend income treatment) with capital losses. There are a
number of statutory provisions affecting when capital losses may
be offset against capital gain, and limiting the use of losses
from certain investments and activities. Accordingly,
shareholders with capital loss are urged to consult their tax
advisers.
Upon a sale, exchange or other disposition of common shares, a
shareholder will generally realize a taxable gain or loss equal
to the difference between the amount of cash and the fair market
value of other property received and the shareholders
adjusted tax basis in the common shares. Such gain or loss will
be treated as long-term capital gain or loss if the common
shares have been held for more than one year. Any loss realized
on a sale or exchange of common shares of the Fund will be
disallowed to the extent the common shares disposed of are
replaced by substantially identical common shares within a
61-day
period beginning 30 days before and ending 30 days
after the date that the common shares are disposed of. In such a
case, the basis of the common shares acquired will be adjusted
to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund common
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 common 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
33
questions about U.S. federal (including the application of
the alternative minimum tax), state, local or foreign tax
consequences to them of investing in the Fund.
A shareholder that is a nonresident alien individual or a
foreign corporation (a foreign investor) generally
will be subject to U.S. withholding tax at the rate of 30%
(or possibly a lower rate provided by an applicable tax treaty)
on ordinary income dividends (except as discussed below).
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 days or more during a taxable year and certain other
conditions are met. Foreign investors should consult their tax
advisers regarding the tax consequences of investing in the
Funds common shares.
In addition, after December 31, 2012, withholding will be
required at a rate of 30% on dividends in respect of, and gross
proceeds from the sale of, our common stock held by or through
certain
non-U.S. financial
institutions (including investment funds), unless such
institution enters into an agreement with the Secretary of the
Treasury to report, on an annual basis, information with respect
to shares in, and accounts maintained by, the institution to the
extent such shares or accounts are held by certain United States
persons or by certain
non-U.S. entities
that are wholly or partially owned by United States persons.
Accordingly, the entity through which our common stock is held
will affect the determination of whether such withholding is
required. Similarly, dividends in respect of, and gross proceeds
from the sale of, our common stock held by an investor that is a
non-financial
non-U.S. entity
will be subject to withholding at a rate of 30%, unless such
entity either (i) certifies to us that such entity does not
have any substantial United States owners or
(ii) provides certain information regarding the
entitys substantial United States owners,
which we will in turn provide to the Secretary of the Treasury.
Foreign investors are encouraged to consult with their tax
advisers regarding the possible implications of the legislation
on their investment in our common stock.
Assuming applicable disclosure and certification requirements
are met, U.S. federal withholding tax will generally not
apply to any gain or income realized by a foreign investor in
respect of any distributions of net capital gain or upon the
sale or other disposition of common shares of the Fund.
For taxable years of the Fund beginning before January 1,
2012, properly reported dividends are generally exempt from
U.S. federal withholding tax where they (i) are paid
in respect of the Funds qualified net interest
income (generally, the Funds
U.S.-source
interest income, other than certain contingent interest and
interest from obligations of a corporation or partnership in
which the Fund is at least a 10% shareholder, reduced by
expenses that are allocable to such income) or (ii) are
paid in respect of the Funds qualified short-term
capital gains (generally, the excess of the Funds
net short-term capital gain over the Funds long-term
capital loss for such taxable year). Depending on its
circumstances, however, the Fund may report all, some or none of
its potentially eligible dividends as such qualified net
interest income or as qualified short-term capital gains,
and/or
treat
such dividends, in whole or in part, as ineligible for this
exemption from withholding. In order to qualify for this
exemption from withholding, a foreign investor will need to
comply with applicable certification requirements relating to
its
non-U.S. status
(including, in general, furnishing an IRS
Form W-8BEN
or substitute Form). In the case of common shares held through
an intermediary, the intermediary may withhold even if the Fund
reports the payment as qualified net interest income or
qualified short-term capital gain. Foreign investors should
contact their intermediaries with respect to the application of
these rules to their accounts. There can be no assurance as to
what portion of the Funds distributions will qualify for
favorable treatment as qualified net interest income or
qualified short-term capital gains.
Backup
Withholding
The Fund may be required to backup withhold U.S. federal
income tax on all taxable distributions and redemption proceeds
payable to certain non-exempt 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 shareholders
U.S. federal income tax liability, if any, provided that
the required information is timely furnished to the IRS.
34
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 of the Fund
should consult their own tax advisers regarding the purchase,
ownership and disposition of Fund common shares.
GENERAL
INFORMATION
Book-Entry-Only
Issuance
The Depository Trust Company (DTC) will act as
securities depository for the common shares offered pursuant to
the Prospectus. The information in this section concerning DTC
and DTCs book-entry system is based upon information
obtained from DTC. The securities offered hereby initially will
be issued only as fully-registered securities registered in the
name of Cede & Co. (as nominee for DTC). One or more
fully-registered global security certificates initially will be
issued, representing in the aggregate the total number of
securities, and deposited with DTC.
DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code and a
clearing agency registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds securities that its participants deposit with
DTC. DTC also facilities the settlement among participants of
securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry
changes in participants accounts, thereby eliminating the
need for physical movement of securities certificates. Direct
DTC participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial
relationship with a direct participant, either directly or
indirectly through other entities.
Purchases of securities within the DTC system must be made by or
through direct participants, which will receive a credit for the
securities on DTCs records. The ownership interest of each
actual purchaser of a security, a beneficial owner, is in turn
to be recorded on the direct or indirect participants
records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners are expected
to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the
beneficial owners purchased securities. Transfers of ownership
interests in securities are to be accomplished by entries made
on the books of participants acting on behalf of beneficial
owners. Beneficial owners will not receive certificates
representing their ownership interests in securities, except as
provided herein.
DTC has no knowledge of the actual beneficial owners of the
securities being offered pursuant to the Prospectus; DTCs
records reflect only the identity of the direct participants to
whose accounts such securities are credited, which may or may
not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants,
and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payments on the securities will be made to DTC. DTCs
practice is to credit direct participants accounts on the
relevant payment date in accordance with their respective
holdings shown on DTCs records unless DTC has reason to
believe that it will not receive payments on such payment date.
Payments by participants to beneficial owners will be governed
by standing instructions and customary practices and will be the
responsibility of such participant and not of DTC or the Fund,
subject to any statutory or regulatory
35
requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Fund,
disbursement of such payments to direct participants is the
responsibility of DTC, and disbursement of such payments to the
beneficial owners is the responsibility of direct and indirect
participants. Furthermore each beneficial owner must rely on the
procedures of DTC to exercise any rights under the securities.
DTC may discontinue providing its services as securities
depository with respect to the securities at any time by giving
reasonable notice to the Fund. Under such circumstances, in the
event that a successor securities depository is not obtained,
certificates representing the securities will be printed and
delivered.
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 Funds voting securities
in accordance with such procedures. The proxy voting procedures
are attached. They are also on file with the Commission and can
be reviewed and copied at the Securities and Exchange
Commissions Public Reference Room in
Washington, D.C., and information on the operation of the
Public Reference Room may be obtained by calling the Commission
at
202-551-8090.
The proxy voting procedures are also available on the EDGAR
Database on the Commissions Internet site
(http://www.sec.gov)
and copies of the proxy voting procedures may be obtained, after
paying a duplicating fee, by electronic request at the follow
E-mail
address: publicinfo@sec.gov, or by writing the Securities and
Exchange Commissions Public Reference Section,
Washington, D.C.
20549-0102.
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
clients account, unless such trade is executed on more
favorable terms for the clients account and it is
determined that such trade will not adversely affect the
clients account. Short-term trading by such
Trustee/directors, officers and employees for their own accounts
in securities held by a Fund clients 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 Commission and can be reviewed and copied at
the Securities and Exchange Commissions Public Reference
Room in Washington, D.C., and information on the operation
of the Public Reference Room may be obtained by calling the
Commission at
202-551-8090.
The code of ethics is also available on the EDGAR Database on
the Securities and Exchange Commissions Internet site
(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 Commissions Public Reference Section,
Washington, D.C.
20549-0102
Code of
Conduct for Chief Executive and Senior Financial
Officers
The Fund and the Investment Adviser have adopted a joint code of
conduct that serves as a code of conduct. The 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 Commissions 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
202-551-8090.
The Code of Ethics is also available on the EDGAR Database on
the Securities and Exchange Commissions Internet site
(http://www.sec.gov),
and copies of the code of conduct 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 Commissions Public Reference Section,
Washington, D.C.
20549-0102.
36
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
The Gabelli Natural Resources, Gold & Income Trust:
In our opinion, the accompanying statement of net assets
presents fairly, in all material respects, the financial
position of The Gabelli Natural Resources, Gold & Income
Trust (the Fund) at December 31, 2010, in
conformity with accounting principles generally accepted in the
United States of America. This financial statement is the
responsibility of the Funds management; our responsibility
is to express an opinion on this financial statement based on
our audit. We conducted our audit of this financial statement in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
January 24, 2011
F-1
FINANCIAL
STATEMENT
The Gabelli Natural Resources, Gold & Income Trust
Statement of Net Assets
December 31, 2010
|
|
|
|
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
100,008
|
|
|
|
|
|
|
Net Assets
|
|
$
|
100,008
|
|
|
|
|
|
|
Net Assets Consist of:
|
|
|
|
|
Common shares of beneficial interest, at par value (see
Note 4)
|
|
$
|
5
|
|
Additional
paid-in-capital
|
|
$
|
100,003
|
|
|
|
|
|
|
Net Assets
|
|
$
|
100,008
|
|
|
|
|
|
|
Common Shares:
|
|
|
|
|
Net Asset Value
per share ($100,008/5,236 common shares
of beneficial interest outstanding)
|
|
$
|
19.10
|
|
|
|
|
|
|
F-2
The
Gabelli Natural Resources, Gold & Income Trust
Notes to
Statement of Net Assets
December 31, 2010
The Gabelli Natural Resources, Gold & Income Trust
(the Fund) is a non-diversified closed-end
management investment company organized as a Delaware statutory
trust on June 26, 2008 and has had no operations to date
other than matters relating to its organization under the
Investment Company Act of 1940, and the sale and issuance of
5,236 of its common shares of beneficial interest
(Shares) to GAMCO Investors, Inc., the parent
company of Gabelli Funds, LLC, the Funds investment
adviser (the Investment Adviser) on
December 22, 2010.
The Funds primary investment objective is to provide a
high level of current income from interest, dividends and option
premiums. The Funds secondary investment objective is to
seek capital appreciation consistent with the Funds
strategy and its primary objective. To meet the objective of
providing a high level of current income, the Fund intends to
invest in income producing securities such as equity securities,
convertible securities and other securities, and earn short-term
gains from a strategy of writing covered call options on equity
securities in its portfolio. The Fund will seek dividend income
through investments in equity securities such as common stock or
convertible preferred stock. The Fund will seek interest income
through investments in convertible or corporate bonds.
|
|
Note 2
|
Significant
Accounting Policies
|
The statement of net assets reflects all adjustments which are,
in the opinion of management, necessary to a fair statement of
the results for the statement of net assets. The following
accounting policies are in accordance with United States
(U.S.) generally accepted accounting principles,
which will be consistently followed by the Fund:
Use of Estimates:
The preparation of financial
statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those
estimates.
Organization Expenses and Offering
Costs:
Organization expenses relating to the Fund
have been incurred and will be assumed by the Investment
Adviser. Upon commencement of operations, the offering costs
(other than the sales load) will be borne by the Fund and its
shareholders and will be accounted for as a reduction to
paid-in-capital
up to $.04 per share including the Shares issued in the public
offering. The Investment Adviser has agreed to pay the
Funds offering costs (other than the sales load) that
exceed $.04 per share.
Federal Taxes:
The Fund intends to qualify for
treatment as a regulated investment company under the Internal
Revenue Code of 1986, as amended, and distribute all its taxable
income. In addition, by distributing in each calendar year
substantially all of its net investment income, net capital
gains and certain other amounts, if any, the Fund will not be
subject to Federal income or excise tax.
|
|
Note 3
|
Investment
Adviser and Other Transactions with Affiliates
|
The Fund has entered into an investment advisory agreement (the
Investment Advisory Agreement) with the Investment
Adviser. As compensation for its services and the related
expenses borne by the Investment Adviser, the Fund will pay the
Investment Adviser a fee, computed weekly and payable monthly,
equal, on an annual basis, to 1.00% of the Funds average
weekly net assets. The Funds average weekly net assets
will be deemed to be the average weekly value of the Funds
total assets minus the sum of the Funds liabilities (such
liabilities exclude the aggregate liquidation preference of
outstanding preferred shares and accumulated dividends, if any,
on those shares and the outstanding principal amount of any debt
securities the proceeds of which were used for investment
purposes, plus accrued and unpaid interest thereon). In
accordance with the
F-3
The
Gabelli Natural Resources, Gold & Income Trust
Notes to
Statement of Net Assets (Continued)
Investment Advisory Agreement, the Investment Adviser will
provide a continuous investment program for the Funds
portfolio and will oversee the administration of all aspects of
the Funds business and affairs.
The Bank of New York Mellon serves as the custodian of the
Funds assets pursuant to a custody agreement. American
Stock Transfer & Trust Company serves as the
Funds dividend disbursing agent, as agent under the
Funds Dividend Reinvestment and Cash Repurchase Plan and
as transfer agent and registrar for the common shares of the
Fund.
The Fund will assume its portion of the allocated cost of the
Gabelli Fund Complexs Chief Compliance Officer.
The Fund is authorized to issue an unlimited number of Shares,
par value $0.001 per share. At December 31, 2010 there were
5,236 Shares issued and outstanding.
|
|
Note 5
|
Initial
Public Offering
|
The Fund has filed a registration statement to commence a public
offering of its Shares and intends to enter into an underwriting
agreement with several underwriters, including
Gabelli & Company, Inc., an affiliate of the
Funds Investment Adviser. The Investment Adviser has
agreed to pay certain fees to the underwriters in connection
with the offering.
F-4
APPENDIX A
GAMCO
INVESTORS, INC. AND AFFILIATES
THE
VOTING OF PROXIES ON BEHALF OF CLIENTS
Rules 204(4)-2
and
204-2
under the Investment Advisers Act of 1940 and
Rule 30b1-4
under the Investment Company Act of 1940 require investment
advisers to adopt written policies and procedures governing the
voting of proxies on behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc.,
Gabelli Funds, LLC, Gabelli Securities, Inc., and Teton
Advisors, Inc. (collectively, the Advisers) to
determine how to vote proxies relating to portfolio securities
held by their clients, including the procedures that the
Advisers use when a vote presents a conflict between the
interests of the shareholders of an investment company managed
by one of the Advisers, on the one hand, and those of the
Advisers; the principal underwriter; or any affiliated person of
the investment company, the Advisers, or the principal
underwriter. These procedures will not apply where the Advisers
do not have voting discretion or where the Advisers have agreed
to with a client to vote the clients proxies in accordance
with specific guidelines or procedures supplied by the client
(to the extent permitted by ERISA).
|
|
I.
|
Proxy
Voting Committee
|
The Proxy Voting Committee was originally formed in April 1989
for the purpose of formulating guidelines and reviewing proxy
statements within the parameters set by the substantive proxy
voting guidelines originally published in 1988 and updated
periodically, a copy of which are appended as Exhibit A.
The Committee will include representatives of Research,
Administration, Legal, and the Advisers. Additional or
replacement members of the Committee will be nominated by the
Chairman and voted upon by the entire Committee.
Meetings are held as needed basis to form views on the manner in
which the Advisers should vote proxies on behalf of their
clients.
In general, the Director of Proxy Voting Services, using the
Proxy Guidelines, recommendations of Institutional Shareholder
Corporate Governance Service (ISS), other
third-party services and the analysts of Gabelli &
Company, Inc., will determine how to vote on each issue. For
non-controversial matters, the Director of Proxy Voting Services
may vote the proxy if the vote is: (1) consistent with the
recommendations of the issuers Board of Directors and not
contrary to the Proxy Guidelines; (2) consistent with the
recommendations of the issuers Board of Directors and is a
non-controversial issue not covered by the Proxy Guidelines; or
(3) the vote is contrary to the recommendations of the
Board of Directors but is consistent with the Proxy Guidelines.
In those instances, the Director of Proxy Voting Services or the
Chairman of the Committee may sign and date the proxy statement
indicating how each issue will be voted.
All matters identified by the Chairman of the Committee, the
Director of Proxy Voting Services or the Legal Department as
controversial, taking into account the recommendations of ISS or
other third party services and the analysts of
Gabelli & Company, Inc., will be presented to the
Proxy Voting Committee. If the Chairman of the Committee, the
Director of Proxy Voting Services or the Legal Department has
identified the matter as one that (1) is controversial;
(2) would benefit from deliberation by the Proxy Voting
Committee; or (3) may give rise to a conflict of interest
between the Advisers and their clients, the Chairman of the
Committee will initially determine what vote to recommend that
the Advisers should cast and the matter will go before the
Committee.
A. Conflicts
of Interest.
The Advisers have implemented these proxy voting procedures in
order to prevent conflicts of interest from influencing their
proxy voting decisions. By following the Proxy Guidelines, as
well as the recommendations of ISS, other third-party services
and the analysts of Gabelli & Company, the Advisers
are able to avoid, wherever possible, the influence of potential
conflicts of interest. Nevertheless, circumstances may arise in
A-1
which one or more of the Advisers are faced with a conflict of
interest or the appearance of a conflict of interest in
connection with its vote. In general, a conflict of interest may
arise when an Adviser knowingly does business with an issuer,
and may appear to have a material conflict between its own
interests and the interests of the shareholders of an investment
company managed by one of the Advisers regarding how the proxy
is to be voted. A conflict also may exist when an Adviser has
actual knowledge of a material business arrangement between an
issuer and an affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for
example, when a proxy is voted for a company that is a client of
one of the Advisers, such as GAMCO Asset Management Inc. A
conflict also may arise when a client of one of the Advisers has
made a shareholder proposal in a proxy to be voted upon by one
or more of the Advisers. The Director of Proxy Voting Services,
together with the Legal Department, will scrutinize all proxies
for these or other situations that may give rise to a conflict
of interest with respect to the voting of proxies.
B. Operation
of Proxy Voting Committee
For matters submitted to the Committee, each member of the
Committee will receive, prior to the meeting, a copy of the
proxy statement, any relevant third party research, a summary of
any views provided by the Chief Investment Officer and any
recommendations by Gabelli & Company, Inc. analysts.
The Chief Investment Officer or the Gabelli & Company,
Inc. analysts may be invited to present their viewpoints. If the
Director of Proxy Voting Services or the Legal Department
believe that the matter before the committee is one with respect
to which a conflict of interest may exist between the Advisers
and their clients, counsel will provide an opinion to the
Committee concerning the conflict. If the matter is one in which
the interests of the clients of one or more of Advisers may
diverge, counsel will so advise and the Committee may make
different recommendations as to different clients. For any
matters where the recommendation may trigger appraisal rights,
counsel will provide an opinion concerning the likely risks and
merits of such an appraisal action.
Each matter submitted to the Committee will be determined by the
vote of a majority of the members present at the meeting. Should
the vote concerning one or more recommendations be tied in a
vote of the Committee, the Chairman of the Committee will cast
the deciding vote. The Committee will notify the proxy
department of its decisions and the proxies will be voted
accordingly.
Although the Proxy Guidelines express the normal preferences for
the voting of any shares not covered by a contrary investment
guideline provided by the client, the Committee is not bound by
the preferences set forth in the Proxy Guidelines and will
review each matter on its own merits. Written minutes of all
Proxy Voting Committee meetings will be maintained. The Advisers
subscribe to ISS, which supplies current information on
companies, matters being voted on, regulations, trends in proxy
voting and information on corporate governance issues.
If the vote cast either by the analyst or as a result of the
deliberations of the Proxy Voting Committee runs contrary to the
recommendation of the Board of Directors of the issuer, the
matter will be referred to legal counsel to determine whether an
amendment to the most recently filed Schedule 13D is
appropriate.
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II.
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Social
Issues and Other Client Guidelines
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If a client has provided special instructions relating to the
voting of proxies, they should be noted in the clients
account file and forwarded to the proxy department. This is the
responsibility of the investment professional or sales assistant
for the client. In accordance with Department of Labor
guidelines, the Advisers policy is to vote on behalf of
ERISA accounts in the best interest of the plan participants
with regard to social issues that carry an economic impact.
Where an account is not governed by ERISA, the Advisers will
vote shares held on behalf of the client in a manner consistent
with any individual investment/voting guidelines provided by the
client. Otherwise the Advisers will abstain with respect to
those shares.
A-2
III.
Client Retention of Voting Rights
If a client chooses to retain the right to vote proxies or if
there is any change in voting authority, the following should be
notified by the investment professional or sales assistant for
the client.
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Operations
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Proxy Department
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Investment professional assigned to the account
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In the event that the Board of Directors (or a Committee
thereof) of one or more of the investment companies managed by
one of the Advisers has retained direct voting control over any
security, the Proxy Voting Department will provide each Board
Member (or Committee member) with a copy of the proxy statement
together with any other relevant information including
recommendations of ISS or other third-party services.
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IV.
|
Proxies
of Certain
Non-U.S.
Issuers
|
Proxy voting in certain countries requires
share-blocking. Shareholders wishing to vote their
proxies must deposit their shares shortly before the date of the
meeting with a designated depository. During the period in which
the shares are held with a depository, shares that will be voted
at the meeting cannot be sold until the meeting had taken place
and the shares are returned to the clients custodian.
Absent a compelling reason to the contrary, the Advisers believe
that the benefit to the client of exercising the vote is
outweighed by the cost of voting and therefore, the Advisers
will not typically vote the securities of
non-U.S. issuers
that require share-blocking.
In addition, voting proxies of issuers in non-US markets may
also give rise to a number of administrative issues to prevent
the Advisers from voting such proxies. For example, the Advisers
may receive the notices for shareholder meetings without
adequate time to consider the proposals in the proxy or after
the cut-off date for voting. Other markets require the Advisers
to provide local agents with power of attorney prior to
implementing their respective voting instructions on the proxy.
Although it is the Advisers policies to vote the proxies
for its clients for which they have proxy voting authority, in
the case of issuers in non-US markets, we vote client proxies on
a best efforts basis.
The Proxy Voting Department will retain a record of matters
voted upon by the Advisers for their clients. The Advisers will
supply information on how they voted a clients proxy upon
request from the client.
The complete voting records for each registered investment
company (the Fund) that is managed by the Advisers
will be filed on
Form N-PX
for the twelve months ended June 30th, no later than
August 31st of each year. A description of the
Funds proxy voting policies, procedures, and how the Fund
voted proxies relating to portfolio securities is available
without charge, upon request, by (i) calling 800-GABELLI
(800-422-3554);
(ii) writing to Gabelli Funds, LLC at One Corporate Center,
Rye, NY
10580-1422;
or (iii) visiting the SECs website at
www.sec.gov
. Question should we post the proxy voting
records for the funds on the website.
The Advisers proxy voting records will be retained in
compliance with
Rule 204-2
under the Investment Advisers Act.
1. Custodian banks, outside brokerage firms and clearing
firms are responsible for forwarding proxies directly to the
Advisers.
Proxies are received in one of two forms:
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Shareholder Vote Instruction Forms
(VIFs) Issued by Broadridge Financial
Solutions, Inc. (Broadridge). Broadridge is an
outside service contracted by the various institutions to issue
proxy materials.
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A-3
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Proxy cards which may be voted directly.
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2. Upon receipt of the proxy, the number of shares each
form represents is logged into the proxy system, electronically
or manually, according to security.
3. Upon receipt of instructions from the proxy committee
(see Administrative), the votes are cast and recorded for each
account on an individual basis.
Records have been maintained on the Proxy Edge system.
Proxy Edge records include:
Security Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name
Adviser or Fund Account Number
Directors Recommendation
How the Adviser voted for the client on item
4. VIFs are kept alphabetically by security. Records for
the current proxy season are located in the Proxy Voting
Department office. In preparation for the upcoming season, files
are transferred to an offsite storage facility during
January/February.
5. If a proxy card or VIF is received too late to be voted
in the conventional matter, every attempt is made to vote
including:
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When a solicitor has been retained, the solicitor is called. At
the solicitors direction, the proxy is faxed.
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In some circumstances VIFs can be faxed to Broadridge up until
the time of the meeting.
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6. In the case of a proxy contest, records are maintained
for each opposing entity.
7. Voting in Person
a) At times it may be necessary to vote the shares in
person. In this case, a legal proxy is obtained in
the following manner:
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Banks and brokerage firms using the services at Broadridge:
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Broadridge is notified that we wish to vote in person.
Broadridge issues individual legal proxies and sends them back
via email or overnight (or the Adviser can pay messenger
charges). A lead-time of at least two weeks prior to the meeting
is needed to do this. Alternatively, the procedures detailed
below for banks not using Broadridge may be implemented.
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Banks and brokerage firms issuing proxies directly:
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The bank is called
and/or
faxed
and a legal proxy is requested.
All legal proxies should appoint:
Representative of [Adviser name] with full power of
substitution.
b) The legal proxies are given to the person attending the
meeting along with the limited power of attorney.
A-4
Appendix A
Proxy Guidelines
PROXY
VOTING GUIDELINES
GENERAL
POLICY STATEMENT
It is the policy of GAMCO Investors, Inc, and its affiliated
advisers (collectively the Advisers) to vote in the
best economic interests of our clients. As we state in our Magna
Carta of Shareholders Rights, established in May 1988, we are
neither
for
nor
against
management. We are for
shareholders.
At our first proxy committee meeting in 1989, it was decided
that each proxy statement should be evaluated on its own merits
within the framework first established by our Magna Carta of
Shareholders Rights. The attached guidelines serve to enhance
that broad framework.
We do not consider any issue routine. We take into consideration
all of our research on the company, its directors, and their
short and long-term goals for the company. In cases where issues
that we generally do not approve of are combined with other
issues, the negative aspects of the issues will be factored into
the evaluation of the overall proposals but will not necessitate
a vote in opposition to the overall proposals.
Board of
Directors
We do not consider the election of the Board of Directors a
routine issue. Each slate of directors is evaluated on a
case-by-case
basis.
Factors taken into consideration include:
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Historical responsiveness to shareholders
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This may include such areas as:
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Paying greenmail
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Failure to adopt shareholder resolutions receiving a majority of
shareholder votes
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Qualifications
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Nominating committee in place
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Number of outside directors on the board
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Attendance at meetings
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Overall performance
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Selection
of Auditors
In general, we support the Board of Directors
recommendation for auditors.
Blank
Check Preferred Stock
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock
and establish dividends, voting rights, etc. without further
shareholder approval.
Classified
Board
A classified board is one where the directors are divided into
classes with overlapping terms. A different class is elected at
each annual meeting.
A-5
While a classified board promotes continuity of directors
facilitating long range planning, we feel directors should be
accountable to shareholders on an annual basis. We will look at
this proposal on a
case-by-case
basis taking into consideration the boards historical
responsiveness to the rights of shareholders.
Where a classified board is in place we will generally not
support attempts to change to an annually elected board.
When an annually elected board is in place, we generally will
not support attempts to classify the board.
Increase
Authorized Common Stock
The request to increase the amount of outstanding shares is
considered on a
case-by-case
basis.
Factors taken into consideration include:
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Future use of additional shares
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Stock split
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Stock option or other executive compensation plan
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Finance growth of company/strengthen balance sheet
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Aid in restructuring
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Improve credit rating
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Implement a poison pill or other takeover defense
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Amount of stock currently authorized but not yet issued or
reserved for stock option plans
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Amount of additional stock to be authorized and its dilutive
effect
|
We will support this proposal if a detailed and verifiable plan
for the use of the additional shares is contained in the proxy
statement.
Confidential
Ballot
We support the idea that a shareholders identity and vote
should be treated with confidentiality.
However, we look at this issue on a
case-by-case
basis.
In order to promote confidentiality in the voting process, we
endorse the use of independent Inspectors of Election.
Cumulative
Voting
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may
multiply the number of directors being elected by the number of
shares held on record date and cast the total number for one
candidate or allocate the voting among two or more candidates.
Where cumulative voting is in place, we will vote against any
proposal to rescind this shareholder right.
Cumulative voting may result in a minority block of stock
gaining representation on the board. When a proposal is made to
institute cumulative voting, the proposal will be reviewed on a
case-by-case
basis. While we feel that each board member should represent all
shareholders, cumulative voting provides minority shareholders
an opportunity to have their views represented.
Director
Liability and Indemnification
We support efforts to attract the best possible directors by
limiting the liability and increasing the indemnification of
directors, except in the case of insider dealing.
A-6
Equal
Access to the Proxy
The SECs rules provide for shareholder resolutions.
However, the resolutions are limited in scope and there is a 500
word limit on proponents written arguments. Management has
no such limitations. While we support equal access to the proxy,
we would look at such variables as length of time required to
respond, percentage of ownership, etc.
Fair
Price Provisions
Charter provisions requiring a bidder to pay all shareholders a
fair price are intended to prevent two-tier tender offers that
may be abusive. Typically, these provisions do not apply to
board-approved transactions.
We support fair price provisions because we feel all
shareholders should be entitled to receive the same benefits.
Reviewed on a
case-by-case
basis.
Golden
Parachutes
Golden parachutes are severance payments to top executives who
are terminated or demoted after a takeover.
We support any proposal that would assure management of its own
welfare so that they may continue to make decisions in the best
interest of the company and shareholders even if the decision
results in them losing their job. We do not, however, support
excessive golden parachutes. Therefore, each proposal will be
decided on a case-by- case basis.
Note: Congress has imposed a tax on any parachute
that is more than three times the executives average
annual compensation
Anti-Greenmail
Proposals
We do not support greenmail. An offer extended to one
shareholder should be extended to all shareholders equally
across the board.
Limit
Shareholders Rights to Call Special Meetings
We support the right of shareholders to call a special meeting.
Consideration
of Nonfinancial Effects of a Merger
This proposal releases the directors from only looking at the
financial effects of a merger and allows them the opportunity to
consider the mergers effects on employees, the community,
and consumers.
As a fiduciary, we are obligated to vote in the best economic
interests of our clients. In general, this proposal does not
allow us to do that. Therefore, we generally cannot support this
proposal.
Reviewed on a
case-by-case
basis.
Mergers,
Buyouts, Spin-Offs, Restructurings
Each of the above is considered on a
case-by-case
basis. According to the Department of Labor, we are not required
to vote for a proposal simply because the offering price is at a
premium to the current market price. We may take into
consideration the long term interests of the shareholders.
Military
Issues
Shareholder proposals regarding military production must be
evaluated on a purely economic set of criteria for our ERISA
clients. As such, decisions will be made on a
case-by-case
basis.
A-7
In voting on this proposal for our non-ERISA clients, we will
vote according to the clients direction when applicable.
Where no direction has been given, we will vote in the best
economic interests of our clients. It is not our duty to impose
our social judgment on others.
Northern
Ireland
Shareholder proposals requesting the signing of the MacBride
principles for the purpose of countering the discrimination of
Catholics in hiring practices must be evaluated on a purely
economic set of criteria for our ERISA clients. As such,
decisions will be made on a
case-by-case
basis.
In voting on this proposal for our non-ERISA clients, we will
vote according to client direction when applicable. Where no
direction has been given, we will vote in the best economic
interests of our clients. It is not our duty to impose our
social judgment on others.
Opt Out
of State Anti-Takeover Law
This shareholder proposal requests that a company opt out of the
coverage of the states takeover statutes. Example:
Delaware law requires that a buyer must acquire at least 85% of
the companys stock before the buyer can exercise control
unless the board approves.
We consider this on a
case-by-case
basis. Our decision will be based on the following:
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State of Incorporation
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Management history of responsiveness to shareholders
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Other mitigating factors
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Poison
Pill
In general, we do not endorse poison pills.
In certain cases where management has a history of being
responsive to the needs of shareholders and the stock is very
liquid, we will reconsider this position.
Reincorporation
Generally, we support reincorporation for well-defined business
reasons. We oppose reincorporation if proposed solely for the
purpose of reincorporating in a state with more stringent
anti-takeover statutes that may negatively impact the value of
the stock.
Stock
Incentive Plans
Director and Employee Stock incentive plans are an excellent way
to attract, hold and motivate directors and employees. However,
each incentive plan must be evaluated on its own merits, taking
into consideration the following:
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Dilution of voting power or earnings per share by more than 10%.
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Kind of stock to be awarded, to whom, when and how much.
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Method of payment.
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Amount of stock already authorized but not yet issued under
existing stock plans.
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The successful steps taken by management to maximize shareholder
value.
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Supermajority
Vote Requirements
Supermajority vote requirements in a companys charter or
bylaws require a level of voting approval in excess of a simple
majority of the outstanding shares. In general, we oppose
supermajority-voting requirements.
A-8
Supermajority requirements often exceed the average level of
shareholder participation. We support proposals approvals
by a simple majority of the shares voting.
Limit
Shareholders Right to Act by Written Consent
Written consent allows shareholders to initiate and carry on a
shareholder action without having to wait until the next annual
meeting or to call a special meeting. It permits action to be
taken by the written consent of the same percentage of the
shares that would be required to effect proposed action at a
shareholder meeting.
Reviewed on a
case-by-case
basis.
Say on
Pay and Say When on Pay
We will generally abstain from advisory votes on executive
compensation (Say on Pay) and will also abstain from votes on
the frequency of voting on executive compensation (Say When on
Pay). In those instances when we believe that it is in our
clients best interest, we may cast a vote for or against
executive compensation
and/or
the
frequency of votes on executive compensation.
A-9
PART C
OTHER
INFORMATION
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Item 25.
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Financial
Statements and Exhibits
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(1) Financial Statements
Part A
Part B
(2) Exhibits
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(a)
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Agreement and Declaration of Trust of
Registrant
(1)
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(b)
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By-Laws of
Registrant
(1)
|
(c) Not applicable
(d) Form of Specimen Common Share
Certificate
(3)
(e) Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan of
Registrant
(2)
(f) Not applicable
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(g)
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(i)
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Form of Investment Advisory Agreement between Registrant and
Gabelli Funds,
LLC
(1)
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(ii)
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Investment Advisory Agreement dated as of January 20, 2011
between Registrant and Gabelli Funds,
LLC
(5)
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(h)
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(i)
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Form of Underwriting
Agreement
(5)
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(ii)
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Form of Master Agreement Among
Underwriters
(5)
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(iii)
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Form of Master Selected Dealer
Agreement
(5)
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(iv)
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Form of Structuring Fee Agreement with:
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(i) Morgan Stanley & Co.
Incorporated
(5)
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(ii) Citigroup Global Markets
Inc.
(5)
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(iii) Merrill Lynch, Pierce, Fenner & Smith
Incorporated
(5)
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(i) Not applicable
(j) Custodian
Agreement
(4)
(k) Registrar, Transfer Agency and Service
Agreement
(5)
(l) Opinion and Consent of Skadden, Arps, Slate,
Meagher & Flom LLP with respect to
legality
(5)
(m) Not applicable
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(n)
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(i)
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Consent of Independent Registered Public Accounting
Firm
(5)
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(ii)
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Powers of
Attorney
(1)
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(o) Not applicable
(p) Initial Subscription
Agreement
(4)
(q) Not applicable
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(r)
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(i)
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Code of Ethics of the Fund and the Investment
Adviser
(4)
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(ii)
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Joint Code of Ethics for Chief Executive and Senior Financial
Officers
(4)
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(1)
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Previously filed with Pre-Effective
Amendment No. 1 to the Registration Statement on
Form N-2
filed on September 29, 2010
(333-152424).
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(2)
|
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Included in Prospectus
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(3)
|
|
Previously filed with Pre-Effective
Amendment No. 2 to the Registration Statement on
Form N-2
filed on November 24, 2010
(333-152424).
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(4)
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Previously filed with Pre-Effective
Amendment No. 3 to the Registration Statement on Form N-2 filed
on December 29, 2010
(333-152424).
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(5)
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Filed herewith.
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Item 26.
|
Marketing
Arrangements
|
The information contained under the heading Automatic
Dividend Reinvestment and Voluntary Cash Purchase Plan on
page 43 of the Prospectus is incorporated by reference.
Reference is made to the Form of Underwriting Agreement for the
Registrants shares of beneficial interest, Form of
Structuring Fee Agreement with Morgan
Stanley & Co. Incorporated, Form of Structuring
Fee Agreement with Citigroup Global Markets Inc. and Form of
Structuring Fee Agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated filed with this
registration statement.
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Item 27.
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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:
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NYSE listing fee
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$
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30,000
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SEC registration fees
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21,390
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FINRA filing fee
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30,500
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Printing/engraving expenses
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300,000
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Accounting fees
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35,000
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Legal fees
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300,000
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Transfer Agent fees
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0
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Blue Sky fees
|
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25,000
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Miscellaneous
|
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158,110
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Total
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$
|
900,000
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Item 28.
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Persons
Controlled by or Under Common Control with
Registrant
|
None
|
|
Item 29.
|
Number
of Holders of Securities as of January 26,
2011
|
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Number of Record
|
Title of Class
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Holders
|
|
Common Shares of Beneficial Interest
|
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One.
|
|
Article IV of the Registrants Agreement and
Declaration of Trust provides as follows:
4.1 No Personal Liability of Shareholders, Trustees, etc.
No Shareholder of the Trust shall be subject in such capacity to
any personal liability whatsoever to any Person in connection
with Trust Property or the acts, obligations or affairs of
the Trust. Shareholders shall have the same limitation of
personal liability as is extended to stockholders of a private
corporation for profit incorporated under the general
corporation law of the State of Delaware. No Trustee or officer
of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the
affairs of the Trust, save only liability to the Trust or its
Shareholders arising from bad faith, willful misfeasance, gross
negligence or reckless disregard for his duty to such Person;
and, subject to the foregoing exception, all such Persons shall
look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee or officer, as such, of
the Trust, is made a party to any suit or proceeding to enforce
any such liability, subject to the foregoing exception, he shall
not, on account thereof, be held to any personal liability.
4.2 Mandatory Indemnification. (a) The Trust shall
indemnify the Trustees and officers of the Trust (each such
person being an indemnitee) against any liabilities
and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and
reasonable counsel fees reasonably incurred by such indemnitee
in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any
court or administrative or investigative body in which he may be
or may have been
involved as a party or otherwise (other than, except as
authorized by the Trustees, as the plaintiff or complainant) or
with which he may be or may have been threatened, while acting
in any capacity set forth above in this Section 4.2 by
reason of his having acted in any such capacity, except with
respect to any matter as to which he shall not have acted in
good faith in the reasonable belief that his action was in the
best interest of the Trust or, in the case of any criminal
proceeding, as to which he shall have had reasonable cause to
believe that the conduct was unlawful, provided, however, that
no indemnitee shall be indemnified hereunder against any
liability to any person or any expense of such indemnitee
arising by reason of (i) willful misfeasance, (ii) bad
faith, (iii) gross negligence (negligence in the case of
Affiliated Indemnitees), or (iv) reckless disregard of the
duties involved in the conduct of his position (the conduct
referred to in such clauses (i) through (iv) being
sometimes referred to herein as disabling conduct).
Notwithstanding the foregoing, with respect to any action, suit
or other proceeding voluntarily prosecuted by any indemnitee as
plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such
indemnitee was authorized by a majority of the Trustees.
(b) Notwithstanding the foregoing, no indemnification shall
be made hereunder unless there has been a determination
(1) by a final decision on the merits by a court or other
body of competent jurisdiction before whom the issue of
entitlement to indemnification hereunder was brought that such
indemnitee is entitled to indemnification hereunder or,
(2) in the absence of such a decision, by (i) a
majority vote of a quorum of those Trustees who are neither
Interested Persons of the Trust nor parties to the proceeding
(Disinterested Non-Party Trustees), that the
indemnitee is entitled to indemnification hereunder, or
(ii) if such quorum is not obtainable or even if
obtainable, if such majority so directs, independent legal
counsel in a written opinion conclude that the indemnitee should
be entitled to indemnification hereunder. All determinations to
make advance payments in connection with the expense of
defending any proceeding shall be authorized and made in
accordance with the immediately succeeding paragraph
(c) below.
(c) The Trust shall make advance payments in connection
with the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Trust receives
a written affirmation by the indemnitee of the indemnitees
good faith belief that the standards of conduct necessary for
indemnification have been met and a written undertaking to
reimburse the Trust unless it is subsequently determined that he
is entitled to such indemnification and if a majority of the
Trustees determine that the applicable standards of conduct
necessary for indemnification appear to have been met. In
addition, at least one of the following conditions must be met:
(1) the indemnitee shall provide adequate security for his
undertaking, (2) the Trust shall be insured against losses
arising by reason of any lawful advances, or (3) a majority
of a quorum of the Disinterested Non-Party Trustees, or if a
majority vote of such quorum so directs, independent legal
counsel in a written opinion, shall conclude, based on a review
of readily available facts (as opposed to a full trial-type
inquiry), that there is substantial reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(d) The rights accruing to any indemnitee under these
provisions shall not exclude any other right to which he may be
lawfully entitled.
(e) Notwithstanding the foregoing, subject to any
limitations provided by the 1940 Act and this Declaration, the
Trust shall have the power and authority to indemnify Persons
providing services to the Trust to the full extent provided by
law as if the Trust were a corporation organized under the
Delaware General Corporation Law provided that such
indemnification has been approved by a majority of the Trustees.
4.3 No Duty of Investigation; Notice in
Trust Instruments, etc. No purchaser, lender, transfer
agent or other person dealing with the Trustees or with any
officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer,
employee or agent or be liable for the application of money or
property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every
obligation, contract, undertaking, instrument, certificate,
Share, other security of the Trust, and every other act or thing
whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees under this
Declaration or in their capacity as officers, employees or
agents of the Trust. The Trustees may maintain insurance for the
protection of the Trust Property, its Shareholders,
Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible liability, and
such other insurance as the Trustees in their sole judgment
shall deem advisable or is required by the 1940 Act.
4.4 Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of its duties,
be fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good
faith upon the books of account or other records of the Trust,
upon an opinion of counsel, or upon reports made to the Trust by
any of the Trusts officers or employees or by any advisor,
administrator, manager, distributor, selected dealer,
accountant, appraiser or other expert or consultant selected
with reasonable care by the Trustees, officers or employees of
the Trust, regardless of whether such counsel or other person
may also be a Trustee.
Section 9 of the Registrants Investment Advisory
Agreement provides as follows:
9. Indemnity
(a) The Fund hereby agrees to indemnify the Adviser and
each of the Advisers trustees, officers, employees, and
agents (including any individual who serves at the
Advisers request as director, officer, partner, trustee or
the like of another corporation) and controlling persons (each
such person being an indemnitee) against any
liabilities and expenses, including amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and
counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such indemnitee in
connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court
or administrative or investigative body in which he may be or
may have been involved as a party or otherwise or with which he
may be or may have been threatened, while acting in any capacity
set forth above in this paragraph or thereafter by reason of his
having acted in any such capacity, except with respect to any
matter as to which he shall have been adjudicated not to have
acted in good faith in the reasonable belief that his action was
in the best interest of the Fund and furthermore, in the case of
any criminal proceeding, so long as he had no reasonable cause
to believe that the conduct was unlawful, provided, however,
that (1) no indemnitee shall be indemnified hereunder
against any liability to the Fund or its shareholders or any
expense of such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence,
(iv) reckless disregard of the duties involved in the
conduct of his position (the conduct referred to in such
clauses (i) through (iv) being sometimes referred to
herein as disabling conduct), (2) as to any
matter disposed of by settlement or a compromise payment by such
indemnitee, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other
expenses shall be provided unless there has been a determination
that such settlement or compromise is in the best interests of
the Fund and that such indemnitee appears to have acted in good
faith in the reasonable belief that his action was in the best
interest of the Fund and did not involve disabling conduct by
such indemnitee and (3) with respect to any action, suit or
other proceeding voluntarily prosecuted by any indemnitee as
plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such
indemnitee was authorized by a majority of the full Board of the
Fund. Notwithstanding the foregoing the Fund shall not be
obligated to provide any such indemnification to the extent such
provision would waive any right which the Fund cannot lawfully
waive.
(b) The Fund shall make advance payments in connection with
the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Fund receives a
written affirmation of the indemnitees good faith belief
that the standard of conduct necessary for indemnification has
been met and a written undertaking to reimburse the Fund unless
it is subsequently determined that he is entitled to such
indemnification and if the trustees of the Fund determine that
the facts then known to them would not preclude indemnification.
In addition, at least one of the following conditions must be
met: (A) the indemnitee shall provide a security for his
undertaking, (B) the Fund shall be insured against losses
arising by reason of any lawful advances, or (C) a majority
of a quorum of trustees of the Fund who are neither
interested persons of the Fund (as defined in
Section 2(a)(19) of the Act) nor parties to the proceeding
(Disinterested Non-Party Trustees) or an independent
legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(c) All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the
merits by a court or other body before whom the proceeding was
brought that such indemnitee is not liable by reason of
disabling conduct or, (2) in the absence of such a
decision, by (i) a majority vote of a quorum of the
Disinterested Non-party Trustees of the Fund, or (ii) if
such a quorum is not obtainable or even, if obtainable, if a
majority vote of such quorum so directs, independent legal
counsel in a written opinion.
The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully
entitled.
Underwriter
indemnification provisions, if any, to be filed by
amendment.
|
|
Item 31.
|
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 32.
|
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, The Bank of
New York Mellon, 135 Santilli Highway, Everett,
Massachusetts 02149, in part at the offices of the Funds
sub-administrator,
BNY Mellon Investment Servicing (US) Inc., 760 Moore Road, King
of Prussia, Pennsylvania 19406, and in part at the offices of
the Transfer Agent, American Stock Transfer & Trust
Company, 59 Maiden Lane, New York, New York 10038.
|
|
Item 33.
|
Management
Services
|
Not applicable.
1. Registrant undertakes to suspend the offering of shares
until the prospectus is amended, if (1) 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 this Registration Statement; or
(2) 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,
(a) For the purpose of determining any liability under the
Securities Act of 1933 (the 1933 Act), the
information omitted from the form of prospectus filed as part of
this 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.
(b) 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
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, this Registrant
has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Rye, State of New York, on the
26th day of January, 2011.
THE GABELLI NATURAL RESOURCES, GOLD & INCOME TRUST
Name: Bruce N. Alpert
|
|
|
|
Title:
|
Principal Executive Officer and President
|
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company act of 1940, this Amendment to the
Registration Statement has been signed below by the following
persons in their capacities set forth below on the 26th day
of January, 2011.
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
/s/
Anthony
J. Colavita*
Anthony
J. Colavita
|
|
Trustee
|
|
|
|
/s/
James
P. Conn*
James
P. Conn
|
|
Trustee
|
|
|
|
/s/
Mario
dUrso*
Mario
dUrso
|
|
Trustee
|
|
|
|
/s/
Vincent
D. Enright*
Vincent
D. Enright
|
|
Trustee
|
|
|
|
/s/
Frank
J. Fahrenkopf, Jr.*
Frank
J. Fahrenkopf, Jr.
|
|
Trustee
|
|
|
|
/s/
Michael
J. Melarkey*
Michael
J. Melarkey
|
|
Trustee
|
|
|
|
/s/
Kuni
Nakamura*
Kuni
Nakamura
|
|
Trustee
|
|
|
|
/s/
Anthonie
C. van Ekris*
Anthonie
C. van Ekris
|
|
Trustee
|
|
|
|
/s/
Salvatore
J. Zizza*
Salvatore
J. Zizza
|
|
Trustee
|
|
|
|
/s/
Bruce
N. Alpert
Bruce
N. Alpert
|
|
Principal Executive Officer and President
|
|
|
|
/s/
Agnes
Mullady
Agnes
Mullady
|
|
Principal Financial Officer, Treasurer and Secretary
|
|
|
|
/s/
Bruce
N. Alpert
Bruce
N. Alpert
|
|
Attorney-in-Fact
|
|
|
|
*
|
|
Pursuant to a Power of Attorney
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
Ex-
|
.99(g)(ii)
|
|
Investment Advisory Agreement dated as of January 20, 2011
between Registrant and Gabelli Funds, LLC
|
|
Ex-
|
.99(h)(i)
|
|
Form of Underwriting Agreement
|
|
Ex-
|
.99(h)(ii)
|
|
Form of Master Agreement among Underwriters
|
|
Ex-
|
.99(h)(iii)
|
|
Form of Master Selected Dealer Agreement
|
|
Ex-
|
.99(h)(iv)(i)
|
|
Form of Structuring Fee Agreement with Morgan Stanley & Co.
Incorporated
|
|
Ex-
|
.99(h)(iv)(ii)
|
|
Form of Structuring Fee Agreement with Citigroup Global Markets
Inc.
|
|
Ex-
|
.99(h)(iv)(iii)
|
|
Form of Structuring Fee Agreement with Merrill Lynch, Pierce,
Fenner & Smith Incorporated
|
|
Ex-
|
.99(k)
|
|
Registrar, Transfer Agency and Service Agreement
|
|
Ex-
|
.99(l)
|
|
Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to legality
|
|
Ex-
|
.99(n)(i)
|
|
Consent of Independent Registered Public Accounting Firm
|
Exhibit 99(h)(i)
[
] Shares
THE GABELLI NATURAL RESOURCES, GOLD & INCOME TRUST
COMMON SHARES OF BENEFICIAL INTEREST
(PAR VALUE $0.001 PER SHARE)
UNDERWRITING AGREEMENT
January [
], 2011
January [
], 2011
Morgan Stanley & Co. Incorporated
Citigroup Global Markets Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
The Gabelli Natural Resources, Gold & Income Trust, an unincorporated statutory trust
organized under the laws of the State of Delaware (the
Fund
), is a non-diversified, closed end
management investment company registered under the Investment Company Act of 1940, as amended (the
Investment Company Act
). The Fund proposes to issue and sell to the several Underwriters named
in Schedule I hereto (the
Underwriters
) [
] common shares of beneficial interest (par value
$0.001 per share) (the
Firm Shares
). The Fund also proposes to issue and sell to the several
Underwriters not more than an additional [
] common shares of beneficial interest (par value $0.001
per share) (the
Additional Shares
) if and to the extent that you, as Managers of the offering,
shall have determined to exercise, on behalf of the Underwriters, the right to purchase such shares
granted to the Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the
Shares
. The common shares of beneficial interest
(par value $0.001 per share) of the Fund to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the
Common Shares
.
Gabelli Funds, LLC (the
Adviser
) acts as the Funds investment adviser pursuant to an
Investment Advisory Agreement between the Adviser and the Fund (the
Investment Advisory
Agreement
).
The Fund has filed with the Securities and Exchange Commission (the
Commission
) a
notification on Form N-8A (the
Notification
) of registration of the Fund as an investment company
and a registration statement on Form N-2 (File Nos. 333-152424 and 811-22216), including a
prospectus and a statement of additional information incorporated by reference in the prospectus,
relating to the Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of
1933, as amended (the
Securities Act
), is hereinafter referred to as the
Registration
Statement
; the prospectus in the form first used to confirm sales of Shares and filed with the
Commission in accordance with Rule 497 of the Securities Act, including the statement of additional
information incorporated therein by reference, is hereinafter referred to as the
Prospectus
. If
the Fund has filed an abbreviated registration statement to register additional Common Shares
pursuant to Rule 462(b) under the Securities Act (the
Rule 462 Registration Statement
), then any
reference herein to the term
Registration Statement
shall be deemed to include such Rule 462
Registration Statement. The Investment Company Act and the Securities Act are hereinafter referred
to collectively as the
Acts
, and the rules and regulations of the Commission under the Acts and
under the Securities Exchange Act of 1934, as amended (the
Exchange Act
) are hereinafter referred
to collectively as the
Rules and Regulations
.
For purposes of this Agreement,
Omitting Prospectus
means any advertisement used in the
public offering of the Shares pursuant to Rule 482 of the Rules and Regulations (
Rule 482
) and
Time of Sale Prospectus
means the preliminary prospectus, dated December [
], 2010, including the
statement of additional information incorporated therein by reference, and each Omitting Prospectus
identified on Schedule II hereto as a Retail Omitting Prospectus. As used herein, the terms
Registration Statement, preliminary prospectus, Time of Sale Prospectus and Prospectus
shall include the documents, if any, incorporated by reference therein, including the statement of
additional information.
1.
Representations and Warranties of the Fund and the Adviser
. The Fund and the Adviser,
jointly and severally, represent and warrant to and agree with each of the Underwriters as of the
date hereof, as of the Applicable time referred to in Section 1(b)(i) hereof, as of the Closing
Date referred to in Section 5 hereof, and as of each Option Closing Date (if any) referred to in
Section 3 hereof, that:
(a) The Fund meets the requirements for the use of Form N-2 under the Acts. The
Registration Statement has become effective under the Securities Act; no stop order
suspending the effectiveness of the Registration Statement has been issued under the
Securities Act and is in effect, or order of suspension or revocation of registration
pursuant to Section 8(e) of the Investment Company Act, and no proceedings for any such
purpose have been instituted, are pending before or contemplated by the Commission and any
request for additional information on the part of the Commission has been complied with.
(b) (i) The Registration Statement, and any amendments or supplements thereto, when
it became effective, on the Closing Date
2
referred to in Section 5 hereof (and if any Additional Shares are purchased, on the
Option Closing Date), did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement, the Prospectus and Notification comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Acts and the
applicable Rules and Regulations thereunder, (iii) the Time of Sale Prospectus and the
information included on Schedule III hereto, (together, the
General Disclosure Package
)
and each Preliminary Prospectus, and any amendments or supplements thereto does not, and
at the time of each sale of the Shares in connection with the offering when the Prospectus
is not yet available to prospective purchasers, and at the Closing Date (as defined in
Section 5), the General Disclosure Package, as then amended or supplemented, if
applicable, will not, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (iv) neither the Prospectus nor any
amendments or supplements thereto contains and, as amended or supplemented, if applicable,
will contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration Statement,
the Time of Sale Prospectus or the Prospectus based upon information relating to any
Underwriter furnished to the Fund in writing by such Underwriter through you expressly for
use therein.
As used in this subsection and elsewhere in this Agreement
Applicable Time
means
[
] P.M. (Eastern Time) on [
], 2011 or such other time as agreed to by the Fund and
Morgan Stanley & Co. Incorporated.
The Time of Sale Prospectus and the Prospectus filed as part of the effective
Registration Statement or as part of any amendment thereto, or filed pursuant to Rule 497
under the Securities Act, complied when so filed in all material respects with the Rules
and Regulations, the Time of Sale Prospectus and the Prospectus delivered to the
Underwriters for use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S T.
If a Rule 462(b) Registration Statement is required in connection with the offering
and sale of the Shares, the Fund has complied or will
3
comply with the requirements of Rule 111 under the Rules and Regulations and Rule 3a
of the Commissions Internal and Other Procedures (
Rule 3a
) relating to the payment of
filing fees thereof.
The Fund, subject to the Registration Statement having been declared effective and
the filing of the Prospectus under Rule 497, has taken all required action under the
Securities Act, the Investment Company Act, the Exchange Act of 1934, and the Rules and
Regulations to make the public offering and consummate the sale of the Securities as
contemplated by this Agreement.
(c) The Fund has been duly organized, is validly existing and in good standing as an
unincorporated statutory trust in good standing under the laws of the State of Delaware,
has the power and authority to own its property and to conduct its business as described
in the Registration Statement, Time of Sale Prospectus and Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification. The Fund has no subsidiaries.
(d) The Fund is duly registered with the Commission as a non-diversified, closed-end
management investment company under the Investment Company Act and no order of suspension
or revocation of such registration has been issued or proceedings therefor initiated or
threatened by the Commission. No person is serving or acting as an officer or trustee of,
or investment adviser to, the Fund except in accordance with the provisions of the
Investment Company Act and the Investment Advisers Act of 1940, as amended (the
Advisers
Act
). Except as otherwise disclosed in the Registration Statement, the Time of Sale
Prospectus and the Prospectus, no trustee of the Fund is an interested person of the
Fund or an affiliated person of any Underwriter (each as defined in the Investment
Company Act). The Fund is, and at all times through the completion of the transactions
contemplated hereby, will be, in compliance with the Acts.
(e) Each of this Agreement, the Investment Advisory Agreement, the Custodian
Agreement between Bank of New York Mellon (the
Custodian
) and the Fund (the
Custodian
Agreement
) and the Transfer Agency, Registrar and Dividend Disbursing Agency Agreement
between American Stock Transfer & Trust Company (the
Transfer Agent
) and the Fund (the
Transfer
Agency Agreement
) (this Agreement, the Investment Advisory Agreement, the Custodian
Agreement and the Transfer Agency Agreement being referred to herein collectively as the
Fundamental Agreements
) has been duly authorized, executed and delivered by the Fund and
complies with all applicable provisions of the
4
Acts, the Advisers Act and the applicable Rules and Regulations and the Investment
Advisory Agreement has been approved in accordance with Section 15 of the Investment
Company Act. The Fund has adopted the Dividend Reinvestment Plan (the
Plan
). Each
Fundamental Agreement, other than this Agreement, and the Plan is a valid and binding
agreement of the Fund, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors rights generally and
equitable principles of general applicability.
(f) None of (1) the execution and delivery by the Fund of, and the performance by the
Fund of its obligations under, each Fundamental Agreement or the adoption by the Fund of
the Plan, or (2) the issue and sale by the Fund of the Shares as contemplated by this
Agreement contravenes or will contravene any provision of applicable law or (i) the
certificate of trust (as amended, restated or supplemented) and by-laws (as amended,
restated or supplemented) of the Fund, (ii) any agreement or other instrument binding upon
the Fund, or (iii) any provision of applicable law, judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Fund, whether foreign or
domestic. No consent, approval, authorization, order or permit of, or qualification with,
any governmental body or agency, self-regulatory organization or court or other tribunal,
whether foreign or domestic, is required for the performance by the Fund of its
obligations under the Fundamental Agreements or the Plan, except such as have been
obtained and as may be required by the Acts, the Advisers Act, the Exchange Act, or the
applicable Rules and Regulations, or by the securities or Blue Sky laws of the various
states and foreign jurisdictions in connection with the offer and sale of the Shares.
(g) The authorized capital stock of the Fund conforms in all material respects to the
description thereof contained in each of the Time of Sale Prospectus and the Prospectus,
and the certificate of trust and by-laws of the Fund, the Fundamental Agreements and the
Plan conform in all material respects to the descriptions thereof contained in each of the
Time of Sale Prospectus and the Prospectus.
(h) The certificate of trust and by-laws of the Fund, the Fundamental Agreements and
the Plan comply with all applicable provisions of the Acts and the applicable Rules and
Regulations, and all approvals of such documents required under the Investment Company Act
by the Funds stockholders and Board of Trustees have been obtained and are in full force
and effect.
(i) The Fundamental Agreements (other than this Agreement) and the Plan are in full
force and effect and the Fund is not in default
5
thereunder, and no event has occurred which with the passage of time or the giving of
notice or both would constitute a default thereunder. The Fund is not currently in breach
of, or in default under, any other written agreement or instrument to which it or its
property is bound or affected.
(j) The Common Shares outstanding prior to the issuance of the Shares have been duly
authorized and are validly issued, fully paid and non-assessable.
(k) The Shares have been duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued, fully paid and non-assessable,
and the issuance of the Shares will not be subject to any preemptive or similar rights.
(l) The Shares and any Common Shares outstanding prior to the issuance of the Shares
have been approved for listing on the New York Stock Exchange, subject to official notice
of issuance. The Funds registration statement on Form 8-A under the Exchange Act is
effective.
(m) Each Omitting Prospectus (i) complies with the requirements of Rule 482, (ii)
does not contain any untrue statement of a material fact or omit to state any fact
necessary in order to make the statements therein not misleading, (iii) complied and will
comply in all material respects with the Acts, the Rules and Regulations and the rules and
regulations of the Financial Industry Regulatory Authority (
FINRA
) and (iv) if required
to be filed by FINRA, has been delivered to the Underwriters for filing with FINRA, and
FINRA has issued no objections with respect to such Omitting Prospectuses. Except for the
Omitting Prospectuses identified on Schedule II hereto, the Fund has not prepared, used or
referred to and will not, without your prior written consent, prepare, use or refer to any
prospectus in reliance upon Rule 482.
(n) The Fund intends to direct the investment of the proceeds of the offering
described in the Time of Sale Prospectus and the Prospectus in such a manner as to comply
with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended
(the
Code
), and the Fund is eligible to qualify as a regulated investment company under
Subchapter M of the Code.
(o) Since the respective dates as of which information is given in the Registration
Statement, the Time of Sale Prospectus and the Prospectus, (i) there has not occurred any
material adverse change, or any development involving a prospective material adverse
change, in or affecting the condition, financial or otherwise, business prospects,
earnings, business or properties of the Fund whether or not arising in the ordinary course
of business,, and (ii) there have been no transactions
6
entered into by the Fund which are material to the Fund other than those in the
ordinary course of its business or as described in the Time of Sale Prospectus.
(p) There are no legal or governmental proceedings pending or threatened to which the
Fund is a party or to which any of the properties of the Fund is subject (i) other than
proceedings accurately described in the Time of Sale Prospectus and the Prospectus, and
proceedings that would not have a material adverse effect on the Fund, or on the power or
ability of the Fund to perform its obligations under this Agreement or to consummate the
transactions contemplated by the Time of Sale Prospectus or the Prospectus or (ii) that
are required to be described in the Registration Statement, the Time of Sale Prospectus or
the Prospectus and are not so described; and there are no statutes, regulations, contracts
or other documents that are required to be described in the Registration Statement, Time
of Sale Prospectus or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required by the Acts and the applicable Rules
and Regulations.
(q) The statements in the Registration Statement, the Time of Sale Prospectus and
Prospectus under the headings Management of the Fund, Automatic Dividend Reinvestment
and Voluntary Cash Purchase Plan, Description of the Shares, Taxation, Anti-Takeover
Provisions of the Funds Governing Documents and Repurchase of Common Shares insofar as
such statements summarize legal matters, agreements, documents or proceedings discussed
therein, are accurate and fair summaries of such legal matters, agreements, documents or
proceedings
(r) The Fund has taken all required action under the Acts and the Exchange Act and
the Rules and Regulations to make the public offering and consummate the sale of the
Shares as contemplated by this Agreement. The Fund has all necessary consents,
authorizations, approvals, orders (including exemptive orders), certificates and permits
of and from, and has made all declarations and filings with, all governmental authorities,
self-regulatory organizations and courts and other tribunals, whether foreign or domestic,
to own and use its assets and to conduct its business in the manner described in the Time
of Sale Prospectus and the Prospectus.
(s) Each preliminary prospectus (including the statement of additional information
incorporated therein by reference) filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant to Rule 497 of the
Rules and Regulations, complied when so filed in all material respects with the Acts and
the applicable Rules and Regulations.
7
(t) The statement of net assets included in the Registration Statement, the Time of Sale Prospectus and the Prospectus,
together with the related notes, presents fairly the financial position of the Fund as of
the date indicated and said statement has been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the periods
involved (except as otherwise noted therein); and the other financial and statistical
information and data included in the Registration Statement, the Time of Sale Prospectus
and the Prospectus are accurately derived from such financial statements and the books and
records of the Fund. PricewaterhouseCoopers LLP, whose report appears in the Prospectus and who has certified the financial statements and
supporting schedules, if any, included in the Registration Statement, is an independent
registered public accounting firm as required by the Acts and the applicable Rules and
Regulations.
(u) There are no material restrictions, limitations or regulations with respect to
the ability of the Fund to invest its assets as described in the Time of Sale Prospectus
and the Prospectus, other than as described therein.
(v) There are no contracts, agreements or understandings between the Fund and any
person granting such person the right to require the Fund to file a registration statement
under the Securities Act with respect to any securities of the Fund or to require the Fund
to include such securities with the Shares registered pursuant to the Registration
Statement.
(w) The expense summary information set forth in the Time of Sale Prospectus and the
Prospectus under the caption Summary of Fund Expenses has been prepared in accordance
with the requirements of Form N-2 and any fee projections or estimates, if applicable, are
reasonably based and attainable.
(x) Subsequent to the respective dates as of which information is given in each of
the Registration Statement, the Time of Sale Prospectus and the Prospectus, (i) the Fund
has not incurred any material liability or obligation, direct or contingent, nor entered
into any material transaction; (ii) the Fund has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock (other than, in the event this representation and warranty is
made after the Closing Date, ordinary and customary dividends declared and payable after
the Closing Date); and (iii) there has not been any material change in the capital stock,
short-term debt or long-term debt of the Fund except in each case as described in each of
the Registration Statement, the Time of Sale Prospectus and the Prospectus, respectively.
8
(y) The Fund owns or leases all such properties as are necessary to the conduct of
its operations.
(z) The Fund owns or possesses, or can acquire on reasonable terms, all material
patents, patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently employed by
them in connection with the business now operated by it, and the Fund has not received any
notice of infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the Fund.
(aa) The Fund maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance with
managements general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with managements general or specific
authorization; and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to
any differences. Except as described in the Prospectus, since the date of the
Funds most recent audited financial statements included or incorporated by reference in
the Prospectus, there has been (i) no material weakness in the Funds
internal control over financial reporting (whether or not remediated) and (ii) no change
in the Funds internal control over financial reporting that has materially affected, or
is reasonably likely to materially affect, the Funds internal control over financial
reporting.
(bb) The Fund has not taken, directly or indirectly, any action designed to or that
would constitute or that might reasonably be expected to cause or result in violation of
federal securities laws, in stabilization or manipulation of the price of any security of
the Fund to facilitate the sale or resale of the Shares, and the Fund is not aware of any
such action taken or to be taken by any affiliates of the Fund.
(cc) Neither the Fund nor any employee nor agent of the Fund has made any payment of
funds of the Fund or received or retained any funds, which payment, receipt or retention
is of a character to be disclosed in the Time of Sale Prospectus, the Prospectus or the Registration Statement.
9
(dd) The Fund is insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as are prudent and customary in the businesses
in which it is engaged and which the Fund deems adequate; all policies of insurance
insuring the Fund or its business, assets, employees, officers and trustees, including the
Funds trustees and officers errors and omissions insurance policy and its fidelity bond
required by Rule 17g-1 of the Rules and Regulations, are in full force and effect; the
Fund is in compliance with the terms of such policy and fidelity bond in all material
respects; and there are no claims by the Fund under any such policy or fidelity bond as to
which any insurance company is denying liability or defending under a reservation of
rights clause; the Fund has not been refused any insurance coverage sought or applied for;
and the Fund has no reason to believe that it will not be able to renew its existing
insurance coverage and fidelity bond as and when such coverage and fidelity bond expires
or to obtain similar coverage and fidelity bond from similar insurers as may be necessary
to continue its business at a cost that would not have a material adverse effect on the
Fund, whether or not arising from transactions in the ordinary course of business, except
as set forth in or contemplated in the Registration Statement, the Time of Sale Prospectus
and the Prospectus (exclusive of any supplement thereto).
(ee) Except as disclosed in the Registration Statement, the Time of Sale Prospectus
and the Prospectus, the Fund (i) does not have any material lending or other relationship
with any bank or lending affiliate of any of the Underwriters and (ii) does not intend to
use any of the proceeds from the sale of the Shares hereunder to repay any outstanding
debt owed to any affiliate of any of the Underwriters.
(ff) There is and has been no failure on the part of the Fund or any of the Funds
trustees or officers, in their capacities as such, to comply with any provision of the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection
therewith (the
Sarbanes-Oxley Act
) applicable to them.
(gg) The operations of the Fund are and have been conducted at all times in
compliance with applicable financial recordkeeping and reporting requirements and the
money laundering statutes and the rules and regulations thereunder and any related or
similar rules, regulations or guidelines, issued, administered or enforced by any
governmental agency (collectively, the
Money Laundering Laws
) and no action, suit or
proceeding by or before any court or governmental agency, authority or
10
body or any arbitrator involving the Fund with respect to the Money Laundering Laws
is pending or, to the best knowledge of the Fund, threatened.
(hh) There are no business relationships or related-party transactions involving the
Fund or any other person required to be described in the Registration Statement, the Time
of Sale Prospectus and the Prospectus which have not been described as required, it being
understood and agreed that the Fund and the Adviser make no representation or warranty
with respect to any such relationships involving any Underwriter or any affiliate and any
other person that have not been disclosed to the Fund by the relevant underwriter in
connection with this offering.
(ii) Neither the Fund nor, to the knowledge of the Fund, any trustee, officer, agent,
employee or affiliate of the Fund is aware of or has taken any action in connection with
the Fund, directly or indirectly, that would result in a violation by such persons of the
Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder (
FCPA
), including, without limitation, making use of the mails or any means
or instrumentality of interstate commerce corruptly in furtherance of an offer, payment,
promise to pay or authorization of the payment of any money, or other property, gift,
promise to give, or authorization of the giving of anything of value to any foreign
official (as such term is defined in the FCPA) or any foreign political party or official
thereof or any candidate for foreign political office, in contravention of the FCPA, and
the Fund, and to the knowledge of the Fund, its affiliates have conducted their businesses
in compliance with the FCPA and have instituted and maintain policies and procedures
designed to ensure, and which are reasonably expected to continue to ensure, continued
compliance therewith.
(jj) Neither the Fund nor, to the knowledge of the Fund, any trustee, officer, agent,
employee or affiliate of the Fund is currently subject to any U.S. sanctions administered
by the Office of Foreign Assets Control of the U.S. Treasury Department (
OFAC
); and the
Fund will not directly or indirectly use the proceeds of the offering contemplated by this
Agreement, or lend, contribute or otherwise make available such proceeds to any
subsidiary, joint venture partner or other person or entity, for the purpose of financing
the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(kk) American Stock Transfer & Trust Company is duly enrolled as a participant in the Fast
Automated Transfer Program (FAST) of The Depository Trust Company (
DTC
).
11
2.
Representations and Warranties of the Adviser
. The Adviser represents and warrants to and
agrees with each of the Underwriters as of the date hereof, as of the Applicable Time, as of the
Closing Date referred to in Section 5 hereof, and as of each Option Closing Date (if any) referred
to in Section 3 hereof, that:
(a) The Adviser has been duly organized, is validly existing as a limited liability
company in good standing under the laws of the State of New York, has the limited
liability company power and authority to own its property and to conduct its business as
described in the Time of Sale Prospectus and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification of the Adviser. The Adviser
has no subsidiaries
(b) The Adviser is duly registered as an investment adviser under the Advisers Act,
and is not prohibited by the Advisers Act or the Investment Company Act from acting under
the Investment Advisory Agreement as an investment adviser to the Fund as contemplated by
the Time of Sale Prospectus, and no order of suspension or revocation of such registration
has been issued or proceedings therefor initiated or threatened by the Commission.
(c) Each of this Agreement, the Investment Advisory Agreement, the Marketing and
Structuring Fee Agreement between Morgan Stanley & Co. Incorporated and the Adviser dated
January [
], 2011 (the
Morgan Stanley Fee Agreement
), the Structuring Fee Agreement
between Citigroup Global Markets Inc. and the Adviser dated January [
], 2011 (the
Citi
Fee Agreement
) and the Structuring Fee Agreement between Merrill Lynch, Pierce, Fenner &
Smith Incorporated and the Adviser dated January [
], 2011 (the M
errill Lynch Fee
Agreement
) (this Agreement, the Investment Advisory Agreement, the Morgan Stanley Fee
Agreement, the Citi Fee Agreement and the Merrill Lynch Fee Agreement are referred to
herein, collectively, as the
Adviser Agreements
) has been duly authorized, executed and
delivered by the Adviser and complies with all applicable provisions of the Acts, the
Advisers Act and the applicable Rules and Regulations. Each of the Adviser Agreements,
other than this Agreement, assuming due authorization, execution and delivery by the other
parties thereto, is a valid and binding agreement of the Adviser, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors rights generally and by equitable principles of general
applicability.
12
(d) The execution and delivery by the Adviser of, and the performance by the Adviser
of its obligations under the Adviser Agreements will not contravene (i) the certificate of
formation or operating agreement of the Adviser, (ii) any agreement or other instrument
binding upon the Adviser, or (iii) any provision of applicable law, judgment, order or
decree of any governmental body, agency or court having jurisdiction over the Adviser,
whether foreign or domestic. No consent, approval, authorization, order or permit of, or
qualification with, any governmental body or agency, self-regulatory organization or court
or other tribunal, whether foreign or domestic, is required for the performance by the
Adviser of its obligations under the Adviser Agreements, except such as have been obtained
and as may be required by the Acts, the Advisers Act, the Exchange Act or the applicable
Rules and Regulations, or by the securities or Blue Sky laws of the various states and
foreign jurisdictions in connection with the offer and sale of the Shares, or such as
which failure to obtain would neither have (i) a material adverse effect on the condition,
(financial or otherwise), business prospects, earnings, business, properties, management
or personnel of the Adviser, whether or not arising from transactions in the ordinary
course of business (an
Adviser Material Adverse Effect
) or (ii) an adverse effect on the
consummation of the transactions contemplated by this Agreement or on any Underwriter.
(e) There are no legal or governmental proceedings pending or threatened to which the
Adviser or any parent or subsidiary of the Adviser or any partners, directors, officers or
employees of the foregoing is a party or to which any of the properties of the Adviser is
subject (i) other than proceedings accurately described in all material respects in the
Time of Sale Prospectus and proceedings that would not have an Adviser Material Adverse
Effect or an adverse effect on the power or ability of the Adviser to perform its
obligations under this Agreement or to consummate the transactions contemplated by the
Time of Sale Prospectus or (ii) that are required to be described in the Registration
Statement or the Prospectus and are not so described; and there are no statutes,
regulations, contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(f) The Adviser has all necessary consents, authorizations, approvals, orders
(including exemptive orders), certificates and permits (collectively,
Government
Licenses
) of and from, and has made all declarations and filings with, all governmental
authorities, self-regulatory organizations and courts and other tribunals, whether foreign
or domestic, to own and use its assets and to conduct its business in the manner described
in the Registration Statement, Time of Sale Prospectus and
13
Prospectus, except to the extent that the failure to obtain or file the foregoing
would not have a material adverse effect on the Adviser or on the Fund. The Adviser is in
compliance with the terms and conditions of all such Governmental Licenses; all of the
Governmental Licenses are valid and in full force and effect; and the Adviser has not
received any notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or earnings, business affairs or business
prospects of the Adviser, to materially and adversely affect the properties or assets of
the Adviser or to materially impair or adversely affect the ability of the Adviser to
function as an investment adviser or perform its obligations under the Investment Advisory
Agreement or this Agreement.
(g) The Adviser has the financial resources available to it necessary for the
performance of its services and obligations as contemplated in the Time of Sale Prospectus
and by the Adviser Agreements.
(h) The Investment Advisory Agreement is in full force and effect and neither the
Fund nor the Adviser is in default thereunder, and, no event has occurred which with the
passage of time or the giving of notice or both would constitute a default under such
document. The Adviser is not in is not in violation of its organizational documents or in
default under any agreement, indenture or instrument, where such violation or default
would reasonably be expected to have an Adviser Material Adverse Effect.
(i) The description of the Adviser and its business and the statements attributable
to the Adviser in the Registration Statement, the Time of Sale Prospectus and Prospectus,
including, without limitation, the description of the Adviser, does not, and on the
Closing Date will not, contain any untrue statement of a material fact or omit to state
any material fact necessary to make such information not misleading.
(j) There has not occurred any material adverse change, or any development involving
a prospective material adverse change, in or affecting the condition (financial or
otherwise), business prospects, earnings, business, properties, management or personnel of
the Adviser from that set forth in the Time of Sale Prospectus, and there have been no
transactions entered into by the Adviser which are material to the Adviser other than
those in the ordinary course of its business or as described in the Time of Sale
Prospectus.
14
(k) In the event that the Fund or the Adviser makes available any promotional
materials related to the Securities or the transactions contemplated hereby intended for
use only by registered broker-dealers and registered representatives thereof by means of
an Internet web site or similar electronic means, the Adviser will install and maintain or
will cause to be installed and maintained, pre qualification and password protection or
similar procedures which are reasonably designed to effectively prohibit access to such
promotional materials by persons other than registered broker-dealers and registered
representatives thereof.
(l) The Adviser has not taken, directly or indirectly, any action designed to or that
would constitute or that might reasonably be expected to cause or result in violation of
federal securities laws, in stabilization or manipulation of the price of any security of
the Fund to facilitate the sale or resale of the Shares, and the Adviser is not aware of
any such action taken or to be taken by any affiliates of the Adviser.
(m) The operations of the Adviser and its subsidiaries are and have been conducted at
all times in compliance with applicable Money Laundering Laws and no action, suit or
proceeding by or before any court or governmental agency, authority or body or any
arbitrator involving the Adviser or any of its subsidiaries with respect to the Money
Laundering Laws is pending or, to the best knowledge of the Adviser, threatened.
(n) The Adviser maintains a system of internal controls sufficient to provide
reasonable assurance that (i) transactions effectuated by it under the Investment Advisory
Agreement are executed in accordance with its managements general or specific
authorization; and (ii) access to the Funds assets is permitted only in accordance with
its managements general or specific authorization.
3.
Agreements to Sell and Purchase.
The Fund hereby agrees to sell to the several
Underwriters, and each Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to
purchase from the Fund the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $[19.10] a share (the
Purchase Price
).
On the basis of the representations and warranties contained in this Agreement, and subject to
its terms and conditions, the Fund agrees to sell to the Underwriters the Additional Shares, and
the Underwriters shall have the right to purchase, severally and not jointly, up to [
] Additional
Shares at the Purchase Price. You may exercise this right on behalf of the Underwriters in whole
or from time to time in part by giving written notice not later than 45 days after the date of this
Agreement. Any exercise notice shall specify the number of Additional Shares to be purchased by
the Underwriters and the date on which such shares are
15
to be purchased. Each purchase date must be at least one business day after the written
notice is given and may not be earlier than the closing date for the Firm Shares or later than ten
business days after the date of such notice. Additional Shares may be purchased as provided in
Section 5 hereof solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. On each day, if any, that Additional Shares are to be purchased (an
Option Closing Date
), each Underwriter agrees, severally and not jointly, to purchase the number
of Additional Shares (subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional Shares to be purchased
on such Option Closing Date as the number of Firm Shares set forth in Schedule I hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
The Fund hereby agrees that, without the prior written consent of Morgan Stanley & Co.
Incorporated, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated
on behalf of the Underwriters, it will not, during the period ending 180 days after the date of the
Prospectus, (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any Common Shares or any securities
convertible into or exercisable or exchangeable for Common Shares or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Shares, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise
or (3) file any registration statement with the Commission relating to the offering of any Common
Shares or any securities convertible into or exercisable or exchangeable for Common Shares,
provided, however
, that the Fund may issue and sell Common Shares pursuant to the Plan.
Notwithstanding the foregoing, if (i) during the last 17 days of the 180-day restricted period, the
Fund issues an earnings release or announces material news or a material event relating to the
Fund; or (ii) prior to the expiration of the 180-day restricted period, the Fund announces that it
will release earnings results during the 16-day period beginning on the last day of the 180-day
restricted period, the restrictions described above shall continue to apply until the expiration of
the 18-day period beginning on the date of the earnings release or the announcement of the material
news or material event. The agreements contained in this paragraph shall not apply to the Shares to
be sold hereunder, any Common Shares issued pursuant to the Plan or any preferred share issued by
the Fund.
4.
Terms of Public Offering
. The Fund and the Adviser are advised by you that the
Underwriters propose to make a public offering of their respective portions of the Shares as soon
after the Registration Statement and this Agreement have become effective as in your judgment is
advisable. The Fund and the Adviser are further advised by you that the Shares are to be offered
to the public
16
initially at $[20.00] a share (the
Public Offering Price
), and to certain dealers selected
by you at a price that represents a concession not in excess of $[0.60] a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not
in excess of $[0.10] a share, to any Underwriter or to certain other dealers.
5.
Payment and Delivery.
Payment for the Firm Shares shall be made to the Fund in Federal or
other funds immediately available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 A.M. (New York City time), on [
], or at
such other time on the same or such other date, not later than [
], as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as the
Closing
Date
.
Payment for any Additional Shares shall be made to the Fund in Federal or other funds
immediately available in New York City against delivery of such Additional Shares for the
respective accounts of the several Underwriters at 10:00 A.M. (New York City time), on the date
specified in the corresponding notice described in Section 3 or at such other time on the same or
on such other date, in any event not later than [
], as shall be designated in writing by you.
The Firm Shares and Additional Shares shall be registered in such names and in such
denominations as you shall request in writing not later than one full business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be. The Firm Shares and
Additional Shares shall be delivered to you through the facilities of DTC on the Closing Date or an
Option Closing Date, as the case may be, for the respective accounts of the several Underwriters,
with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters
duly paid, against payment of the Purchase Price therefor.
6.
Conditions to the Underwriters Obligations
. The respective obligations of the Fund and
the Adviser and the several obligations of the Underwriters hereunder are subject to the condition
that the Registration Statement shall have become effective not later than 2:00 P.M. (New York City
time) on the date hereof.
The several obligations of the Underwriters are subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and prior to the
Closing Date, in the case of the Fund there shall not have occurred any change, or any
development involving a prospective change, in or affecting the condition (financial or
otherwise), business prospects, earnings, business or properties of the Fund, from that
set forth in the Time of Sale Prospectus, and, in the case of the Adviser, there shall not
have occurred any change or any development involving a prospective
17
change, in or affecting the condition (financial or otherwise), business prospects,
earnings, business, properties, management or personnel of the Adviser, in each case,
that, in your judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner contemplated in the Time
of Sale Prospectus.
(b) The Underwriters shall have received on the Closing Date certificates, dated the
Closing Date and signed by an executive officer of each of the Fund and the Adviser, to
the effect (i) that no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are, as of the Closing Date,
pending before or threatened by the Commission, (ii) that the representations and
warranties of the Fund and the Adviser contained in this Agreement are true and correct as
of the Closing Date, (iii) that each of the Fund and the Adviser has complied with all of
the agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date and (iv) as set forth in paragraph (a)
above, with respect to the Fund or the Adviser, as applicable.
Each officer signing and delivering such a certificate may rely upon the best of his or her
knowledge as to proceedings threatened.
(c) The Adviser and the Fund shall have performed all of their respective obligations
to be performed hereunder on or prior to the Closing Date.
(d) The Underwriters shall have received on the Closing Date an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel for the Fund, dated the Closing Date and
addressed to the Underwriters, in form and substance reasonably satisfactory to Morgan
Stanley & Co. Incorporated, Citigroup Global Markets Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to the effect set forth in Exhibit A hereto and to such
further effect as counsel to Morgan Stanley & Co. Incorporated, Citigroup Global Markets
Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated may reasonably request. The
opinion of special counsel for the Fund shall state that Simpson Thacher & Bartlett LLP,
counsel for the Underwriters, may rely on such opinion as to matters of Delaware law for
the purposes of rendering its opinion referenced in Section 6(f).
(e) The Underwriters shall have received on the Closing Date an opinion of David M.
Goldman, counsel for the Adviser, dated the Closing Date, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced copies of
such letter for each of the other Underwriters, to the effect set forth in Exhibit B
hereto and to such further effect as counsel to the Underwriters may reasonably request.
18
(f) The Underwriters shall have received on the Closing Date the favorable opinion of
Simpson Thacher & Bartlett LLP, counsel for the Underwriters, dated the Closing Date, and
covering such matters as the Underwriters shall reasonably request.
With respect to Section [ ] above, Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel for the Fund, may state that their opinions and beliefs are based upon their participation
in the preparation of the Registration Statement, Time of Sale Prospectus and Prospectus and any
amendments or supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification, except as specified.
The opinions of Skadden, Arps, Slate, Meagher & Flom LLP special counsel for the Fund and [
],
counsel to the Adviser described in Sections 6(d) and 6(e) above, respectively, shall be rendered
to the Underwriters at the request of the Fund and shall so state therein.
(g) The Underwriters shall have received on the Closing Date a certificate from a
duly authorized officer of the Custodian, certifying that the Custodian Agreement is in
full force and effect and is a valid and binding agreement of the Custodian.
(h) The Underwriters shall have received on the Closing Date a certificate from a
duly authorized officer of the Transfer Agent, certifying that the Transfer Agency
Agreement is in full force and effect and is a valid and binding agreement of the Transfer
Agent.
(i) The Underwriters shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and
substance satisfactory to the Underwriters, from PricewaterhouseCoopers LLP, independent
public accountants, containing statements and information of the type ordinarily included
in accountants comfort letters to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement and the Time of
Sale Prospectus,
provided
that the letter delivered on the Closing Date shall use a
cut-off date not earlier than the date hereof.
(j) All filings, applications and proceedings taken by the Fund and the Adviser in
connection with the organization and registration of the Fund and the Shares under the
Acts and the applicable Rules and Regulations shall be satisfactory in form and substance
to you and counsel for the Underwriters.
19
(k) No action, suit, proceeding, inquiry or investigation shall have been instituted
or threatened by the Commission which would adversely affect the Funds standing as a
registered investment company under the Investment Company Act or the standing of the
Adviser as a registered investment adviser under the Advisers Act.
(l) The Shares shall have been duly authorized for listing on the New York Stock
Exchange, subject only to official notice of issuance thereof.
(m) On the Closing Date, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of enabling them to pass
upon the issuance and sale of the Shares as herein contemplated, or in order to evidence
the accuracy of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Fund and the Adviser in
connection with the organization and registration of the Fund under the 1940 Act and the
issuance and sale of the Shares as herein contemplated shall be satisfactory in form and
substance to the Underwriters and counsel for the Underwriters.
The several obligations of the Underwriters to purchase Additional Shares hereunder are
subject to the delivery to you on the applicable Option Closing Date of such documents as you may
reasonably request with respect to the good standing of the Fund and the Adviser, the due
authorization and issuance of the Additional Shares to be sold on such Option Closing Date and
other matters related to the issuance of such Additional Shares, and officers certificates and
opinions of Skadden, Arps, Slate, Meagher & Flom LLP, [
], special counsel for the Fund, counsel to
the Adviser, and Simpson Thacher & Bartlett LLP to the effect set forth above, except that such
certificates and opinions shall be dated as of the applicable Option Closing Date and statements
and opinions above contemplated to be given as of the Closing Date shall instead be made and given
as of such Option Closing Date.
7.
Covenants of the Fund and the Adviser
. In further consideration of the agreements of the
Underwriters herein contained, the Fund and the Adviser, jointly and severally, covenant and agree
with each Underwriter as follows:
(a) To notify you immediately, and confirm such notice in writing, (i) of the
institution of any proceedings pursuant to Section 8(e) of the Investment Company Act,
(ii) of the happening of any event during the period mentioned in Section 7(h) below which
in the judgment of the Fund makes any statement in the Notification, the Registration
Statement the
20
Time of Sale Prospectus, any Omitting Prospectus or the Prospectus untrue in
any material respect or which requires the making of any change in or addition to the
Notification, the Registration Statement, the Time of Sale Prospectus, any Omitting Prospectus or the Prospectus in order to make the
statements therein not misleading in any material respect and (iii) if the Fund becomes
the subject of a proceeding under Section 8A of the Securities Act in connection with the
offering of the Shares. The Fund shall make every reasonable effort to prevent the
issuance of any order suspending the effectiveness of the Registration Statement or an
order pursuant to Section 8(e) of the Investment Company Act, and if such stop order or
order of suspension or revocation of registration is issued the Fund will make every
reasonable effort to obtain the lifting thereof at the earliest possible moment.
(b) To furnish to you, without charge, three signed copies of the Notification, the
Registration Statement (including exhibits thereto) and any amendments thereto and for
delivery to each other Underwriter a conformed copy of the Notification, the Registration
Statement (without exhibits thereto), and any amendments thereto and to furnish to you in
New York City, without charge, prior to 10:00 A.M. (New York City time) on the business
day next succeeding the date of this Agreement and during the period mentioned in Section
7(d) below, as many copies of the Time of Sale Prospectus, Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may reasonably request.
The Time of Sale Prospectus, Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(c) Before amending or supplementing the Registration Statement, the Time of Sale
Prospectus or the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which you
reasonably object, and to file with the Commission within the applicable period specified
in Rule 497 of the Rules and Regulations any prospectus required to be filed pursuant to
such Rule.
(d) To furnish to you a copy of each proposed Omitting Prospectus to be prepared by
or on behalf of, used by, or referred to by the Fund and not to use or refer to any
proposed Omitting Prospectus to which you reasonably object.
(e) If the Time of Sale Prospectus is being used to solicit offers to buy the Shares
at a time when the Prospectus is not yet available to
21
prospective purchasers and any event shall occur or condition exist as a result of which it is necessary to amend or supplement
the Time of Sale Prospectus in order to make the statements therein, in the light of the
circumstances, not misleading, or if any event shall occur or condition exist as a
result of which the Time of Sale Prospectus conflicts with the information contained in
the Registration Statement then on file, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Time of Sale Prospectus to comply
with applicable law, forthwith to prepare, file with the Commission and furnish, at its
own expense, to the Underwriters and to any dealer upon request, either amendments or
supplements to the Time of Sale Prospectus so that the statements in the Time of Sale
Prospectus as so amended or supplemented will not, in the light of the circumstances when
delivered to a prospective purchaser, be misleading or so that the Time of Sale
Prospectus, as amended or supplemented, will no longer conflict with the Registration
Statement, or so that the Time of Sale Prospectus, as amended or supplemented, will comply
with applicable law.
(f) The Fund will use the net proceeds received by it from the sale of the Shares in
the manner specified in the Time of Sale Prospectus under the caption Use of Proceeds.
(g) The Fund and the Adviser will not take any action designed to cause or result in
the manipulation of the price of any security of the Fund to facilitate the sale of Shares
in violation of the Acts or the Securities Act and the applicable Rules and Regulations,
or the securities or Blue Sky laws of the various states and foreign jurisdictions in
connection with the offer and sale of Shares.
(h) If, during such period after the first date of the public offering of the Shares
as in the opinion of counsel for the Underwriters the Prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel
for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses you will
furnish to the Fund) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or supplements to
the Prospectus so that the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply with law.
22
(i) The Fund will comply with the requirements of Subchapter M of the Code to qualify
as a regulated investment company under the Code.
(j) The Fund will use its best efforts, in cooperation with the Underwriters, to
qualify the Shares for offering and sale under the applicable securities laws of such
states and other jurisdictions of the United States as Morgan Stanley & Co. Incorporated,
Citigroup Global Markets and Merrill Lynch, Pierce, Fenner & Smith Incorporated may
designate and to maintain such qualifications in effect for a period of not less than one
year from the later of the effective date of the Registration Statement; provided,
however, that the Fund shall not be obligated to file any general consent to service of
process or to qualify as a foreign entity or as a dealer in securities in any jurisdiction
in which it is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction
in which the Securities have been so qualified, the Fund will file such statements and
reports as may be required by the laws of such jurisdiction to continue such qualification
in effect for a period of not less than one year from the effective date of the
Registration Statement.
(k) The Fund, during the period when the Prospectus is required to be delivered under
the Securities Act or the Exchange Act, will file all documents required to be filed with
the Commission pursuant to the Investment Company Act and the Exchange Act within the time
periods required by the Investment Company Act and the Rules and Regulations.
(l) The Fund will comply with all applicable securities and other applicable laws,
rules and regulations, including, without limitation, the Sarbanes-Oxley Act, and will use
its reasonable best efforts to cause the Funds trustees and officers, in their capacities
as such, to comply with such laws, rules and regulations, including, without limitation,
the provisions of the Sarbanes-Oxley Act.
(m) To make generally available to the Funds security holders and to you as soon as
practicable an earning statement covering a period of at least twelve months beginning
with the first fiscal quarter of the Fund occurring after the date of this Agreement which
shall satisfy the provisions of Section 11(a) of the Securities Act and the Rules and
Regulations, including Rule 158, of the Commission thereunder.
23
(n) Whether or not the transactions contemplated in this Agreement are consummated or
this Agreement is terminated, to pay or cause to be paid all expenses incident to the
performance of the obligations of the Fund and the Adviser under this Agreement,
including: (i) the fees, disbursements and expenses of the Funds counsel and the Funds
accountants in connection with the registration and delivery of the Shares under the
Securities Act and all other fees or expenses in connection with the preparation and
filing of the Notification, the Registration Statement, any preliminary prospectus, the
Time of Sale Prospectus, the Prospectus, and any Omitting Prospectus prepared by or on
behalf of, used by, or referred to by the Fund and amendments and supplements to any of
the foregoing, including all printing costs associated therewith, and the mailing and
delivering of copies thereof to the Underwriters and dealers, in the quantities
hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of
the Shares to the Underwriters, including any transfer or other taxes payable thereon,
(iii) the cost of printing or producing any Blue Sky memorandum in connection with the
offer and sale of the Shares under state securities laws and all expenses in connection
with the qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(j) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky memorandum, (iv) all filing fees and the reasonable fees and
disbursements of counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by FINRA, (v) all fees and expenses in
connection with the preparation and filing of the registration statement on Form 8-A
relating to the Common Shares and all costs and expenses incident to listing the Shares on
the New York Stock Exchange, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or depositary, (viii)
the costs and expenses of the Fund relating to investor presentations on any road show
undertaken in connection with the marketing of the offering of the Shares, including,
without limitation, expenses associated with the preparation or dissemination of any
electronic road show, expenses associated with production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Fund, travel and lodging expenses of the
representatives and officers of the Fund and any such consultants, and the cost of any
aircraft chartered in connection with the road show, (ix) the document production charges
and expenses associated with printing this Agreement and (x) all other costs and expenses
incident to the performance of the obligations of the Fund hereunder for which provision
is not otherwise made in this Section. It is understood, however, that except as provided
in this Section, Section 8 entitled Indemnity and
24
Contribution and the last paragraph of Section 10 below, the Underwriters will pay all of their costs and expenses, including
fees and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any offers they may make.
(o) The Fund will not declare or pay any dividend or other distribution on any of the
Common Shares unless a holder of such Common Shares that was not a holder of record until
the close of business on [
] would be entitled to receive the full amount thereof.
8.
Indemnity and Contribution.
(a) Each of the Fund and the Adviser, jointly and severally,
agrees to indemnify and hold harmless each Underwriter, each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, each agent of any Underwriter and each director, officer or affiliate of any
Underwriter within the meaning of Rule 405 of the Rules and Regulations from and against any and
all losses, claims, damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any such action or
claim), caused by any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, any Omitting Prospectus, any preliminary
prospectus (including any statement of additional information incorporated therein by reference),
the Time of Sale Prospectus, or the Prospectus or any amendment or supplement thereto, or caused by
any omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Underwriter furnished to the Fund in
writing by such Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless each of the Fund and the Adviser, its directors or trustees (as the case may be),
and each officer of the Fund who signs the Registration Statement and each person, if any,
who controls the Fund or the Adviser within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Fund and the Adviser to such Underwriter, but only with reference to
information relating to such Underwriter furnished to the Fund in writing by such
Underwriter through you expressly for use in the Registration Statement, any preliminary
prospectus (including any statement of additional information incorporated therein by
reference), the Time of Sale Prospectus, any Omitting Prospectus or Prospectus or any
amendments or supplements thereto.
25
(c) In case any proceeding (including any governmental investigation) shall be
instituted involving any person in respect of which indemnity may be sought pursuant to
Section 8(a) or 8(b), such person (the
indemnified party
) shall promptly notify the
person against whom such indemnity may be sought (the
indemnifying party
) in writing and
the indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified party and
any others the indemnifying party may designate in such proceeding and shall pay the fees
and disbursements of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party shall not,
in respect of the legal expenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (i) the fees and
expenses of more than one separate firm (in addition to any local counsel) for all
Underwriters and all persons, if any, who control any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, all persons who
are agents of any Underwriters or all persons who are directors, officers or affiliates of
any Underwriters within the meaning of Rule 405 of the Rules and Regulations, (ii) the
fees and expenses of more than one separate firm (in addition to any local counsel) for
the Fund, its trustees, its officers who sign the Registration Statement and each person,
if any, who controls the Fund within the meaning of either such Section, and (iii) the
fees and expenses of more than one separate firm (in addition to any local counsel) for
the Adviser, its directors or trustees, as the case may be, and each person, if any, who
controls the Adviser within the meaning of either such Section, and that all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such separate firm
for the Underwriters and such control persons, agents, directors, officers and affiliates
of any Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated. In the case of any such separate firm for the Fund, and such directors,
officers and control persons of the Fund, such firm shall be designated in writing by the
Fund. In the case of any such separate firm
26
for the Adviser, and such directors and control persons of the Adviser, such firm shall be designated in writing by the Adviser.
The indemnifying party shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party shall have
requested an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 8(a) or 8(b) is
unavailable to an indemnified party or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Fund and the Adviser on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Fund and the Adviser on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Fund and the Adviser on the one hand and the
Underwriters on the other hand in connection with the offering of the Shares shall be
deemed to be in the same respective proportions as the net proceeds from the offering of
the Shares (before deducting expenses) received by the Fund and the total underwriting
discounts and commissions received by the Underwriters, in each case as set forth in the
table on the cover of the Prospectus, bear to
27
the aggregate Public Offering Price of the Shares. The relative fault of the Fund and the Adviser on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Fund or any of
the Adviser or by the Underwriters and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission. The
Underwriters respective obligations to contribute pursuant to this Section 8 are several
in proportion to the respective number of Shares they have purchased hereunder, and not
joint. The Adviser agrees to pay any amounts that are payable by the Fund pursuant to
this paragraph to the extent that the Fund fails to make all contributions required to be
made by the Fund pursuant to this Section 8.
(e) The Fund, the Adviser and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Section 8 were determined by
pro rata
allocation (even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable considerations
referred to in Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be
deemed to include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this Section 8, no
Underwriter shall be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The remedies provided
for in this Section 8 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this Section 8 and the
representations, warranties and other statements of the Fund and the Adviser contained in
this Agreement shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of any
Underwriter, any person controlling any Underwriter, any agent of any Underwriter or any
director, officer and affiliate of any Underwriter or by
28
or on behalf of the Adviser, its officers or directors or any person controlling the Adviser or by or on behalf of the
Fund, its officers or trustees or any person controlling the Fund and (iii) acceptance of and payment for
any of the Shares.
9.
Termination
. The Underwriters may terminate this Agreement by notice given by you to the
Fund, if after the execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on, or by, as the case may be,
any of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Market, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade,
(ii) trading of any securities of the Fund shall have been suspended on any exchange or in any
over-the-counter market, (iii) a material disruption in securities settlement, payment or clearance
services in the United States shall have occurred, (iv) any moratorium on commercial banking
activities shall have been declared by Federal or New York State authorities or (v) there shall
have occurred any outbreak or escalation of hostilities, or any change in financial markets,
currency exchange rates or controls or any calamity or crisis that, in your judgment, is material
and adverse and which, singly or together with any other event specified in this clause (v), makes
it, in your judgment, impracticable or inadvisable to proceed with the offer, sale or delivery of
the Shares on the terms and in the manner contemplated in the Time of Sale Prospectus or the
Prospectus.
10.
Effectiveness; Defaulting Underwriters
. This Agreement shall become effective upon the
execution and delivery hereof by the parties hereto.
If, on the Closing Date or an Option Closing Date, as the case may be, any one or more of the
Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase
hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate
number of the Shares to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the number of Firm Shares set forth opposite their respective
names in Schedule I bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date;
provided
that in no event shall the number of Shares that any Underwriter
has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased on
29
such date, and arrangements satisfactory to you and the Fund for the purchase of such Firm Shares are not made
within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Fund.
In any such case either you or the Fund shall have the right to postpone the Closing Date, but in
no event for longer than seven days, in order that the required changes, if any, in the
Registration Statement, in the Time of Sale Prospectus, in the Prospectus or in any other documents
or arrangements may be effected. If, on an Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares
with respect to which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such Option Closing Date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase the Additional Shares
to be sold on such Option Closing Date or (ii) purchase not less than the number of Additional
Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them, because of any
failure or refusal on the part of the Fund or the Adviser to comply with the terms or to fulfill
any of the conditions of this Agreement, or if for any reason the Fund or the Adviser shall be
unable to perform its obligations under this Agreement, the Fund and the Adviser, jointly and
severally, will reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees
and disbursements of their counsel) reasonably incurred by such Underwriters in connection with
this Agreement or the offering contemplated hereunder.
11.
Entire Agreement
. (a) This Agreement, together with any contemporaneous written
agreements and any prior written agreements (to the extent not superseded by this Agreement) that
relate to the offering of the Shares, represents the entire agreement between the Fund, the Adviser
and the Underwriters with respect to the preparation of any preliminary prospectus, the Time of
Sale Prospectus, the Prospectus, the conduct of the offering, and the purchase and sale of the
Shares.
(b) The Fund and the Adviser acknowledge that in connection with the offering of the
Shares: (i) the Underwriters have acted at arms length, are not agents of, and owe no
fiduciary duties to, the Fund, the Adviser or any other person, (ii) the Underwriters owe
the Fund and the Adviser only those duties and obligations set forth in this Agreement and
prior written agreements (to the extent not superseded by this Agreement), if any, and
(iii) the Underwriters may have interests that differ from those of the Fund and the
Adviser. The Fund and the Adviser waive to the full
30
extent permitted by applicable law any claims any of them may have against the Underwriters arising from an alleged breach of fiduciary duty in
connection with the offering of the Shares.
12.
Counterparts
. This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and hereto were upon the
same instrument.
13.
Applicable Law
. This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York.
14.
Headings
. The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed a part of this Agreement.
15.
Notices
. All communications hereunder shall be in writing and effective only upon
receipt and if to the Underwriters shall be delivered, mailed or sent to you in care of
Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York 10036, Attention:
Equity Syndicate Desk, with a copy to the Legal Department; if to the Fund, shall be
delivered, mailed or sent to One Corporate Center, Rye, New York 10580-1422; and if to
the Adviser, shall be delivered, mailed or sent to One Corporate Center, Rye, New York
10580-1422.
31
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Very truly yours,
THE GABELLI NATURAL
RESOURCES, GOLD & INCOME
TRUST
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By:
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Name:
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Title:
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GABELLI FUNDS, LLC
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By:
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Name:
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Title:
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Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Citigroup Global Markets Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Acting severally on behalf of themselves and
the several Underwriters named in
Schedule I hereto
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By:
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Morgan Stanley & Co. Incorporated
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By:
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Name:
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Title:
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SCHEDULE I
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Number of Firm
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Shares To Be
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Underwriter
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Purchased
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Morgan Stanley & Co. Incorporated
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Citigroup Global Markets Inc.
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Total:
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I-1
SCHEDULE II
Omitting Prospectuses
1.
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Retail Omitting Prospectus:
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[Client guide] dated _____, 200__.
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2.
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The following documents labeled
For Registered Representative Use Only
:
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[Broker-dealer guide] dated _____, 200__.
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[Broker-dealer PowerPoint presentation] dated _____, 200__.
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3.
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Press release dated _____, 200__.
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II-1
SCHEDULE III
Oral information, if any, included as part of the General Disclosure Package
(1) The number of common shares of beneficial interest (par value $0.001 per share) offered by
the Fund (assuming no exercise of the underwriters overallotment option) is [
], the initial
public offering price of those shares is $[20.00] and the underwriting discounts and commissions
are [
]%.
III-1
[FORM OF]
OPTION EXERCISE NOTICE
[OPTION EXERCISE DATE]
THE GABELLI NATURAL
RESOURCES, GOLD & INCOME
TRUST
One Corporate Center
Rye, New York 10580-1422
GABELLI FUNDS, LLC
One Corporate Center
Rye, New York 10580-1422
Ladies and Gentlemen:
We refer to the Underwriting Agreement dated January [
], 2011 (the Underwriting Agreement)
among Gabelli Funds, LLC and Morgan Stanley & Co. Incorporated, as representative of the several
Underwriters listed in Schedule I thereto; capitalized terms being used herein as therein defined.
We hereby exercise an option to purchase [
] Additional Shares, on the basis of the representations
and warranties contained in the Underwriting Agreement, and subject to its terms and conditions.
Such Additional Shares will be purchased on [OPTION EXERCISE DATE] (which shall be an Option
Closing Date) at the offices of Simpson Thacher & Bartlett LLP, New York, New York, at 10:00 A.M.
(New York City time). This option exercise is without prejudice to the Underwriters right under
the Underwriting Agreement to exercise one or more options covering some or all of the remaining
Additional Shares.
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Very truly yours,
Morgan Stanley & Co. Incorporated,
as representative of the several
underwriters listed in Schedule I to
the Underwriting Agreement
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By:
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Name:
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Title:
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Exhibit 99(h)(ii)
Morgan Stanley & Co. Incorporated
MASTER AGREEMENT AMONG UNDERWRITERS
REGISTERED SEC OFFERINGS
(INCLUDING MULTIPLE SYNDICATE OFFERINGS)
AND
EXEMPT OFFERINGS
(OTHER THAN OFFERINGS OF MUNICIPAL SECURITIES)
April 1, 2009
This Master Agreement Among Underwriters (this
Master
AAU
), dated as of April 1, 2009, is by and
between Morgan Stanley & Co. Incorporated
(
Morgan Stanley,
or
we
) and the party named on the signature page
hereof (an
Underwriter,
as defined in
Section 1.1 hereof, or
you
). From time
to time we or one or more of our affiliates may invite you (and
others) to participate on the terms set forth herein as an
underwriter or an initial purchaser, or in a similar capacity,
in connection with certain offerings of securities that are
managed solely by us or with one or more other co-managers. If
we invite you to participate in a specific offering and sale of
securities (an
Offering
) to which this Master
AAU will apply, we will send the information set forth in
Section 1.1 hereof to you by one or more wires, telexes,
telecopy or electronic data transmissions, or other written
communications (each, a
Wire,
and
collectively, an
AAU
), unless you are
otherwise deemed to have accepted an AAU with respect to such
Offering pursuant to Section 1.2 hereof. Each Wire will
indicate that it is a Wire pursuant to this Master AAU. The Wire
inviting you to participate in an Offering is referred to herein
as an
Invitation Wire.
You and we hereby
agree that by the terms hereof the provisions of this Master AAU
automatically will be incorporated by reference in each AAU,
except that any such AAU may also exclude or revise such
provisions of this Master AAU in respect of the Offering to
which such AAU relates, and may contain such additional
provisions as may be specified in any Wire relating to such AAU.
You and we further agree as follows:
I.
GENERAL
1.1.
Terms of AAU; Certain Definitions;
Construction.
Each AAU will relate to an
Offering, and will identify: (i) the securities to be
offered in the Offering (the
Securities
),
their principal terms, the issuer or issuers (each, an
Issuer
) and any guarantor (each, a
Guarantor
) thereof, and, if different from
the Issuer, the seller or sellers (each, a
Seller
) of the Securities, (ii) the
underwriting agreement, purchase agreement, standby underwriting
agreement, distribution agreement, or similar agreement (as
identified in such AAU and as amended or supplemented, including
a terms agreement or pricing agreement pursuant to any of the
foregoing, collectively, the
Underwriting
Agreement
) providing for the purchase, on a several
and not joint basis, of the Securities by the several
underwriters, initial purchasers, or others acting in a similar
capacity (the
Underwriters
) on whose behalf
the Manager (as defined below) executes the Underwriting
Agreement, and whether such agreement provides for: (x) an
option to purchase Additional Securities (as defined below) to
cover over-allotments, or (y) an offering in multiple
jurisdictions or markets involving two or more syndicates (an
International Offering
), each of which will
offer and sell Securities subject to such restrictions as may be
specified in any Intersyndicate Agreement (as defined below)
referred to in such AAU, (iii) the price at which the
Securities are to be purchased by the several Underwriters from
any Issuer or Seller thereof (the
Purchase
Price
), (iv) the offering terms, including, if
applicable, the price or prices at which the Securities
initially will be offered by the Underwriters (the
Offering Price
), any selling concession to
dealers (the
Selling Concession
), reallowance
(the
Reallowance
), management fee, global
coordinators fee, praecipium, or other similar fees,
discounts, or commissions (collectively, the
Fees and
Commissions
) with respect to the Securities, and
(v) other principal terms of the Offering, which may
include, without limitation: (A) the proposed or actual
pricing date
(Pricing Date)
and settlement
date (the
Settlement Date
), (B) any
contractual restrictions on the offer and sale of the Securities
pursuant to the Underwriting Agreement, Intersyndicate
Agreement, or otherwise, (C) any co-managers for such
Offering (the
Co-Managers
), (D) your
proposed participation in the Offering, and (E) any
trustee, fiscal agent, or similar agent (the
Trustee
) for the indenture, trust agreement,
fiscal agency agreement, or similar agreement (the
Indenture
) under which such Securities will
be issued.
Manager
means Morgan Stanley, except as set
forth in Section 9.9 hereof.
Representative
means the Manager and any
Co-Manager that signs the applicable Underwriting Agreement on
behalf of the Underwriters or is identified as a Representative
in the applicable Underwriting Agreement.
Underwriters
includes the Representative(s),
the Manager, and the Co-Managers.
Firm
Securities
means the number or amount of Securities
that the several Underwriters are initially committed to
purchase under the Underwriting Agreement (which may be
expressed as a percentage of an aggregate number or amount of
Securities to be purchased by the Underwriters, as in the case
of a standby Underwriting Agreement).
Additional
Securities
means the Securities, if any, that the
several Underwriters have an option to purchase under the
Underwriting Agreement
2
to cover over-allotments. The number, amount, or percentage of
Firm Securities set forth opposite each Underwriters name
in the Underwriting Agreement plus any additional Firm
Securities which such Underwriter has made a commitment to
purchase, irrespective of whether such Underwriter actually
purchases or sells such number, amount, or percentage of
Securities under the Underwriting Agreement or Article XI
hereof, is hereinafter referred to as the
Original
Underwriting Obligation
of such Underwriter, and the
ratio which such Original Underwriting Obligation bears to the
total of all Firm Securities set forth in the Underwriting
Agreement (or, in the case of a standby Underwriting Agreement,
to 100%) is hereinafter referred to as the
Underwriting
Percentage
of such Underwriter. For the avoidance of
doubt, each Underwriter acknowledges and agrees that, for all
purposes under this Agreement and otherwise (including, to the
extent applicable, for purposes of Section 11(e) under the
U.S. Securities Act of 1933 (the
1933 Act
)), each Underwriters
Underwriting Percentage of the total number, amount, or
percentage of Securities offered and sold in the Offering
(including any Additional Securities), and only such number,
amount, or percentage, constitutes the securities underwritten
by such Underwriter and distributed to
investors.
2
References herein to laws, statutory and regulatory sections,
rules, regulations, forms, and interpretive materials will be
deemed to include any successor provisions.
1.2.
Acceptance of AAU.
You will
have accepted an AAU for an Offering if: (a) we receive
your acceptance, prior to the time specified in the Invitation
Wire for such Offering, by wire, telex, telecopy or electronic
data transmission, or other written communication (any such
communication being deemed
In Writing
) or
orally (if promptly confirmed In Writing), in the manner
specified in the Invitation Wire, of our invitation to
participate in the Offering, or (b) notwithstanding that we
did not send you an Invitation Wire or you have not otherwise
responded In Writing to any such Wire, you: (i) agree
(orally or by a Wire) to be named as an Underwriter in the
relevant Underwriting Agreement executed by us as Manager, or
(ii) receive and retain an economic benefit for
participating in the Offering as an Underwriter. Your acceptance
of the invitation to participate will cause such AAU to
constitute a valid and binding contract between us. Your
acceptance of the AAU as provided above or an Invitation Wire
will also constitute acceptance by you of the terms of
subsequent Wires to you relating to the Offering unless we
receive In Writing, within the time and in the manner specified
in such subsequent Wire, a notice from you to the effect that
you do not accept the terms of such subsequent Wire, in which
case you will be deemed to have elected not to participate in
the Offering.
1.3.
Underwriters
Questionnaire.
Your acceptance of the Invitation
Wire for an Offering or your participation in an Offering as an
Underwriter will confirm that you have no exceptions to the
Underwriters Questionnaire attached as Exhibit A
hereto (or to any other questions addressed to you in any Wires
relating to the Offering previously sent to you), other than
exceptions noted by you In Writing in connection with the
Offering and received from you by us before the time specified
in the Invitation Wire or any subsequent Wire.
II.
OFFERING MATERIALS; OFFERING AGREEMENTS
2.1.
Registered Offerings.
In the
case of an Offering that will be registered in whole or in part
(a
Registered Offering
) under the
1933 Act, you acknowledge that the Issuer has filed with
the Securities and Exchange Commission (the
Commission
) a registration statement,
including a prospectus relating to the Securities.
Registration Statement
means such
registration statement as amended to the effective date of the
Underwriting Agreement and, in the event that the Issuer files
an abbreviated registration statement to register additional
Securities pursuant to Rule 462(b) or 462(e) under the
1933 Act, such abbreviated registration statement.
Prospectus
means the prospectus, together
with the final prospectus supplement, if any, containing the
final terms of the Securities and, in the case of a Registered
Offering that is an International Offering,
Prospectus
means, collectively, each
prospectus or offering circular, together with each final
prospectus supplement or final offering circular supplement, if
any, relating to the Offering, in the respective forms
containing the final terms of the Securities.
Preliminary Prospectus
means any preliminary
prospectus relating to the Offering or any preliminary
prospectus supplement together with a prospectus relating to the
Offering and, in the case of a Registered Offering that is an
International Offering,
2
Meant
to clarify mechanics of underwriting for purposes of
Section 11(e), and rebut footnote 8 of the
WorldCom
decision (See
In re: Worldcom, Inc. Securities
Litigation
, U.S. Dist. Ct. (SDNY), slip-op 02 Civ 3288,
March 14, 2005 (unpublished).
3
Preliminary Prospectus
means, collectively,
each preliminary prospectus or preliminary offering circular
relating to the Offering or each preliminary prospectus
supplement or preliminary offering circular supplement, together
with a prospectus or offering circular, respectively, relating
to the Offering.
Free Writing Prospectus
means, in the case of a Registered Offering, a free
writing prospectus as defined in Rule 405 under the
1933 Act. As used herein the terms
Registration
Statement,
Prospectus,
Preliminary Prospectus,
and
Free
Writing Prospectus
will include in each case the
material, if any, incorporated by reference therein, and as used
herein, the term
Registration Statement
includes information deemed to be part thereof pursuant to, and
as of the date and time specified in, Rules 430A, 430B, or
430C under the 1933 Act, while the terms
Prospectus
and
Preliminary
Prospectus
include information deemed to be a part
thereof pursuant to the rules and regulations under the
1933 Act, but only as of the actual time that information
is first used or filed with the Commission pursuant to
Rule 424(b) under the 1933 Act. The Manager will
furnish, make available to you, or make arrangements for you to
obtain copies (which may, to the extent permitted by law, be in
electronic form) of each Prospectus and Preliminary Prospectus
(as amended or supplemented, if applicable, but excluding, for
this purpose, unless otherwise required pursuant to rules or
regulations under the 1933 Act, documents incorporated
therein by reference) as soon as practicable after sufficient
quantities thereof have been made available by the Issuer.
As used herein, in the case of an Offering that is an offering
of asset-backed securities, the term
ABS Underwriter
Derived Information
means any analytical or
computational materials as described in clause (5) of
footnote 271 of Commission Release
No. 33-8591,
issued July 19, 2005 (Securities Offering Reform) (the
Securities Offering Reform Release
).
2.2.
Non-Registered Offerings.
In
the case of an Offering other than a Registered Offering, you
acknowledge that no registration statement has been filed with
the Commission.
Offering Circular
means the
final offering circular or memorandum, if any, or any other
final written materials authorized by the Issuer to be used in
connection with an Offering that is not a Registered Offering.
Preliminary Offering Circular
means any
preliminary offering circular or memorandum, if any, or any
other written preliminary materials authorized by the Issuer to
be used in connection with such an Offering. As used herein, the
terms
Offering Circular
and
Preliminary Offering Circular
include the
material, if any, incorporated by reference therein. We will
either, as soon as practicable after the later of the date of
the Invitation Wire or the date made available to us by the
Issuer, furnish to you (or make available for your review) a
copy of any Preliminary Offering Circular or any proof or draft
of the Offering Circular. In any event, in any Offering
involving an Offering Circular, the Manager will furnish, make
available to you, or make arrangements for you to obtain, as
soon as practicable after sufficient quantities thereof are made
available by the Issuer, copies (which may, to the extent
permitted by law, be in electronic form) of the Preliminary
Offering Circular and Offering Circular, as amended or
supplemented, if applicable (but excluding, for this purpose,
documents incorporated therein by reference).
2.3.
Authority to Execute Underwriting and
Intersyndicate Agreements.
You authorize the
Manager, on your behalf: (a) to determine the form of the
Underwriting Agreement and to execute and deliver to the Issuer,
Guarantor, or Seller the Underwriting Agreement to purchase:
(i) up to the number, amount, or percentage of Firm
Securities set forth in the applicable AAU, and (ii) if the
Manager elects on behalf of the several Underwriters to exercise
any option to purchase Additional Securities, up to the number,
amount, or percentage of Additional Securities set forth in the
applicable AAU, subject, in each case, to reduction pursuant to
Article IV; and (b) to determine the form of any
agreement or agreements, including, but not limited to,
underwriting agreements, between or among the syndicates
participating in the Offering or International Offering,
respectively (each, an
Intersyndicate
Agreement
), and to execute and deliver any such
Intersyndicate Agreement.
III.
MANAGERS AUTHORITY
3.1.
Terms of Offering.
You
authorize the Manager to act as manager of the Offering of the
Securities by the Underwriters (the
Underwriters
Securities
) or by the Issuer or Seller pursuant to
delayed delivery contracts (the
Contract
Securities
), if any, contemplated by the Underwriting
Agreement. You authorize the
4
Manager: (i) to purchase any or all of the Additional
Securities for the accounts of the several Underwriters pursuant
to the Underwriting Agreement, (ii) to agree, on your
behalf and on behalf of the Co-Managers, to any addition to,
change in, or waiver of any provision of, or the termination of,
the Underwriting Agreement or any Intersyndicate Agreement
(other than an increase in the Purchase Price or in your
Original Underwriting Obligation to purchase Securities, in
either case from that contemplated by the applicable AAU),
(iii) to add prospective or remove existing Underwriters
from the syndicate, (iv) to exercise, in the Managers
discretion, all of the authority vested in the Manager in the
Underwriting Agreement, (v) except as described below in
this Section 3.1, to take any other action as may seem
advisable to the Manager in respect of the Offering (including,
in the case of an Offering of asset-backed securities, the
preparation and delivery of ABS Underwriter Derived
Information), including actions and communications with the
Commission, the Financial Industry Regulatory Authority
(FINRA,
formerly known as the National
Association of Securities Dealers, Inc., and NASD, Inc., or
NASD
), state blue sky or securities
commissions
,
stock exchanges, and other regulatory bodies
or organizations. Furthermore, the Manager will have exclusive
authority, on your behalf and on behalf of the Co-Managers, to
exercise powers and pursue enforcement of the terms and
conditions of the Underwriting Agreement and any Intersyndicate
Agreement, whether or not actually exercised, except as
otherwise specified herein or therein. If, in accordance with
the terms of the applicable AAU, the Offering of the Securities
is at varying prices based on prevailing market prices, or
prices related to prevailing market prices, or at negotiated
prices, you authorize the Manager to determine, on your behalf
in the Managers discretion, any Offering Price and the
Fees and Commissions applicable to the Offering from time to
time. You authorize the Manager on your behalf to arrange for
any currency transactions (including forward and hedging
currency transactions) as the Manager may deem necessary to
facilitate settlement of the purchase of the Securities, but you
do not authorize the Manager on your behalf to engage in any
other forward or hedging transactions (including interest rate
hedging transactions) in connection with the Offering unless
such transactions are specified in an applicable AAU or are
otherwise consented to by you. You further authorize the
Manager, subject to the provisions of Section 1.2 hereof:
(i) to vary the offering terms of the Securities in effect
at any time, including, if applicable, the Offering Price, Fees,
and Commissions set forth in the applicable AAU, (ii) to
determine, on your behalf, the Purchase Price, and (iii) to
increase or decrease the number, amount, or percentage of
Securities being offered. Notwithstanding the foregoing
provisions of this Section 3.1, the Manager will notify the
Underwriters, prior to the signing of the Underwriting
Agreement, of any provision in the Underwriting Agreement that
could result in an increase in the number, amount, or percentage
of Firm Securities set forth opposite each Underwriters
name in the Underwriting Agreement by more than 25% (or such
other percentage as will have been specified in the applicable
Invitation Wire or otherwise consented to by you) as a result of
the failure or refusal of another Underwriter or Underwriters to
perform its or their obligations thereunder. The Manager may, at
its discretion, delegate to any Underwriter any and all
authority vested in the applicable AAU, including, but not
limited to, the powers set forth in Sections 5.1 and 5.2
hereof.
3.2.
Offering Date.
The Offering is
to be made on or about the time the Underwriting Agreement is
entered into by the Issuer, Guarantor, or Seller and the Manager
as in the Managers judgment is advisable, on the terms and
conditions set forth in the Prospectus or the Offering Circular,
as the case may be, and the applicable AAU. You will not sell
any Securities prior to the time the Manager releases such
Securities for sale to purchasers. The date on which such
Securities are released for sale is referred to herein as the
Offering Date.
3.3.
Communications.
Any public
announcement or advertisement of the Offering will be made by
the Manager on behalf of the Underwriters on such date as the
Manager may determine. You will not announce or advertise the
Offering prior to the date of the Managers announcement or
advertisement thereof without the Managers consent. If the
Offering is made in whole or in part in reliance on any
applicable exemption from registration under the 1933 Act,
you will not engage in any general solicitation, announcement,
or advertising in connection with the Offering, and will abide
by any other restrictions in the AAU or the Underwriting
Agreement in connection therewith relating to any announcement,
advertising, or publicity. Any announcement or advertisement you
may make of the Offering after such date will be your own
responsibility, and at your own expense and risk. In addition to
your compliance with restrictions on the Offering pursuant to
Sections 10.9, 10.10, 10.11, and 10.12 hereof, you will
not, in connection with the offer and sale of the
5
Securities in the Offering, without the consent of the Manager,
give, send, or otherwise convey to any prospective purchaser or
any purchaser of the Securities or other person not in your
employ any written communication (as defined in Rule 405
under the 1933 Act) other than:
(i) any Preliminary Prospectus, Prospectus, Preliminary
Offering Circular, or Offering Circular,
(ii) (A) written confirmations and notices of
allocation delivered to your customers in accordance with
Rules 172 or 173 under the 1933 Act, and written
communications based on the exemption provided by Rule 134
under the 1933 Act, and (B) in the case of Offerings
not registered under the 1933 Act, such written
communications (1) as would be permitted by
Section 3.3(v)(D)(1) below were such Offering registered
under the 1933 Act, or (2) that the Manager or
Underwriting Agreement may permit;
provided, however,
that such written communication under this clause (B) would
not have otherwise constituted
Issuer
Information
as defined below, or would have qualified
for the exemption provided by Rule 134 under the
1933 Act, in each case, if such communication had been
furnished in the context of a Registered Offering
(Supplemental Materials)
,
(iii) any issuer free writing prospectus (as
defined in Rule 433(h) under the 1933 Act, an
Issuer Free Writing Prospectus
), so long as
such issuance or use has been permitted or consented to by the
Issuer and the Manager,
(iv) information contained in any computational materials,
or in the case of an Offering of asset backed securities, the
ABS Underwriter Derived Information, or any other offering
materials not constituting a Free Writing Prospectus concerning
the Offering, the Issuer, the Guarantor, or the Seller, in each
case, prepared by or with the permission of the Manager for use
by the Underwriters in connection with the Offering, and, in the
case of a Registered Offering, filed (if required) with the
Commission or FINRA, as applicable, and
(v) a Free Writing Prospectus prepared by or on behalf of,
or used or referred to by, an Underwriter in connection with the
Offering, so long as: (A) such Free Writing Prospectus is
not required to be filed with the Commission, (B) the
proposed use of such Free Writing Prospectus is permitted by the
Underwriting Agreement, (C) such Free Writing Prospectus
complies with the legending condition of Rule 433 under the
1933 Act, and you comply with the record-keeping condition
of Rule 433, and (D) (1) such Free Writing Prospectus
contains only information describing the preliminary terms of
the Securities and other pricing
data
3
that is not
Issuer Information
(as defined in
Rule 433(h) under the 1933 Act, including footnote 271
of the Securities Offering Reform Release), or (2) the
Issuer has agreed in the Underwriting Agreement to file a final
term sheet under Rule 433 within the time period necessary
to avoid a requirement for any Underwriter to file the Free
Writing Prospectus to be used by such Underwriter, and the Free
Writing Prospectus used by such Underwriter contains only
information describing the terms of the Securities or their
offering that is included in such final term sheet of the Issuer
and other pricing data that is not Issuer Information (a Free
Writing Prospectus meeting the requirements of (A) through
(D) above used, or referred to by you, is referred to
herein as an
Underwriter Free Writing
Prospectus
of yours). Without limiting the foregoing,
any Underwriter Free Writing Prospectus that you use or refer to
will not be distributed by you or on your behalf in a manner
reasonably designed to lead to its broad unrestricted
dissemination. You will comply in all material respects with the
applicable requirements of the 1933 Act and the rules and
regulations thereunder in connection with your use of any
Underwriter Free Writing Prospectus.
Any advertisement or written information published, given, sent,
or otherwise conveyed by you in violation of this
Section 3.3 is referred to as
Unauthorized
Material.
3.4.
Institutional and Retail
Sales.
You authorize the Manager to sell to
institutions and retail purchasers such Securities purchased by
you pursuant to the Underwriting Agreement as the Manager will
determine. The Selling Concession on any such sales will be
credited to the accounts of the Underwriters as the Manager will
determine.
3
Meant
to permit disclosure of non-Issuer related information, such as
benchmark Treasury rate, in preliminary term sheets or price
talk.
6
3.5.
Sales to Dealers.
You
authorize the Manager to sell to Dealers (as defined below) such
Securities purchased by you pursuant to the Underwriting
Agreement as the Manager will determine. A
Dealer
will be a person who is: (a) a
broker or dealer (as defined by FINRA) actually engaged in the
investment banking or securities business, and (i) a member
in good standing of FINRA, or (ii) a
non-U.S. bank,
broker, dealer, or other institution not eligible for membership
in FINRA that, in the case of either clause (a)(i) or (a)(ii),
makes the representations and agreements applicable to such
institutions contained in Section 10.5 hereof, or
(b) in the case of Offerings of Securities that are exempt
securities under Section 3(a)(12) of the Securities
Exchange Act of 1934 (the
1934 Act
), and
such other Securities as from time to time may be sold by a
bank (as defined in Section 3(a)(6) of the
1934 Act (a
Bank
)), a Bank that is not a
member of FINRA and that makes the representations and
agreements applicable to such institutions contained in
Section 10.5 hereof. If the price for any such sales by the
Manager to Dealers exceeds an amount equal to the Offering Price
less the Selling Concession set forth in the applicable AAU, the
amount of such excess, if any, will be credited to the accounts
of the Underwriters as the Manager will determine.
3.6.
Direct Sales.
The Manager will
advise you promptly, on the Offering Date, as to the Securities
purchased by you pursuant to the Underwriting Agreement that you
will retain for direct sale. At any time prior to the
termination of the applicable AAU, any such Securities that are
held by the Manager for sale but not sold may, on your request
and at the Managers discretion, be released to you for
direct sale, and Securities so released to you will no longer be
deemed held for sale by the Manager. You may allow, and Dealers
may reallow, a discount on sales to Dealers in an amount not in
excess of the Reallowance set forth in the applicable AAU. You
may not purchase Securities from, or sell Securities to, any
other Underwriter or Dealer at any discount or concession other
than the Reallowance, except with the prior consent of the
Manager.
3.7.
Release of Unsold
Securities.
From time to time prior to the
termination of the applicable AAU, at the request of the
Manager, you will advise the Manager of the number or amount of
Securities remaining unsold which were retained by or released
to you for direct sale, and of the number or amount of
Securities and Other Securities (as defined below) purchased for
your account remaining unsold which were delivered to you
pursuant to Article V hereof or pursuant to any
Intersyndicate Agreement, and, on the request of the Manager,
you will release to the Manager any such Securities and Other
Securities remaining unsold: (a) for sale by the Manager to
institutions, Dealers, or retail purchasers, (b) for sale
by the Issuer or Seller pursuant to delayed delivery contracts,
or (c) if, in the Managers opinion, such Securities
or Other Securities are needed to make delivery against sales
made pursuant to Article V hereof or any Intersyndicate
Agreement.
3.8.
International Offerings.
In
the case of an International Offering, you authorize the
Manager: (i) to make representations on your behalf as set
forth in any Intersyndicate Agreement, and (ii) to purchase
or sell for your account pursuant to the Intersyndicate
Agreement: (a) Securities, (b) any other securities of
the same class and series, or any securities into which the
Securities may be converted or for which the Securities may be
exchanged or exercised, and (c) any other securities
designated in the applicable AAU or applicable Intersyndicate
Agreement (the securities referred to in clauses (b) and
(c) above being referred to collectively as the
Other Securities
).
IV.
DELAYED DELIVERY CONTRACTS
4.1.
Arrangements for
Sales.
Arrangements for sales of Contract
Securities will be made only through the Manager acting either
directly or through Dealers (including Underwriters acting as
Dealers), and you authorize the Manager to act on your behalf in
making such arrangements. The aggregate number or amount of
Securities to be purchased by the several Underwriters will be
reduced by the respective number or amounts of Contract
Securities attributed to such Underwriters as hereinafter
provided. Subject to the provisions of Section 4.2 hereof,
the aggregate number or amount of Contract Securities will be
attributed to the Underwriters as nearly as practicable in
proportion to their respective Underwriting Percentages, except
that, as determined by the Manager in its discretion:
(a) Contract Securities directed and allocated by a
purchaser to specific Underwriters will be attributed to such
Underwriters, and (b) Contract Securities for which
arrangements have been made for sale through Dealers will be
attributed to each Underwriter approximately in the proportion
that Securities of such Underwriter held by the Manager for
sales to Dealers bear to all
7
Securities so held. The fee with respect to Contract Securities
payable to the Manager for the accounts of the Underwriters
pursuant to the Underwriting Agreement will be credited to the
accounts of the respective Underwriters in proportion to the
Contract Securities attributed to such Underwriters pursuant to
the provisions of this Section 4.1, less, in the case of
each Underwriter, the concession to Dealers on Contract
Securities sold through Dealers and attributed to such
Underwriter.
4.2.
Excess Sales.
If the number or
amount of Contract Securities attributable to an Underwriter
pursuant to Section 4.1 hereof would exceed such
Underwriters Original Underwriting Obligation reduced by
the number or amount of Underwriters Securities sold by or
on behalf of such Underwriter, such excess will not be
attributed to such Underwriter, and such Underwriter will be
regarded as having acted only as a Dealer with respect to, and
will receive only the concession to Dealers on, such excess.
V.
PURCHASE AND SALE OF SECURITIES
5.1.
Facilitation of
Distribution.
In order to facilitate the
distribution and sale of the Securities, you authorize the
Manager to buy and sell Securities and any Other Securities, in
addition to Securities sold pursuant to Article III hereof,
in the open market or otherwise (including, without limitation,
pursuant to any Intersyndicate Agreement), for long or short
account, on such terms as it may deem advisable, and to
over-allot in arranging sales. Such purchases and sales and
over-allotments will be made for the accounts of the several
Underwriters as nearly as practicable to their respective
Underwriting Percentages or, in the case of an International
Offering, such purchases and sales will be for such accounts as
set forth in the applicable Intersyndicate Agreement. Any
Securities or Other Securities which may have been purchased by
the Manager for stabilizing purposes in connection with the
Offering prior to the acceptance of the applicable AAU will be
treated as having been purchased pursuant to this
Section 5.1 for the accounts of the several Underwriters
or, in the case of an International Offering, for such accounts
as are set forth in the applicable Intersyndicate Agreement.
Your net commitment pursuant to the foregoing authorization will
not exceed at the close of business on any day an amount equal
to 20% of your Underwriting Percentage of the aggregate initial
Offering Price of the Firm Securities, it being understood that,
in calculating such net commitment, the initial Offering Price
will be used with respect to the Securities so purchased or sold
and, in the case of all Other Securities, will be the purchase
price thereof. For purposes of determining your net commitment
for short account (
i.e.
, naked short), any
short position that can be covered with: (a) Securities
that may be purchased upon exercise of any over-allotment option
then exercisable, (b) in the case of an International
Offering, any Securities or Other Securities that the Manager
has agreed to purchase for your account pursuant to any
applicable Intersyndicate Agreement, and (c) Securities
that may be purchased pursuant to a forward sale contract or
similar arrangement with the Issuer or any selling security
holder in the Offering, will be disregarded. On demand you will
take up and pay for any Securities or Other Securities so
purchased for your account and any Securities released to you
pursuant to Section 3.7 hereof, and will deliver to the
Manager against payment any Securities or Other Securities so
sold or over-allotted for your account or released to you. The
Manager will notify you if it engages in any stabilization
transaction in accordance with
Rule 17a-2
under the 1934 Act, and will notify you of the date of
termination of stabilization. You will not stabilize or engage
in any syndicate covering transaction (as defined in
Rule 100 of Regulation M under the 1934 Act
(Regulation M
)) in connection with the
Offering without the prior consent of the Manager. You will
provide to the Manager any reports required of you pursuant to
Rule 17a-2
of the 1934 Act not later than the date specified therein.
5.2.
Penalty With Respect to Securities
Repurchased by the Manager.
If pursuant to the
provisions of Section 5.1 hereof and prior to the
termination of the Managers authority to cover any short
position incurred under the applicable AAU or such other date as
the Manager may specify in a Wire, either: (a) the Manager
purchases or contracts to purchase for the account of any
Underwriter in the open market or otherwise any Securities which
were retained by, or released to, you for direct sale or any
Securities sold pursuant to Section 3.4 hereof for which
you received a portion of the Selling Concession set forth in
the applicable AAU, or any Securities which may have been issued
on transfer or in exchange for such Securities, and which
Securities were therefore not effectively placed for investment,
or (b) if the Manager has advised you by Wire that trading
in the Securities will be reported to the Manager pursuant to
the Initial Public Offering Tracking System of The
Depository Trust Company
(DTC
) and the
Manager determines, based on notices from
8
DTC, that your customers sold a number or amount of Securities
during any day that exceeds the number or amount previously
notified to you by Wire, then you authorize the Manager either
to charge your account with an amount equal to such portion of
the Selling Concession set forth in the applicable AAU received
by you with respect to such Securities or, in the case of clause
(b), such Securities as exceed the number or amount specified in
such Wire, or to require you to repurchase such Securities or,
in the case of clause (b), such Securities as exceed the number
or amount specified in such Wire, at a price equal to the total
cost of such purchase, including transfer taxes, accrued
interest, dividends, and commissions, if any.
5.3.
Compliance with
Regulation M.
You represent that, at all
times since you were invited to participate in the Offering, you
have complied with the provisions of Regulation M
applicable to the Offering, in each case as interpreted by the
Commission and after giving effect to any applicable exemptions.
If you have been notified in a Wire that the Underwriters may
conduct passive market making in compliance with Rule 103
of Regulation M in connection with the Offering, you
represent that, at all times since your receipt of such Wire,
you have complied with the provisions of such Rule applicable to
such Offering, as interpreted by the Commission and after giving
effect to any applicable exemptions. You will comply with any
additional provisions of Regulation M if and to the extent
set forth in the Invitation Wire or other Wire.
5.4.
Standby Underwritings.
You
authorize the Manager in its discretion, at any time on, or from
time to time prior to, the expiration of the conversion right of
convertible securities identified in the applicable AAU in the
case of securities called for redemption, or the expiration of
rights to acquire securities in the case of rights offerings,
for which, in either case, standby underwriting arrangements
have been made: (i) to purchase convertible securities or
rights to acquire Securities for your account, in the open
market or otherwise, on such terms as the Manager determines,
and to convert convertible securities or exercise rights so
purchased; and (ii) to offer and sell the underlying common
stock or depositary shares for your account, in the open market
or otherwise, for long or short account (for purposes of such
commitment, such common stock or depositary shares being
considered the equivalent of convertible securities or rights),
on such terms consistent with the terms of the Offering set
forth in the Prospectus or Offering Circular as the Manager
determines. On demand, you will take up and pay for any
securities so purchased for your account or you will deliver to
the Manager against payment any securities so sold, as the case
may be. During such period, you may offer and sell the
underlying common stock or depositary shares, but only at prices
set by the Manager from time to time, and any such sales will be
subject to the Managers right to sell to you the
underlying common stock or depositary shares as above provided
and to the Managers right to reserve your securities
purchased, received, or to be received upon conversion. You
agree not to otherwise bid for, purchase, or attempt to induce
others to purchase or sell, directly or indirectly, any
convertible securities or rights or underlying common stock or
depositary shares,
provided,
however,
that no
Underwriter will be prohibited from: (a) selling underlying
common stock owned beneficially by such Underwriter on the day
the convertible securities were first called for redemption,
(b) converting convertible securities owned beneficially by
such Underwriter on such date or selling underlying common stock
issued upon conversion of convertible securities so owned,
(c) exercising rights owned beneficially by such
Underwriter on the record date for a rights offering, or selling
the underlying common stock or depositary shares issued upon
exercise of rights so owned, or (d) purchasing or selling
convertible securities or rights or underlying common stock or
depositary shares as a broker pursuant to unsolicited orders.
9
VI.
PAYMENT AND SETTLEMENT
You will deliver to the Manager on the date and at the place and
time specified in the applicable AAU (or on such later date and
at such place and time as may be specified by the Manager in a
subsequent Wire) the funds specified in the applicable AAU,
payable to the order of Morgan Stanley & Co.
Incorporated, for: (a) an amount equal to the Offering
Price plus (if not included in the Offering Price) accrued
interest, amortization of original issue discount or dividends,
if any, specified in the Prospectus or Offering Circular, less
the applicable Selling Concession in respect of the Firm
Securities to be purchased by you, (b) an amount equal to
the Offering Price plus (if not included in the Offering Price)
accrued interest, amortization of original issue discount or
dividends, if any, specified in the Prospectus or Offering
Circular, less the applicable Selling Concession in respect of
such of the Firm Securities to be purchased by you as will have
been retained by or released to you for direct sale as
contemplated by Section 3.6 hereof, or (c) the amount
set forth or indicated in the applicable AAU, as the Manager
will advise. You will make similar payment as the Manager may
direct for Additional Securities, if any, to be purchased by you
on the date specified by the Manager for such payment. The
Manager will make payment to the Issuer or Seller against
delivery to the Manager for your account of the Securities to be
purchased by you, and the Manager will deliver to you the
Securities paid for by you which will have been retained by or
released to you for direct sale. If the Manager determines that
transactions in the Securities are to be settled through DTC or
another clearinghouse facility and payment in the settlement
currency is supported by such facility, payment for and delivery
of Securities purchased by you will be made through such
facilities, if you are a participant, or, if you are not a
participant, settlement will be made through your ordinary
correspondent who is a participant.
VII.
EXPENSES
7.1.
Management Fee.
You authorize
the Manager to charge your account as compensation for the
Managers and Co-Managers services in connection with
the Offering, including the purchase from the Issuer or Seller
of the Securities, as the case may be, and the management of the
Offering, the amount, if any, set forth as the management fee,
global coordinators fee, praecipium, or other similar fee
in the applicable AAU. Such amount will be divided among the
Manager and any Co-Managers named in the applicable AAU as they
may determine. Each Underwriter acknowledges that such fees are
being paid by the Underwriters, and are not a benefit received
directly or indirectly from the Issuer of the type referred to
in Section 11(e) of the 1933 Act.
7.2.
Offering Expenses.
You
authorize the Manager to charge your account with your
Underwriting Percentage of all expenses agreed to be paid by the
Underwriters in the Underwriting Agreement and all expenses of a
general nature incurred by the Manager and Co-Managers under the
applicable AAU in connection with the Offering, including the
negotiation and preparation thereof, or in connection with the
purchase, carrying, marketing, sale and distribution of any
securities under the applicable AAU and any Intersyndicate
Agreement, including, without limitation, legal fees and
expenses, transfer taxes, costs associated with approval of the
Offering by FINRA, and the costs of currency transactions
(including forward and hedging currency transactions) or, if
permitted pursuant to Section 3.1 hereof, any other forward
or hedging transactions (including interest rate swaps) entered
into to facilitate settlement of the purchase of Securities
permitted hereunder.
VIII.
MANAGEMENT OF SECURITIES AND FUNDS
8.1.
Advances; Loans; Pledges.
You
authorize the Manager to advance the Managers own funds
for your account, charging current interest rates, and to
arrange loans for your account for the purpose of carrying out
the provisions of the applicable AAU and any Intersyndicate
Agreement, and in connection therewith, to hold or pledge as
security therefor all or any securities which the Manager may be
holding for your account under the applicable AAU and any
Intersyndicate Agreement, to execute and deliver any notes or
other instruments evidencing such advances or loans, and to give
all instructions to the lenders with respect to any such loans
and the proceeds thereof. The obligations of the Underwriters
under loans arranged on their behalf will be several in
proportion to their respective Original Underwriting
Obligations, and not joint. Any lender is
10
authorized to accept the Managers instructions as to the
disposition of the proceeds of any such loans. In the event of
any such advance or loan, repayment thereof will, in the
discretion of the Manager, be effected prior to making any
remittance or delivery pursuant to Section 8.2, 8.3, or 9.2
hereof.
8.2.
Return of Amount Paid for
Securities.
Out of payment received by the
Manager for Securities sold for your account which have been
paid for by you, the Manager will remit to you promptly an
amount equal to the price paid by you for such Securities.
8.3.
Delivery and Redelivery of Securities for
Carrying Purposes.
The Manager may deliver to you
from time to time prior to the termination of the applicable AAU
pursuant to Section 9.1 hereof against payment, for
carrying purposes only, any Securities or Other Securities
purchased by you under the applicable AAU or any Intersyndicate
Agreement which the Manager is holding for sale for your account
but which are not sold and paid for. You will redeliver to the
Manager against payment any Securities or Other Securities
delivered to you for carrying purposes at such times as the
Manager may demand.
IX.
TERMINATION; INDEMNIFICATION; CONTRIBUTION; SETTLEMENT
9.1.
Termination.
Each AAU will
terminate at the close of business on the later of: (a) the
date on which the Underwriters pay the Issuer or Seller for the
Securities, and (b) 45 calendar days after the applicable
Offering Date, unless sooner terminated by the Manager. The
Manager may at its discretion by notice to you prior to the
termination of such AAU alter any of the terms or conditions of
the Offering to the extent permitted by Articles III
and IV hereof, or terminate or suspend the effectiveness of
Article V hereof, or any part thereof. No termination or
suspension pursuant to this paragraph will affect the
Managers authority under Section 3.1 hereof to take
actions in respect of the Offering or under Article V
hereof to cover any short position incurred under such AAU or in
connection with covering any such short position to require you
to repurchase Securities as specified in Section 5.2
hereof. For the avoidance of doubt, unless otherwise agreed in a
Wire or an Intersyndicate Agreement, the Managers
authority to purchase Securities or Other Securities, for long
account, pursuant to Section 5.1 hereof, will terminate or
be suspended upon the termination or suspension, as the case may
be, of the applicable AAU (or any provision and or term thereof
in respect of trading, price or offering restrictions as set
forth in a Wire that is sent by the Manager following the time
the Securities are released for sale to purchasers) or
Article V or Section 5.1 hereof pursuant to this
paragraph.
9.2.
Delivery or Sale of Securities; Settlement of
Accounts.
Upon termination of each AAU, or prior
thereto at the Managers discretion, the Manager will
deliver to you any Securities paid for by you pursuant to
Article VI hereof and held by the Manager for sale pursuant
to Section 3.4 or 3.5 hereof but not sold and paid for and
any Securities or Other Securities that are held by the Manager
for your account pursuant to the provisions of Article V
hereof or any Intersyndicate Agreement. Notwithstanding the
foregoing, at the termination of such AAU, if the aggregate
initial Offering Price of any such Securities and the aggregate
purchase price of any Other Securities so held and not sold and
paid for does not exceed an amount equal to 20% of the aggregate
initial Offering Price of the Securities, the Manager may, in
its discretion, sell such Securities and Other Securities for
the accounts of the several Underwriters, at such prices, on
such terms, at such times, and in such manner as it may
determine. Within the period specified by applicable FINRA Rules
or, if no period is so specified, as soon as practicable after
termination of such AAU, your account will be settled and paid.
The Manager may reserve from distribution such amount as the
Manager deems advisable to cover possible additional expenses.
The determination by the Manager of the amount so to be paid to
or by you will be final and conclusive. Any of your funds under
the Managers control may be held with the Managers
general funds without accountability for interest.
Notwithstanding any provision of this Master AAU other than
Section 10.11 hereof, upon termination of each AAU, or
prior thereto at the Managers discretion, the Manager may:
(i) allocate to the accounts of the Underwriters the
expenses described in Section 7.2 hereof and any losses
incurred upon the sale of Securities or Other Securities
pursuant to the applicable AAU or any Intersyndicate Agreement
(including any losses incurred upon the sale of securities
referred to in Section 5.4(ii) hereof), (ii) deliver
to the Underwriters any unsold Securities or Other Securities
purchased pursuant to Section 5.1 hereof or any
Intersyndicate Agreement, and (iii) deliver to the
Underwriters any unsold Securities purchased pursuant to the
applicable
11
Underwriting Agreement, in each case in the Managers
discretion. The only limitations on such discretion will be as
follows: (a) no Underwriter that is not the Manager or a
Co-Manager will bear more than its share of such expenses,
losses, or Securities (such share will not exceed such
Underwriters Underwriting Percentage and will be
determined
pro rata
among all such Underwriters based on
their Underwriting Percentages), (b) no such Underwriter
will receive Securities that, together with any Securities
purchased by such Underwriter pursuant to Article VI (but
excluding any Securities that such Underwriter is required to
repurchase pursuant to Section 5.2 hereof) exceed such
Underwriters Original Underwriting Obligation, and
(c) no Co-Manager will bear more than its share of such
expenses, losses, or Securities (such share to be determined
pro rata
among the Manager and all Co-Managers based on
their Underwriting Percentages). If any Securities or Other
Securities returned to you pursuant to clause (ii) or
(iii) above were not paid for by you pursuant to
Article VI hereof, you will pay to the Manager an amount
per security equal to the amount set forth in clause (i) of
Article VI, in the case of Securities returned to you
pursuant to clause (iii) above, or the purchase price of
such securities, in the case of Securities or Other Securities
returned to you pursuant to clause (ii) above.
9.3.
Certain Other Expenses.
You
will pay your Underwriting Percentage of: (i) all expenses
incurred by the Manager in investigating, preparing to defend,
and defending against any action, claim, or proceeding which is
asserted, threatened, or instituted by any party, including any
governmental or regulatory body (each, an
Action
), relating to: (A) the
Registration Statement, any Preliminary Prospectus or Prospectus
(and any amendment or supplement thereto), any Preliminary
Offering Circular or Offering Circular (and any amendment or
supplement thereto), any Supplemental Materials, any Issuer Free
Writing Prospectus, and any ABS Underwriter Derived Information
used by any Underwriter other than the Manager, (B) the
violation of any applicable restrictions on the offer, sale,
resale, or purchase of Securities or Other Securities imposed by
U.S. Federal or state laws or
non-U.S. laws
and the rules and regulations of any regulatory body promulgated
thereunder or pursuant to the terms of the applicable AAU, the
Underwriting Agreement, or any Intersyndicate Agreement, and
(C) any claim that the Underwriters constitute a
partnership, an association, or an unincorporated business or
other separate entity, and (ii) any Losses (as defined in
Section 9.4 hereof) incurred by the Manager in respect of
any such Action, whether such Loss will be the result of a
judgment or arbitrators determination or as a result of
any settlement agreed to by the Manager. Notwithstanding the
foregoing, you will not be required to pay your Underwriting
Percentage of any such expense or liability: (1) to the
extent that such expense or liability was caused by the
Managers gross negligence or willful misconduct as
determined in a final judgment of a court of competent
jurisdiction; (2) as to which, and to the extent, the
Manager actually receives (a) indemnity pursuant to
Section 9.4 hereof, (b) contribution pursuant to
Section 9.5 hereof, (c) indemnity or contribution
pursuant to the Underwriting Agreement, or (d) damages from
an Underwriter for breach of its representations, warranties,
agreements, or covenants contained in the applicable AAU; or
(3) of the Manager (other than fees of Syndicate Counsel)
that relates to a settlement entered into by the Manager on a
basis that results in a settlement of such Action against it and
fewer than all the Underwriters. None of the foregoing
provisions of this Section 9.3 will relieve any defaulting
or breaching Underwriter from liability for its defaults or
breach. Failure of any party to give notice under
Section 9.10 hereof will not relieve any Underwriter of an
obligation to pay expenses pursuant to the provisions of this
Section 9.3.
9.4.
Indemnification.
Notwithstanding
any settlement on the termination of the applicable AAU, you
agree to indemnify and hold harmless each other Underwriter and
each person, if any, who controls any such Underwriter within
the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act (each, an
Indemnified Party
), to the extent and upon
the terms which you agree to indemnify and hold harmless any of
the Issuer, the Guarantor, the Seller, any person controlling
the Issuer, the Guarantor, the Seller, its directors, and, in
the case of a Registered Offering, its officers who signed the
Registration Statement and, in the case of an Offering other
than a Registered Offering, its officers, in each case as set
forth in the Underwriting Agreement. You further agree to
indemnify and hold harmless each Indemnified Party from and
against any and all losses, claims, damages, liabilities, and
expenses not reimbursed pursuant to Section 9.3 hereof
(collectively,
Losses
) related to, arising
out of, or in connection with the breach or violation by you of
the terms of Section 3.3 hereof, including any and all
Losses under Section 5 of the 1933 Act, and any
litigation, investigation, and proceeding (collectively,
Litigation
) relating to any of the foregoing.
You will also reimburse each such Indemnified Party upon demand
for all expenses, including fees and expenses of
12
counsel, as they are incurred, in connection with investigating,
preparing for, or defending any of the foregoing. You will
indemnify and hold harmless each Indemnified Party from and
against any and all Losses related to, arising out of, or in
connection with, any untrue statement or alleged untrue
statement of a material fact contained in any Underwriter Free
Writing Prospectus or Supplemental Material of yours or
Unauthorized Material used by you, or any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and any Litigation relating to any of the foregoing,
and to reimburse each such Indemnified Party upon demand for all
expenses, including fees and expenses of counsel, as they are
incurred, in connection with investigating, preparing for, or
defending any of the foregoing. In addition, you will indemnify
and hold harmless each Indemnified Party from and against any
and all Losses related to, arising out of, or in connection with
any untrue statement or alleged untrue statement of a material
fact contained in any ABS Underwriter Derived Information used
by you, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, and any Litigation
relating to any of the foregoing, and to reimburse each such
Indemnified Party upon demand for all expenses, including fees
and expenses of counsel, as they are incurred, in connection
with investigating, preparing for, or defending any of the
foregoing;
provided,
however,
that any Losses,
joint or several, paid or incurred by any Underwriter, arising
out of or based upon any ABS Underwriter Derived Information
which was used only by such Underwriter, or in connection with
the preparation of which an Underwriter is found to have acted
with gross negligence or willful misconduct in a final judgment
of a court of competent jurisdiction, will be paid solely by
such Underwriter.
Each Underwriter will further indemnify and hold harmless any
investment banking firm identified in a Wire as the qualified
independent underwriter as defined in NASD Conduct
Rule 2720 or any FINRA successor rule thereto (in such
capacity, a
QIU
) for an Offering and each
person, if any, who controls such QIU within the meaning of
either Section 15 of the 1933 Act or Section 20
of the 1934 Act, from and against any and all Losses
related to, arising out of, or in connection with such
investment banking firms activities as QIU for the
Offering. Each Underwriter will reimburse such QIU for all
expenses, including fees and expenses of counsel, as they are
incurred, in connection with investigating, preparing for, and
defending any Action related to, arising out of, or in
connection with such QIUs activities as a QIU for the
Offering. Each Underwriter will be responsible for its
Underwriting Percentage of any amount due to such QIU on account
of the foregoing indemnity and reimbursement. Such QIU will have
no additional liability to any Underwriter or otherwise as a
result of its serving as QIU in connection with the Offering. To
the extent the indemnification provided to a QIU under this
Section 9.4 is unavailable to such QIU or is insufficient
in respect of any Losses related thereto, whether as a matter of
law or public policy or as a result of the default of any
Underwriter in performing its obligations under this
Section 9.4, each other Underwriter will contribute to the
amount paid or payable by such QIU as a result of such Losses
related thereto in proportion to its Underwriting Percentage.
9.5.
Contribution.
Notwithstanding
any settlement on the termination of the applicable AAU, you
will pay upon request of the Manager, as contribution, your
Underwriting Percentage of any Losses, joint or several, paid or
incurred by any Underwriter to any person other than an
Underwriter, arising out of or in connection with the breach or
violation of the terms of Section 3.3 hereof, including any
and all Losses under Section 5 of the 1933 Act, and
any Litigation relating to the foregoing. Further, you will pay
upon request of the Manager, your Underwriting Percentage of any
Losses, joint or several, paid or incurred by any Underwriter to
any person other than an Underwriter, arising out of or in
connection with any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, any
Preliminary Prospectus or Prospectus (and any amendment or
supplement thereto), any Preliminary Offering Circular or
Offering Circular (and any amendment or supplement thereto), any
Issuer Free Writing Prospectus, any Supplemental Materials, any
other materials prepared or used by an Underwriter in accordance
with Section 3.3 hereof, or any Underwriter Free Writing
Prospectus of yours or Unauthorized Material used by you, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading (other than an untrue
statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with
information furnished to the Company In Writing by the
Underwriter on whose behalf the request for contribution is
being made expressly for use therein), or any act or omission to
act or any alleged act or omission to act by the Manager or, if
applicable, a Representative, as the Manager or a
Representative, in connection with any transaction contemplated
by this
13
Agreement or undertaken in preparing for the purchase, sale, and
delivery of the Securities (provided, that you will not be
required to pay in any such case to the extent that any such
Loss resulted from the Managers or such
Representatives gross negligence or willful misconduct as
determined in a final judgment of a court of competent
jurisdiction), and your Underwriting Percentage of any legal or
other expenses, including fees and expenses of counsel, as they
are incurred, reasonably incurred by the Underwriter (with the
approval of the Manager) on whose behalf the request for
contribution is being made in connection with investigating or
defending any such Loss or any action in respect thereof;
provided,
however,
that no request will be made on
behalf of any Underwriter guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act)
from any Underwriter who was not guilty of such fraudulent
misrepresentation (within the meaning of Section 11(f) of
the 1933 Act);
provided,
further,
that any
Losses, joint or several, paid or incurred by any Underwriter,
arising out of or based upon such Underwriters Underwriter
Free Writing Prospectus that does not breach Section 3.3
hereof, will be paid by only the Underwriters that used such
Underwriter Free Writing Prospectus (the
Contributing
Underwriters
), and the amount to be paid by each
Contributing Underwriter will be determined
pro rata
among the Contributing Underwriters based on their
Underwriting Percentages. None of the foregoing provisions of
this Section 9.5 will relieve any defaulting or breaching
Underwriter from liability for its defaults or breach.
In addition, you will pay your Underwriting Percentage of any
Losses, joint or several, paid or incurred by any Underwriter to
any person other than an Underwriter, arising out of or in
connection with any untrue statement or alleged untrue statement
of a material fact contained in any ABS Underwriter Derived
Information, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading (other
than an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with
information furnished to the Company In Writing by the
Underwriter on whose behalf the request for contribution is
being made expressly for use therein) and your Underwriting
Percentage of any expenses, including fees and expenses of
counsel, as they are incurred, reasonably incurred by the
Underwriter (with the approval of the Manager) on whose behalf
the request for contribution is being made in connection with
investigating, preparing for, or defending any such Loss or any
action in respect thereof;
provided,
however,
that
any Losses, joint or several, paid or incurred by any
Underwriter, arising out of or based upon any ABS Underwriter
Derived Information which was used only by such Underwriter, or
in connection with the preparation of which the Underwriter is
found to have acted with gross negligence or willful misconduct
in a final judgment of a court of competent jurisdiction, will
be paid solely by the Underwriter.
9.6.
Separate Counsel.
If any
Action is asserted or commenced pursuant to which the indemnity
provided in Section 9.4 hereof or the right of contribution
provided in Section 9.5 hereof may apply, the Manager may
take such action in connection therewith as it deems necessary
or desirable, including retention of counsel for the
Underwriters
(Syndicate Counsel
), and in its
discretion separate counsel for any particular Underwriter or
group of Underwriters, and the fees and disbursements of any
counsel so retained will be allocated among the several
Underwriters as determined by the Manager. Any such Syndicate
Counsel retained by the Manager will be counsel to the
Underwriters as a group and, in the event that: (a) the
Manager settles any Action on a basis that results in the
settlement of such Action against it and fewer than all the
Underwriters, or (b)(i) a conflict develops between the Manager
and the other Underwriters, or (ii) differing defenses are
available to the other Underwriters and not available to the
Manager, and as a result of either (b)(i) or (b)(ii) such
Syndicate Counsel concludes that it is unable to continue to
represent the Manager and the other Underwriters, then in each
such case, after notification to the Manager and the other
Underwriters, Syndicate Counsel will remain counsel to the other
Underwriters and will withdraw as counsel to the Manager. The
Manager hereby consents to such arrangement and undertakes to
take steps to: (i) ensure that any engagement letters with
Syndicate Counsel are consistent with such arrangement;
(ii) issue a notice to all other Underwriters promptly
following receipt of any advice (whether oral or written) from
Syndicate Counsel regarding its inability to represent the
Manager and the other Underwriters jointly; and
(iii) facilitate Syndicate Counsels continued
representation of the other Underwriters. Any Underwriter may
elect to retain at its own expense its own counsel and, on
advice of such counsel, may settle or consent to the settlement
of any such Action, but only in compliance with Section 9.7
hereof, and in each case, only after notification to every other
Underwriter. The
14
Manager may settle or consent to the settlement of any such
Action, but only in compliance with Section 9.7 hereof.
9.7.
Settlement of Actions.
Neither
the Manager nor any other Underwriter party to this Master AAU
may settle or agree to settle any Action related to or arising
out of the Offering, nor may any other Underwriter settle or
agree to settle any such Action without the consent of the
Manager, nor may any other Underwriter seek the Managers
consent to any such settlement agreement, nor may the Manager
consent to any such settlement agreement, unless: (A) the
Manager, together with such other Underwriters as constitute a
majority in aggregate interest based on the Underwriting
Percentage of the Underwriters as a whole (including the
Managers interest), approve the settlement of such Action,
in which case the Manager is authorized to settle for all
Underwriters,
provided,
however,
that the
settlement agreement results in the settlement of the Action
against all Underwriters raised by the plaintiffs party thereto;
or (B) (i) such settlement agreement expressly provides
that the non-settling Underwriters will be given a judgment
credit (or credit in settlement) with respect to all such
Actions for which the non-settling Underwriters may be found
liable (or will pay in subsequent settlement), in an amount that
is the greatest of: (x) the dollar amount paid in such
initial settlement to settle such Actions, (y) the
proportionate share of the settling Underwriters fault in
respect of common damages arising in connection with such
Actions as proven at trial, if applicable, or (z) the
amount by which the settling Underwriter would have been
required to make contribution had it not settled, under
Sections 9.5 and 11.2 hereof in respect of the final
non-appealable judgment (or settlement) subsequently entered
into by the non-settling Underwriters (such greatest amount of
either (x), (y), or (z), the
Judgment
Credit
);
4
(ii) such settlement agreement expressly provides that in
the event that the applicable court does not approve the
Judgment Credit as part of the settlement, the settlement
agreement will automatically terminate; and (iii) the final
judgment entered with respect to the settlement agreement
contains the Judgment Credit.
9.8.
Survival.
Except as set forth
in the last sentence of Section 9.1, your agreements
contained in Article V and Sections 3.1, 9.3, 9.4,
9.5, 9.6, 9.7, 9.8, 9.9, 9.10, and 11.2 hereof will remain
operative and in full force and effect regardless of any
termination of an AAU and: (a) any termination of the
Underwriting Agreement, (b) any investigation made by or on
behalf of any Underwriter or any person controlling any
Underwriter or by or on behalf of the Issuer, the Guarantor, the
Seller, its directors or officers, or any person controlling the
Issuer, the Guarantor or the Seller, and (c) acceptance of
any payment for any Securities.
9.9.
Replacement of Manager.
If at
any time after any Action is brought the Manager settles the
Action on a basis that results in the settlement of such Action
against it and fewer than all the Underwriters (whether or not
such settlement complies with Section 9.7 hereof), the
Manager will, at such time, for purposes of Sections 9.3,
9.4, 9.5, 9.6, and 9.7 hereof, cease to be the Manager. The
non-settling Underwriters will, by vote of holders of a majority
of the Underwriting Percentage of such non-settling
Underwriters, select a new Manager, which will become the new
Manager
for all purposes of
Sections 9.3, 9.4., 9.5, 9.6, and 9.7 hereof as well as
this section;
provided
that the non-settling
Underwriter(s) with the largest Underwriting Percentage will act
as Manager until such vote occurs and a new Manager is
selected.
5
Notwithstanding such a settlement, the Manager and the other
settling Underwriters will remain obligated to the non-settling
Underwriters to assist and cooperate fully, in good faith, and
at their own expense, in the defense of any Actions, including,
without limitation, by providing, upon reasonable request of any
non-settling Underwriter, and without the necessity of court
process, access to or copies of all relevant records, and
4
Seeks
to ensure that there is no harm to non-settling Underwriter due
to settlement. For example, assume that plaintiffs have suffered
$1,000 in damage in a case in which the Underwriters are 50% at
fault and other defendants, all of whom are insolvent, are 50%
at fault. Further assume that there were 2 Underwriters, each
which underwrote 50% of the offering, and they were equally at
fault. If neither Underwriter settles, then each would be
required to pay $500 to satisfy the $1,000 verdict for which
they are jointly and severally liable (or, if one paid $1,000,
Section 9.5 would obligate the other to contribute $500
towards such payment). If the first Underwriter settles for
$100, then the second Underwriter will obtain a judgment credit
of $500, being equal to the greater of: (a) settlement
amount ($100), (b) the first Underwriters fault
($250), and (c) the amount which the settling Underwriters
would have been required to contribute under the contribution
provisions ($500). This formula ensures that the second
Underwriter is not harmed by the settlement. By contrast, the
judgment credit applied in
WorldCom
ignored clause (c),
resulting in a credit of only $250 and leading the non-settling
Underwriter to pay $750, or $250 more than had the first
Underwriter not settled.
5
Permits
new Manager to replace settling Manager and manage the
litigation related provisions of this agreement.
15
reasonable access to all witnesses under control of the Manager
or the other settling Underwriters, for the purpose of
interviews, depositions, and testimony at trial, subject in each
case to the applicable legal and procedural obligations of such
Manager and such other settling Underwriter.
In addition, if at any time, the Manager is unwilling or unable
for any reason to assume or discharge its duties as Manager
under the applicable AAU, whether resulting from its insolvency
(voluntary or involuntary), resignation or otherwise, to the
extent permitted by applicable law, the remaining Underwriters
will, by vote of holders of a majority of the Underwriting
Percentage of such Underwriters, be entitled to select a new
Manager, which will become the new Manager for all purposes
under this
Agreement.
6
Notwithstanding the foregoing, a Manager replaced pursuant to
this Section 9.9 shall continue to benefit from and be
subject to all other terms and conditions of this Agreement
applicable to an Underwriter.
9.10.
Notice.
When the Manager
receives notice of the assertion of any Action to which the
provisions of Sections 9.4, 9.5, 9.6, or 9.7 hereof would
apply, it will give prompt notice thereof to each Underwriter,
and whenever an Underwriter receives notice of the assertion of
any claim or commencement of any Action to which the provisions
of Sections 9.4, 9.5, 9.6, or 9.7 hereof would apply, such
Underwriter will give prompt notice thereof to the Manager. The
Manager also will furnish each Underwriter with periodic
reports, at such times as it deems appropriate, as to the status
of such Action, and the actions taken by it in connection
therewith. If the Manager or any other Underwriter engages in
any settlement discussion that involves or contemplates
settlement on any basis other than settlement of all Actions
against all Underwriters on a
pro rata
basis according to
their Underwriting Percentages, the Manager (or other
Underwriter engaging in such discussions) will notify all other
Underwriters promptly and provide reasonable details about such
discussions.
X.
REPRESENTATIONS AND COVENANTS OF UNDERWRITERS
10.1.
Knowledge of Offering.
You
acknowledge that it is your responsibility to examine the
Registration Statement, the Prospectus, or the Offering
Circular, as the case may be, any amendment or supplement
thereto relating to the Offering, any Preliminary Prospectus or
Preliminary Offering Circular, and the material, if any,
incorporated by reference therein, any Issuer Free Writing
Prospectus, any Supplemental Materials, and any ABS Underwriter
Derived Information, and you will familiarize yourself with the
terms of the Securities, any applicable Indenture, and the other
terms of the Offering thereof which are to be reflected in the
Prospectus or the Offering Circular, as the case may be, and the
applicable AAU and Underwriting Agreement. The Manager is
authorized, with the advice of counsel for the Underwriters, to
approve on your behalf any amendments or supplements to the
documents described in the preceding sentence.
10.2.
Accuracy of Underwriters
Information.
You confirm that the information
that you have given and are deemed to have given in response to
the Underwriters Questionnaire attached as Exhibit A
hereto (and to any other questions addressed to you in the
Invitation Wire or other Wires), which information has been
furnished to the Issuer for use in the Registration Statement,
Prospectus, or Offering Circular, as the case may be, or has
otherwise been relied upon in connection with the Offering, is
complete and accurate. You will notify the Manager immediately
of any development before the termination of the applicable AAU
which makes untrue or incomplete any information that you have
given or are deemed to have given in response to the
Underwriters Questionnaire (or such other questions).
10.3.
Name; Address.
Unless you
have promptly notified the Manager In Writing otherwise, your
name as it should appear in the Registration Statement,
Prospectus or Offering Circular and any advertisement, if
different, and your address, are as set forth on the signature
pages hereof.
10.4.
Compliance with Capital
Requirements.
You represent that your commitment
to purchase the Securities will not result in a violation of the
financial responsibility requirements of
Rule 15c3-1
under the 1934 Act or of any similar provision of any
applicable rules of any securities exchange to which you are
subject or, if you are a financial institution subject to
regulation by the Board of Governors of the U.S. Federal
Reserve System, the U.S. Comptroller of the Currency, or
the U.S. Federal Deposit Insurance Corporation,
6
Permits
new Manager to replace insolvent Manager and manage all aspects
of this MAAU.
16
will not place you in violation of any applicable capital
requirements or restrictions of such regulator or any other
regulator to which you are subject.
10.5.
FINRA Requirements.
You
represent that you are a member in good standing of FINRA, or a
non-U.S. bank,
broker, dealer, or institution not eligible for membership in
FINRA or a Bank. If you are a member of FINRA, you will comply
with all applicable rules of FINRA, including, without
limitation: (a) the requirements of FINRA Rule 5130,
and (b) the requirements of NASD Conduct Rule 2740 or
any FINRA successor rule thereto, and you will not grant any
concessions, discounts, or other allowances which are not
permitted by that Rule. If you are a
non-U.S. bank,
broker, dealer, or institution not eligible for membership in
FINRA, you will not make any sales of the Securities in, or to
nationals or residents of, the United States, its territories,
or its possessions, except to the extent permitted by
Rule 15a-6
or any successor rule thereto, and that in making any sales of
the Securities you will comply, as though you are a member of
FINRA, with the requirements of the following rules (including
any FINRA successor rules thereto): (a) FINRA
Rule 5130, (b) NASD Conduct Rules 2730, 2740, and
2750, and (c) NASD Conduct Rule 2420, as that Rule
applies to a non-member broker/dealer in a
non-U.S. country.
If you are a Bank, you will not accept any portion of the
management fee paid by the Underwriters with respect to any
Offering or, in connection with any Offering of Securities that
do not constitute exempted securities within the
meaning of Section 3(a)(12) of the 1934 Act, purchase
any Securities at a discount from the offering price from any
Underwriter or Dealer or otherwise accept any Fees and
Commissions from any Underwriter or Dealer, which in any such
case is not permitted under NASDs Rules of Fair Practice
(or any FINRA successor rules thereto), and you will comply with
NASD Conduct Rule 2420 (or any FINRA successor rule
thereto) as though you were a member.
10.6.
Further State Notice.
The
Manager will file a Further State Notice with the Department of
State of New York, if required.
10.7.
Compliance with
Rule 15c2-8.
In
the case of a Registered Offering and any other Offering to
which the provisions of
Rule 15c2-8
under the 1934 Act are made applicable pursuant to the AAU
or otherwise, you will comply with such Rule in connection with
the Offering. In the case of an Offering other than a Registered
Offering, you will comply with applicable Federal and state laws
and the applicable rules and regulations of any regulatory body
promulgated thereunder governing the use and distribution of
offering circulars by underwriters.
10.8.
Discretionary Accounts.
In
the case of a Registered Offering of Securities issued by an
Issuer that was not, immediately prior to the filing of the
Registration Statement, subject to the requirements of
Section 13(d) or 15(d) of the 1934 Act, you will not
make sales to any account over which you exercise discretionary
authority in connection with such sale, except as otherwise
permitted by the applicable AAU for such Offering.
10.9.
Offering Restrictions.
You
will not make any offers or sales of Securities or any Other
Securities in jurisdictions outside the United States except
under circumstances that will result in compliance with
(i) applicable laws, including private placement
requirements, in each such jurisdiction and (ii) the
restrictions on offers or sales set forth in any AAU or the
Prospectus, Preliminary Prospectus, Offering Circular, or
Preliminary Offering Circular, as the case may be.
It is understood that, except as specified in the Prospectus or
Offering Circular or applicable AAU, no action has been taken by
the Manager, the Issuer, the Guarantor, or the Seller to permit
you to offer Securities in any jurisdiction other than the
United States, in the case of a Registered Offering, where
action would be required for such purpose.
10.10.
Representations, Warranties, and
Agreements.
You will make to each other
Underwriter participating in an Offering the same
representations, warranties, and agreements, if any, made by the
Underwriters to the Issuer, the Guarantor, or the Seller in the
applicable Underwriting Agreement or any Intersyndicate
Agreement, and you authorize the Manager to make such
representations, warranties, and agreements to the Issuer, the
Guarantor, or the Seller on your behalf.
10.11.
Limitation on the Authority of the Manager
to Purchase and Sell Securities for the Account of Certain
Underwriters.
Notwithstanding any provision of
this AAU authorizing the Manager to purchase or sell any
17
Securities or Other Securities (including arranging for the sale
of Contract Securities) or over-allot in arranging sales of
Securities for the accounts of the several Underwriters, the
Manager may not, in connection with the Offering of any
Securities, make any such purchases, sales,
and/or
over-allotments for the account of any Underwriter that, not
later than its acceptance of the Invitation Wire relating to
such Offering, has advised the Manager that, due to its status
as, or relationship to, a bank or bank holding company such
purchases, sales,
and/or
over-allotments are prohibited by applicable law. If any
Underwriter so advises the Manager, the Manager may allocate any
such purchases, sales, and over-allotments (and the related
expenses) which otherwise would have been allocated to your
account based on your respective Underwriting Percentage to your
account based on the ratio of your Original Underwriting
Obligation to the Original Underwriting Obligations of all
Underwriters other than the advising Underwriter or
Underwriters, or in such other manner as the Manager will
determine.
10.12.
Electronic Distribution.
By
participating in the Offering or accepting the Invitation Wire,
you will be deemed to be representing that either: (a) you
are not making an on-line distribution; or (b) if you are
making an on-line distribution, you are following procedures for
on-line distributions previously reviewed by members of the
Staff of the Division of Corporation Finance of the Commission,
such members raised no objections to the procedures reviewed,
and there have been no material changes to your procedures since
that review.
10.13.
Agreement Regarding Oral Due
Diligence.
By participating in an Offering, each
Underwriter agrees that it, each of its affiliates participating
in an Offering as Underwriter or financial intermediary and each
controlling person of it and each such participating affiliate
are bound by the Agreement Regarding Oral Due Diligence
currently in effect between Morgan Stanley and the accounting
firm or firms that participate in oral due diligence in such
offering.
XI.
DEFAULTING UNDERWRITERS
11.1.
Effect of Termination.
If the
Underwriting Agreement is terminated as permitted by the terms
thereof, your obligations hereunder with respect to the Offering
of the Securities will immediately terminate except: (a) as
set forth in Section 9.8 hereof, (b) that you will
remain liable for your Underwriting Percentage (or such other
percentage as may be specified pursuant to Section 9.2
hereof) of all expenses, and for any purchases or sales which
may have been made for your account pursuant to the provisions
of Article V hereof or any Intersyndicate Agreement, and
(c) that such termination will not affect any obligations
of any defaulting or breaching Underwriter.
11.2.
Sharing of Liability.
If any
Underwriter defaults in its obligations: (a) pursuant to
Section 5.1, 5.2 or 5.4 hereof, (b) to pay amounts
charged to its account pursuant to Section 7.1, 7.2, or 8.1
hereof, or (c) pursuant to Section 9.2, 9.3, 9.4, 9.5,
9.6, or 11.1 hereof, you will assume your proportionate share
(determined on the basis of the respective Underwriting
Percentages of the non-defaulting Underwriters) of such
obligations, but no such assumption will relieve any defaulting
Underwriter from liability to the non-defaulting Underwriters,
the Issuer, the Guarantor, or the Seller for its default.
11.3.
Arrangements for
Purchases.
The Manager is authorized to arrange
for the purchase by others (including the Manager or any other
Underwriter) of any Securities not purchased by any defaulting
Underwriter in accordance with the terms of the applicable
Underwriting Agreement or, if the applicable Underwriting
Agreement does not provide arrangements for defaulting
Underwriters, in the discretion of the Manager. If such
arrangements are made, the respective amounts of Securities to
be purchased by the remaining Underwriters and such other person
or persons, if any, will be taken as the basis for all rights
and obligations hereunder, but this will not relieve any
defaulting Underwriter from liability for its default.
XII.
MISCELLANEOUS
12.1.
Obligations Several.
Nothing
contained in this Master AAU or any AAU constitutes you partners
with the Manager or with the other Underwriters, and the
obligations of you and each of the other Underwriters are
several and not joint. Each Underwriter elects to be excluded
from the application of Subchapter K, Chapter 1,
18
Subtitle A, of the U.S. Internal Revenue Code of 1986. Each
Underwriter authorizes the Manager, on behalf of such
Underwriter, to execute such evidence of such election as may be
required by the U.S. Internal Revenue Service.
12.2.
Liability of Manager.
The
Manager will not be liable to you for any act or omission,
except for obligations expressly assumed by the Manager in the
applicable AAU.
12.3.
Termination of Master
AAU.
This Master AAU may be terminated by either
party hereto upon five business days written notice to the
other party;
provided,
however,
that with respect
to any Offering for which an AAU was sent prior to such notice,
this Master AAU as it applies to such Offering will remain in
full force and effect and will terminate with respect to such
Offering in accordance with Section 9.1 hereof.
12.4.
Governing Law.
This Master
AAU and each AAU will be governed by and construed in accordance
with the laws of the State of New York applicable to contracts
made and to be performed in the State, without giving effect to
principles of conflicts of law. You hereby irrevocably:
(a) submit to the jurisdiction of any court of the State of
New York located in the City of New York or the
U.S. District Court for the Southern District of the State
of New York for the purpose of any suit, action, or other
proceeding arising out of this Master AAU, or any of the
agreements or transactions contemplated hereby (each, a
Proceeding
), (b) agree that all claims
in respect of any Proceeding may be heard and determined in any
such court, (c) waive, to the fullest extent permitted by
law, any immunity from jurisdiction of any such court or from
any legal process therein, (d) agree not to commence any
Proceeding other than in such courts, and (e) waive, to the
fullest extent permitted by law, any claim that such Proceeding
is brought in an inconvenient forum.
12.5.
Amendments.
This Master AAU
may be amended from time to time by consent of the parties
hereto. Your consent will be deemed to have been given to an
amendment to this Master AAU, and such amendment will be
effective, five business days following written notice to you of
such amendment if you do not notify us In Writing prior to the
close of business on such fifth business day that you do not
consent to such amendment. Upon effectiveness, the provisions of
this Master AAU as so amended will apply to each AAU thereafter
entered into, except as otherwise specifically provided in any
such AAU.
12.6.
Notices.
Any notice to any
Underwriter will be deemed to have been duly given if mailed,
sent by wire, telecopy or electronic transmission or other
written communication, or delivered in person to such
Underwriter at the address set forth in its Underwriters
Questionnaire, or if no address is provided in an
Underwriters Questionnaire, then at the address set forth
in reports filed by such Underwriter with FINRA. Any such notice
will take effect upon receipt thereof.
12.7.
Severability.
In case any
provision in this Master AAU is deemed invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the
remaining provisions will not in any way be affected or impaired
thereby.
12.8.
Counterparts.
This Master AAU
may be executed in any number of counterparts, each of which
will be deemed to be an original, and all of which taken
together constitute one and the same instrument. Transmission by
telecopy of an executed counterpart of this Master AAU will
constitute due and sufficient delivery of such counterpart.
19
Please confirm your acceptance of this Master AAU by signing and
returning to us the enclosed duplicate copy hereof.
Morgan Stanley & Co. Incorporated
Name:
Title:
(Authorized Officer)
Confirmed and accepted
as
of ,
20
(Legal Name of Underwriter)
(Address)
By:
Name:
Title:
(Authorized Officer)
(
If person signing is not an officer
or a partner, please attach instrument
of authorization
)
20
GUIDE TO
DEFINED TERMS
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Section
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Term
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Reference
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1933 Act
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1.1
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1934 Act
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3.5
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AAU
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Foreword
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ABS Underwriter Derived Information
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2.1
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Additional Securities
|
|
1.1
|
Bank
|
|
3.5
|
Co-Managers
|
|
1.1
|
Commission
|
|
2.1
|
Contract Securities
|
|
3.1
|
Contributing Underwriters
|
|
9.5
|
Dealer
|
|
3.5
|
DTC
|
|
5.2
|
Fees and Commissions
|
|
1.1
|
FINRA
|
|
3.1
|
Firm Securities
|
|
1.1
|
Free Writing Prospectus
|
|
2.1
|
Guarantor
|
|
1.1
|
In Writing
|
|
1.2
|
Indemnified Party
|
|
9.4
|
Indenture
|
|
1.1
|
International Offering
|
|
1.1
|
Intersyndicate Agreement
|
|
2.3
|
Invitation Wire
|
|
Foreword
|
Issuer
|
|
1.1
|
Issuer Free Writing Prospectus
|
|
3.3
|
Issuer Information
|
|
3.3, 3.3
|
Judgment Credit
|
|
9.7
|
Litigation
|
|
9.4
|
Losses
|
|
9.4
|
Manager
|
|
9.9, 1.1
|
Master AAU
|
|
Foreward
|
NASD
|
|
3.1
|
Offering
|
|
Foreword
|
Offering Circular
|
|
2.2, 2.2
|
Offering Date
|
|
3.2
|
Offering Price
|
|
1.1
|
Original Underwriting Obligation
|
|
1.1
|
Preliminary Offering Circular
|
|
2.2
|
Preliminary Prospectus
|
|
2.1
|
Pricing Date
|
|
1.1
|
Proceeding
|
|
12.4
|
Prospectus
|
|
2.1
|
21
|
|
|
|
|
Section
|
Term
|
|
Reference
|
|
Purchase Price
|
|
1.1
|
QIU
|
|
9.4
|
Reallowance
|
|
1.1
|
Registered Offering
|
|
2.1
|
Registration Statement
|
|
2.1
|
Regulation M
|
|
5.1
|
Representative
|
|
1.1
|
Securities
|
|
1.1
|
Securities Offering Reform Release
|
|
2.1
|
Seller
|
|
1.1
|
Selling Concession
|
|
1.1
|
Settlement Date
|
|
1.1
|
Supplemental Materials
|
|
3.3
|
Syndicate Counsel
|
|
9.6
|
Trustee
|
|
1.1
|
Unauthorized Material
|
|
3.3
|
Underwriter Free Writing Prospectus
|
|
3.3
|
Underwriters
|
|
1.1, 1.1
|
Underwriters Securities
|
|
3.1
|
Underwriting Agreement
|
|
1.1
|
Underwriting Percentage
|
|
1.1
|
Wire
|
|
Foreword
|
22
EXHIBIT A
UNDERWRITERS
QUESTIONNAIRE
In connection with each Offering governed by the Morgan
Stanley & Co. Incorporated Master Agreement Among
Underwriters dated April 1, 2009, except as indicated in a
timely acceptance of the Invitation Wire pursuant to
Section 1.2 of the Master Agreement Among Underwriters
(Master AAU)
, each Underwriter participating
in such Offering severally advises the Issuer that, other than
as disclosed in the Preliminary Prospectus or Preliminary
Offering Circular, as the case may be (Capitalized terms used
herein and not otherwise defined herein will have the meanings
given to them in the Master AAU):
(a) neither such Underwriter nor any of its directors,
officers, or partners have a material relationship, as
material is defined in Regulation C under the
1933 Act, with the Issuer, the Guarantor, or the Seller;
(b) if the Registration Statement is on
Form S-1,
neither such Underwriter nor any group (as that term
is used in Section 13(d)(3) of the Securities Exchange Act
of 1934) of which such Underwriter is aware is the
beneficial (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) owner of more than 5% of
any class of voting securities of the Issuer or Guarantor, nor
does such Underwriter have any knowledge that more than 5% of
any class of voting securities of the Issuer or the Guarantor is
held or to be held subject to any voting trust or other similar
agreement, nor does such Underwriter have any knowledge that
more than 5% of any class of voting securities of the Issuer or
the Guarantor is held or to be held subject to any voting trust
or other similar agreement;
(c) other than as may be stated in the Morgan
Stanley & Co. Incorporated Master Agreement Among
Underwriters dated April 1, 2009, the applicable AAU, the
Intersyndicate Agreement or dealer agreement, if any, the
Prospectus, the Registration Statement, or the Offering
Circular, such Underwriter does not know and has no reason to
believe that there is an intention to over-allot or that the
price of any security may be stabilized to facilitate the
offering of the Securities;
(d) other than as may be stated in the Prospectus or the
Offering Circular, as the case may be, or the Invitation Wire,
such Underwriter does not know of any other discounts or
commissions to be allowed or paid to the Underwriters or of any
other items that would be deemed by the Financial Industry
Regulatory Authority
(FINRA)
to constitute
underwriting compensation for purposes of FINRA Rule 5110,
and such Underwriter does not know of any discounts or
commissions to be allowed or paid to dealers, including all
cash, securities, contracts, or other consideration to be
received by any dealer in connection with the sale of the
Securities;
(e) such Underwriter has not prepared any report or
memorandum for external use in connection with the Offering;
(f) if the offer and sale of the Securities are to be
registered under the 1933 Act pursuant to a Registration
Statement on
Form S-1
or
Form F-1,
such Underwriter has not within the past 12 months prepared
or had prepared for such Underwriter any engineering,
management, or similar report or memorandum relating to broad
aspects of the business, operations, or products of the Issuer
or the Guarantor. The immediately preceding sentence does not
apply to reports solely comprised of recommendations to buy,
sell, or hold the Issuers or the Guarantors
securities, unless such recommendations have changed within the
past six months, or to information already contained in
documents filed with the Commission;
(g) such Underwriter is not an affiliate of the
Issuer or the Guarantor for purposes of the NASD Conduct
Rule 2720 (or any FINRA successor rule thereto). Such
Underwriter understands that under Rule 2720 (except as
provided in Rule 2720(b)(1)(C) thereof) two entities are
affiliates of each other if one entity controls, is
controlled by, or is under common control with, the second
entity and that control is presumed to exist if one
entity (or, in the case of a FINRA member, the entity and all
persons associated with it (as defined by FINRA))
beneficially owns 10% or more of the second
A-1
entitys outstanding voting securities or, if the second
entity is a partnership, if the first entity has a partnership
interest in 10% or more of the second entitys
distributable profits or losses;
(h) in the case of Registered Offerings and Offerings of
Securities exempt under Section 3 of the 1933 Act, and
if the Securities are
not
investment grade debt
securities or preferred stock, or equity securities for which
there exists a bona fide independent market (as
defined in NASD Conduct Rule 2720(b)(3) or any FINRA
successor rule thereto) or otherwise exempted under NASD Conduct
Rule 2720(b)(7)(D) (or any FINRA successor rule thereto),
such Underwriter does not have a conflict of
interest with the Issuer or the Guarantor under NASD
Conduct Rule 2720 (or any FINRA successor rule thereto). In
that regard, such Underwriter specifically confirms that such
Underwriter, the parent of (as defined in
Rule 2720), affiliates, and persons associated
with such Underwriter (as defined by FINRA), in the
aggregate do not: (a) beneficially own 10% or more of the
Issuers or the Guarantors common equity,
preferred equity, or subordinated debt
(as each such term is defined in Rule 2720), or (b) in
the case of an Issuer or Guarantor which is a partnership,
beneficially own a general, limited, or special partnership
interest in 10% or more of the Issuers or Guarantors
distributable profits or losses;
(i) other than as may be stated in the Prospectus or the
Offering Circular, as the case may be, in the case of Registered
Offerings and Offerings of Securities exempt under Section 3 of
the 1933 Act, neither such Underwriter nor any of its
directors, officers, partners, or persons associated
with such Underwriter (as defined by FINRA) nor, to such
Underwriters knowledge, any related person
(defined by FINRA to include counsel, financial consultants and
advisors, finders, members of the selling or distribution group,
any FINRA member participating in the offering, and any other
persons associated with or related to and members of the
immediate family of any of the foregoing) or any other
broker-dealer: (A) within the last six months have
purchased in private transactions, or intend before, at, or
within six months after the commencement of the public offering
of the Securities to purchase in private transactions, any
securities of the Issuer, the Guarantor, or any Issuer Related
Party (as hereinafter defined), (B) within the last
6 months have had any dealings with the Issuer, the
Guarantor, any Seller, or any subsidiary or controlling person
thereof (other than relating to the proposed Underwriting
Agreement) as to which documents or information are required to
be filed with FINRA, or (C) during the 6 months
immediately preceding the filing of the Registration Statement
(or, if there is none, the Offering Circular), have entered into
any arrangement which provided or provides for the receipt of
any item of value (including, but not limited to, cash payments
and expense reimbursements)
and/or
the
transfer of any warrants, options, or other securities from the
Issuer, the Guarantor, or any Issuer Related Party to you or any
related person;
(j) in the case of Registered Offerings and Offerings of
Securities exempt under Section 3 of the 1933 Act,
there is no association or affiliation between such Underwriter
and; (A) any officer or director of the Issuer, the
Guarantor or, any Issuer Related Party, or (B) any
securityholder of 5% or more (or, in the case of an initial
public offering of equity securities, any securityholder) of any
class of securities of the Issuer, the Guarantor, or an Issuer
Related Party; it being understood that for purposes of
paragraph (i) above and this paragraph (j), the term
Issuer Related Party includes any Seller, any
affiliate of the Issuer, the Guarantor, or a Seller, and the
officers or general partners, directors, employees, and
securityholders thereof;
(k) in the case of Registered Offerings and Offerings of
Securities exempt under Section 3 of the 1933 Act, and
if the Securities are
not
issued by a real estate
investment trust, no portion of the net offering proceeds from
the sale of the Securities will be paid to such Underwriter or
any of its affiliates or persons associated with
such Underwriter (as defined by FINRA) or members of the
immediate family of any such person; and
(l) in the case of Securities which are debt securities
whose offer and sale is to be registered under the
1933 Act, such Underwriter is not an affiliate (as defined
in
Rule 0-2
under the Trust Indenture Act of 1939) of the Trustee
for the Securities or of its parent, if any. Neither the Trustee
nor its parent, if any, nor any of their directors or executive
officers is a director, officer, partner, employee,
appointee, or representative of such Underwriter (as those
terms are defined in the Trust Indenture Act of 1939 or in
the relevant instructions to
Form T-1).
Such Underwriter and its directors, partners, and executive
officers, taken
A-2
as a group, did not on the date specified in the Invitation, and
do not, own beneficially 1% or more of the shares of any class
of voting securities of the Trustee or of its parent, if any. If
such Underwriter is a corporation, it does not have outstanding
and has not assumed or guaranteed any securities issued
otherwise than in its present corporate name.
If an Underwriter notes an exception with respect to material of
the type referred to in clauses (e) and (f), such
underwriter will send three copies of each item of such
material, together with a statement as to distribution,
identifying classes of recipients and the number of copies
distributed to each such class, and, if relevant, the number of
equity securities or the face value of debt securities owned by
such person, the date such securities were acquired, and the
price paid for such securities to Morgan Stanley & Co.
Incorporated, Attention: Syndicate Department, 1585 Broadway,
New York, New York 10036.
A-3