[X] Registration Statement under the Securities Act of 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No.
and/or
One Corporate Center
Rye, New York 10580-1422
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 422-3554
Copies to:
Richard T. Prins, Esq. James E. McKee, Esq. Leonard B. Mackey, Jr., Esq.
Skadden, Arps, Slate, The Gabelli Dividend & Income Trust Clifford Chance US LLP
Meagher & Flom LLP One Corporate Center 200 Park Avenue
Four Times Square Rye, New York 10580-1422 New York, New York 10166
New York, New York 10036 (914) 921-5100 (212) 878-8000
(212) 735-3000
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Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as amended, other than securities offered in connection with a dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box) [X] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for
a previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is [ ].
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate
Amount Being Offering Price Offering Amount of
Title of Securities Registered Per Share(1) Price Registration Fee (2)
------------------- ------------ -------------- --------- --------------------
Common Shares, $.001 500,000 Shares $20 $10,000,000 $809
par value
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) $606.75 previously paid.
CROSS-REFERENCE SHEET
N-2 Item Number Location in Part A (Caption)
---------------------------------------------------------------------------------------------------------------------
PART A
1. Outside Front Cover.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Page........................................... Outside Front Cover Page; Inside Front Cover Page
3. Fee Table and Synopsis........................... Summary; Summary of Fund Expenses
4. Financial Highlights............................. Not Applicable
5. Plan of Distribution............................. Outside Front Cover Page; Summary; Underwriting
6. Selling Shareholders............................. Not Applicable
7. Use of Proceeds.................................. Use of Proceeds; Investment Objective and Policies
8. General Description of the
Registrant..................................... Outside Front Cover Page; Summary; The Fund; Investment
Objective and Policies; Risk Factors & Special
Considerations; How the Fund Manages Risk; Description
of the Shares; Anti-takeover Provisions of the Fund's
Governing Documents
9. Management....................................... Outside Front Cover Page; Summary; Management of the
Fund; Custodian, Transfer Agent, Dividend-Disbursing Agent
10. Capital Shares, Long-Term Debt,
and Other Securities........................... Outside Front Cover Page; Summary; Investment Objective
and Policies; Description of the Shares; Description of
Capitalization; Taxation
11. Defaults and Arrears on Senior
Securities..................................... Not Applicable
12. Legal Proceedings................................ Not Applicable
13. Table of Contents of the Statement
of Additional Information...................... Table of Contents of the Statement of Additional
Information
PART B Location in Statement of
Additional Information
---------------------------------------------------------------------------------------------------------------------
14. Cover Page....................................... Outside Front Cover Page
15. Table of Contents................................ Outside Front Cover Page
16. General Information and History.................. Not Applicable
17. Investment Objective and
Policies....................................... Investment Objective and Policies; Investment
Restrictions
18. Management....................................... Management of the Fund
19. Control Persons and Principal
Holders of Securities.......................... Not Applicable
20. Investment Advisory and Other
Services....................................... Management of the Fund
21. Brokerage Allocation and Other
Practices...................................... Portfolio Transactions
22. Tax Status....................................... Taxation
23. Financial Statements............................. Not Applicable
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PART C
Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement.
[FLAG]
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion Preliminary Prospectus dated October [__], 2003
PROSPECTUS SHARES [GABELLI LOGO]
----------
The Gabelli Dividend & Income Trust
Common Shares of Beneficial Interest
$20.00 per share
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The Gabelli Dividend & Income Trust, or the Fund, is a newly organized, non-diversified, closed-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund's investment objective is to seek a high level of total return with an emphasis on dividends and income. Gabelli Funds, LLC serves as investment adviser to the Fund. An investment in the Fund is not appropriate for all investors. We cannot assure you that the Fund's objective will be achieved.
Under normal market conditions, the Fund invests at least 80% of its assets in dividend paying or other income producing securities. In addition, under normal market conditions, at least 50% of the Fund's assets will consist of dividend paying equity securities. In making stock selections, the Fund's investment adviser looks for securities that have a superior yield, as well as capital gains potential.
The Fund currently anticipates that it will issue preferred shares following the completion of this offering of common shares, in order to seek incremental return for the Fund's common shareholders. The use of preferred shares to leverage the common shares may involve greater risk to common shareholders.
The Fund expects the common shares to be listed on the New York Stock Exchange, subject to notice of issuance, under the symbol "GDV".
Because the Fund is newly organized, its shares have no history of public trading. Shares of closed-end funds generally trade at a discount from net asset value and this creates a risk of loss for an investor purchasing shares in an initial public offering.
Per Share Total
--------- -----
Public Offering Price $20.00 $
Sales Load(2) $ .90 $
Estimated offering expenses(1) $ .04 $
Proceeds to the Fund
(after expenses) $19.06 $
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(1) Organizational and offering expenses payable by the Fund are estimated at $1,000,000.
(2) The Fund has agreed to pay the underwriters $.0067 per common share as a partial reimbursement of expenses issued in connection with the offering. See "Underwriting."
The underwriters may also purchase up to an additional [__] common shares at the public offering price, less the sales load, within 45 days from the date of this prospectus to cover overallotments.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Merrill Lynch & Co. Citigroup A.G. Edwards & Sons, Inc.
Gabelli & Company, Inc.
Raymond James RBC Capital Markets Wells Fargo Securities, LLC
Advest, Inc. BB&T Capital Markets H&R Block Financial Advisors, Inc.
J.J.B. Hilliard, W.L. Lyons, Inc. Janney Montgomery Scott LLC
Legg Mason Wood Walker McDonald Investments Inc. Morgan Keegan & Company, Inc.
Incorporated
Oppenheimer Quick & Reilly, Inc. Ryan Beck & Co.
Stifel, Nicolaus & Company SunTrust Robinson Humphrey TD Waterhouse
Incorporated
Wedbush Morgan Securities Inc. Claymore Securities, Inc. Hennion & Walsh, Inc.
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The date of this prospectus is , 2003.
(continued from previous page)
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, dated ,
[__] 2003, containing additional information about the Fund, has been filed with
the Securities and Exchange Commission and is incorporated by reference in its
entirety into this prospectus. You may request a free copy of the Statement of
Additional Information, the table of contents of which is on page[ ] of this
prospectus, by calling (888) 825-2257 or by writing to the Fund, or obtain a
copy (and other information regarding the Fund) from the Securities and Exchange
Commission's web site (http://www.sec.gov).
The Fund's 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
Page
----
Prospectus Summary............................................................1
Summary of Fund Expenses.....................................................10
Use of Proceeds..............................................................12
The Fund.....................................................................12
Investment Objective and Policies............................................12
Leverage.....................................................................19
Risk Factors and Special Considerations......................................22
How the Fund Manages Risk....................................................29
Management of the Fund.......................................................30
Portfolio Transactions.......................................................33
Dividends and Distributions..................................................33
Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan.............34
Description of the Shares ...................................................35
Anti-Takeover Provisions of the Fund's Governing Documents...................36
Closed-End Fund Structure....................................................37
Repurchase of Common Shares..................................................37
Taxation.....................................................................38
Custodian, Transfer Agent and Dividend-Disbursing Agent......................40
Underwriting.................................................................41
Legal Matters................................................................43
Additional Information.......................................................43
Privacy Principles of the Fund...............................................44
Special Note Regarding Forward-looking Statements............................44
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Table of Contents of SAI.....................................................45
You should rely only on the information contained or incorporated by reference in this prospectus. The Fund has not, and the underwriters have not, authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. 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.
PROSPECTUS SUMMARY
This is only a summary. This summary may not contain all of the information that you should consider before investing in the common shares. You should review the more detailed information contained in this prospectus and the Statement of Additional Information, dated [__], 2003 (the "SAI").
The Fund................................ The Gabelli Dividend & Income Trust
is a newly organized, closed-end,
non-diversified management investment
company organized under the laws of
the State of Delaware. Throughout
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this prospectus, we refer to The Gabelli Dividend & Income Trust as the "Fund" or as "we," "us" or "our." See "The Fund."
The Offering............................ The Fund is offering common shares of
beneficial interest at $20.00 per
share through a group of underwriters
(the "Underwriters") led by Merrill
Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). 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 to
cover orders in excess of [__] common
shares. See "Underwriting."
Investment Objective and Policies....... The Fund's investment objective is to
provide a high level of total return
on its assets with an emphasis on
dividends and income. The Fund will
attempt to achieve its investment
objective by investing, under normal
market conditions, at least 80% of
its assets in dividend paying
securities (such as common and
preferred stock) or other income
producing securities (such as fixed
income debt securities and securities
that are convertible into common
stock). In addition, under normal
market conditions, at least 50% of
the Fund's assets will consist of
dividend paying equity securities
The Fund may other invest up to 35% of
its total assets in the securities of
non-U.S. issuers and up to 25% of its
total assets in securities of issuers
in a single industry. There is no
minimum credit rating for debt
securities in which the Fund may
invest, although the Fund will not
invest more than 10% of its total
assets in fixed-income nonconvertible
securities rated in the lower rating
categories of recognized statistical
rating agencies or non-rated securities
of comparable quality, which are
commonly referred to as "junk bonds."
See "Investment Objective and
Policies."
The Investment Adviser's investment
philosophy with respect to both equity
and debt securities is to identify
assets that are selling in the public
market at a discount to their private
market value. The Investment Adviser
defines private market value as the
value informed purchasers are willing
to pay to acquire assets with similar
characteristics. In making stock
selections, the Fund's Investment
Adviser looks for securities that have
a superior yield, as well as capital
gains potential. No assurance can be
given that the Fund will achieve its
investment objective.
Use of Leverage......................... The Fund currently anticipates
issuing preferred shares following
completion of this offering of common
shares, upon a determination by the
Board of Trustees that the issuance
of preferred shares is in the best
interests of the Fund's common
shareholders. As provided in the
Investment Company Act of 1940 (the
"1940 Act") and subject to certain
exceptions, the Fund may issue
preferred shares so long as the
Fund's total assets immediately after
such issuance, less certain ordinary
course liabilities, exceed 200% of
the sum of the amount of preferred
shares and debt outstanding. In
accordance with Securities and
Exchange Commission staff guidelines,
the Fund may also issue convertible
preferred shares, which may permit
the Fund to obtain leverage at
attractive rates. Use of leverage may
magnify the impact on the common
shareholder of changes in net asset
value and the cost of leverage may
exceed the return on the securities
acquired with the proceeds of the
leverage, thereby diminishing rather
than enhancing the return to such
shareholders and generally making the
Fund's total return to such
shareholders more volatile. In
addition, the Fund may be required to
sell investments in order to meet
dividend or interest payment
obligations on the preferred shares
when it may be disadvantageous to do
so. Leveraging through the issuance
of preferred shares requires that the
holders of the preferred shares have
class voting rights on various
matters that could make it more
difficult for the holders of the
common shares to change the investment
objective or fundamental policies of
the Fund, to convert it to an
open-end fund or make certain other
changes. See "Investment Objective
and Polices -- Certain Investment
Practices -- Leverage" and "Risk
Factors and Special Considerations --
Leverage Risks."
The fee paid to the Investment
Adviser is calculated on the basis of
the Fund's net assets including
proceeds from the issuance of
preferred shares. However, the
Investment Adviser has voluntarily
agreed to not charge investment
management fees on assets
attributable to preferred shares for
any calendar year except to the
extent the Fund's rate of total
return allocable to common
shareholders, including distributions
and the management fee subject to
potential waiver, is equal to or
exceeds the cost of the leverage for
that year. This waiver will apply as
long as any such preferred shares are
outstanding. Consequently, during
periods in which the Fund is
utilizing financial leverage, the
investment management fees payable to
the Investment Adviser may be higher
than if the Fund did not utilize a
leveraged capital structure. See
"Leverage."
Dividends and Distributions............. In order to allow its holders of
common shares to realize a
predictable, but not assured, level
of cash flow and some periodic
liquidity from their investment
without having to sell shares, the
Fund's Board of Trustees has adopted
a policy, which may be modified at
any time by the Board of Trustees, of
paying quarterly distributions on its
common shares. The Board has
initially determined to pay
distributions quarterly at an annual
rate of 6.00% of the initial public
offering price and to pay an additional
distribution on an annual basis of
any realized income in excess of the
quarterly distributions for that
year. Quarterly distributions are
expected to be paid in March, June,
September and December of each year,
commencing in March, 2004.
If, for any calendar year, the total
quarterly distributions exceed
investment company taxable income and
net capital gain, the excess will
generally be treated as a tax-free
return of capital up to the amount of
a shareholder's tax basis in the
common shares. Any distributions
which (based upon the Fund's full
year performance) constitute tax-free
return of capital will reduce a
shareholder's tax basis in the common
shares, thereby increasing such
shareholder's 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 shareholder's basis
in the common shares will generally
be taxable to the shareholder as
capital gain. See "Taxation."
Ordinary and capital gain
distributions paid (or in the case of
capital gain, credited) by the Fund
will be automaticall reinvested in
additional shares of the Fund unless
a shareholder elects to receive cash
or the shareholder's broker does not
provide reinvestment services. See
"Automatic Distribution Reinvestment
and Voluntary Cash Repurchase Plan."
Because the Fund's Distribution
Policy may be changed by the Board at
any time, there can be no assurance
that the Fund will pay distributions
or pay distributions at a particular
rate.
Tax Treatment of Common
Share Distributions................ The Fund expects that distributions
paid on the common shares will
consist of (i) qualified dividend
income (income from domestic and
certain foreign corporations), (ii)
long-term capital gain (gain from the
sale of a capital asset held longer
than 12 months) and (iii) investment
company taxable income (other than
qualified dividend income), including
interest income, short-term capital
gain and income from certain hedging
and interest rate transactions. For
individuals, currently the maximum
federal income tax rate is 15% on
qualified dividend income, 15% on
long-term capital gain and 35% on
investment company taxable income
(other than qualified dividend
income). These tax rates are
scheduled to apply through 2008. We
cannot assure you as to what
percentage of the distributions paid
on the common shares, if any, will
consist of tax-advantaged qualified
dividend income or long-term capital
gains. For a more detailed
discussion, see "Taxation."
Use of Proceeds......................... The Fund will use the net proceeds
from the offering to purchase
portfolio securities in accordance
with its investment objective and
policies. See "Use of Proceeds."
Listing of the Common Shares............ The common shares are expected to be
listed on the New York Stock
Exchange, subject to notice of
issuance, under the trading or
"ticker" symbol "GDV". See "Description
of the Shares."
Market Price of Shares ................. Common shares of closed-end
investment companies often trade
at prices lower than their net asset
value. Common shares of closed-end
investment companies like the Fund
have during some periods traded at
prices higher than their net asset
value and have during other periods
traded at prices lower than their net
asset value. We cannot assure you
that the Fund's common shares will
trade at a price higher than or equal
to net asset value. The Fund's net
asset value will be reduced
immediately following this offering
by the sales load and the amount of
the organization and offering
expenses paid by the Fund. See "Use
of Proceeds." In addition to net
asset value, the market price of the
Fund's common shares may be affected
by such factors as the Fund's
distribution stability, liquidity,
market supply and demand, any use of
leverage and the Fund's distribution
level. See "Risk Factors and Special
Considerations," "Description of
Shares" and "Repurchase of Shares."
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.
Risk Factors and
Special Considerations............. Risk is inherent in all investing.
Therefore, before investing in common
shares you should consider the risks
carefully.
Fund Distribution Risk. Pursuant to
its distribution policy, the Fund
intends to make regular quarterly
distributions on its common shares.
To the extent the total quarterly
distributions for a year exceed the
Fund's net investment company taxable
income and net realized capital gain
for that year, the excess will
generally constitute a return of
capital. Return of capital
distributions are generally tax-free
up to the amount of a shareholder's
tax basis in the shares. See
"Taxation." In addition, such excess
distributions will decrease the
Fund's total assets and may increase
the Fund's expense ratio. 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.
No Operating History. The Fund is a
newly organized, non-diversified,
closed-end management investment
company with no operating history.
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See "Risk Factors and Special Considerations -- No Operating History."
Long-Term Objective; Not a Complete Investment Program. The Fund is intended for investors seeking long-term capital growth and income.
The Fund is not meant to provide a
vehicle for those who wish to play
short-term swings in the stock
market. An investment in shares of
the Fund should not be considered a
complete investment program. Each
shareholder should take into account
the Fund's investment objective as
well as the shareholder's other
investments when considering an
investment in the Fund. See "Risk
Factors and Special Considerations --
Long-term Objective; Not a Complete
Investment Program."
Leverage Risk. Leverage entails two
primary risks. The first risk is that
the use of leverage magnifies the
impact on the holders of common
shares of changes in net asset value.
For example, if the Fund were to use
33% leverage, it would show a 1.5%
increase or decline in net asset
value for each 1% increase or decline
in the value of its total assets. The
second risk is that the cost of
leverage will exceed the return on
the securities acquired with the
proceeds of leverage, thereby
diminishing rather than enhancing the
return to holders of common shares.
These two risks would generally make
the Fund's total return to holders of
common shares more volatile were it
to use leverage.
So long as the Fund uses leverage it
may be required to sell investments
in order to meet dividend or interest
payments on the debt or preferred
shares when it may be disadvantageous
to do so. In addition, a decline in
net asset value could affect the
ability of the Fund to make common
share distributions and such a
failure to make distributions could
result in the Fund ceasing to qualify
as a regulated investment company
under the Code. See "Taxation."
Finally, if the asset coverage for
preferred shares or debt securities
declines to less than 200% or 300%,
respectively (as a result of market
fluctuations or otherwise), the Fund
may be required to sell a portion of
its investments to redeem the
preferred shares or repay the debt
when it may be disadvantageous to do
so. See "Risk Factors and Specific
Considerations - Leverage Risk."
Market Discount Risk. Whether
investors will realize gains or
losses upon the sale of 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 Fund's net asset value per share.
Since the market price of the shares
will be affected by such factors as
the relative demand for and supply of
the shares in the market, general
market and economic conditions and
other factors beyond the control of
the Fund, the Fund cannot predict
whether the shares will trade at,
below or above net asset value or at,
below or above the public offering
price. Shares of closed-end funds
often trade at a discount to their
net asset values and the Fund's
shares may trade at such a discount.
This risk may be greater for
investors expecting to sell their
shares of the Fund soon after
completion of the public offering.
The shares of the Fund were designed
primarily for long-term investors,
and investors in the shares should
not view the Fund as a vehicle for
trading purposes. See "Risk Factors
and Special Considerations -- Market
Discount Risk."
Equity Risk. A principal risk of
investing in the Fund is equity risk,
which is the risk that the securities
held by the Fund will fall due to
general 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
investment in the securities owned by
the Fund, which are for the most part
traded on a securities exchange or in
the over-the-counter markets. The
value of these securities, like other
market investments, may move up or
down, sometimes rapidly and
unpredictably. The value of an
investment in the Fund may at any
point in time be worth less than the
original investment, even after
taking into account any reinvestment
of distributions. See "Risk Factors
and Special Considerations - Equity
Risk."
Common Stock Risk. Common stock of an
issuer in the Fund's portfolio may
decline in price 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
to preferred stock, bonds and other
debt instruments in a company's
capital structure, in terms of
priority to corporate income, and
therefore will be subject to greater
dividend risk than preferred stock or
debt instruments of such issuers. In
addition, while common stock has
historically generated higher average
returns than fixed income securities,
common stock has also experienced
significantly more volatility in
those returns. See "Risk Factors and
Special Considerations -- Common
Stock Risk."
Distribution Risk for Equity Income
Portfolio Securities. The Fund will
invest a portion of its assets in the
shares of issuers that pay dividends.
Such dividends are not guaranteed and
in the event an issuer does not
realize sufficient income in a
particular period to both service its
liabilities and to pay dividends, it
may forgo paying dividends. See "Risk
Factors and Special Considerations --
Distribution Risk for Equity Income
Securities."
Special Risks Related to Preferred
Securities. Special risks associated
with investing in preferred
securities include deferral of
distributions or dividend payments,
in some cases the right of an issuer
never to pay missed dividends,
subordination, illiquidity, limited
voting rights and redemption by the
issuer. See "Risk Factors and Special
Considerations -- Special Risks
Related to Preferred Securities."
Income Risk. The income shareholders
receive from the Fund is based
primarily on the dividends and
interest it earns from its
investments, which can vary widely
over the short and long-term. If
prevailing market interest rates
drop, distribution rates of the
Fund's preferred shares and any bond
holdings and shareholder's income
from the Fund could drop as well. The
Fund's income also would likely be
affected adversely when prevailing
short-term interest rates increase
and the Fund is utilizing leverage.
Interest Rate Risk. Interest rate
risk is the risk that fixed-income
securities such as preferred and debt
securities will decline in value
because of changes in market interest
rates. When market interest rates
rise, the market value of such
securities generally will fall. The
Fund's investment in such securities
means that the net asset value and
market price of common shares will
tend to decline if market interest
rates rise.
During periods of declining interest
rates, the issuer of a security may
exercise its 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
and debt securities frequently have
call 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 lock in a below
market interest rate, increase the
security's duration and reduce the
value of the security. This is known
as extension risk.
Market interest rates for investment
grade fixed-income securities in
which the Fund will invest have
recently declined significantly below
the historical average rates for such
securities. This decline may have
increased the risk that these rates
will rise in the future (which would
cause the value of the Fund's assets
invested in fixed income securities
to decline) and the degree to which
asset values may decline in such
event; however, historical interest
rate levels are not necessarily
predictive of future interest rate
levels. See "Risk Factors and Special
Considerations -- Interest Rate
Risk."
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 Fund's shares and
distributions thereon can decline. In
addition, during any periods of
rising inflation, dividend rates of
any preferred shares the Fund may
have issued would likely increase,
which would tend to further reduce
returns to common shareholders.
Dilution Risk for Convertible
Securities. In the absence of
adequate anti-dilution provisions in
a convertible security, dilution in
the value of the Fund's holding may
occur in the event the underlying
stock is subdivided, additional
equity securities are issued for
below market value, a stock dividend
is declared, or the issuer enters
into another type of corporate
transaction that has a similar
effect. See "Risk Factors and Special
Considerations -- Dilution Risk."
Value Investing Risk. The Fund
focuses its investments on
dividend-paying common and preferred
stocks that the Investment Adviser
believes are undervalued or
inexpensive relative to other
investments. These types of
securities may present risks in
addition to the general risks
associated with investing in common
and preferred stocks. See "Risk
Factors and Special Considerations --
Value Investing Risk."
Non-Diversified Status. As a
non-diversified investment company
under the 1940 Act, the Fund is not
limited in the proportion of its
assets that may be invested in
securities of a single issuer, and
accordingly, an investment in the
Fund may, under certain
circumstances, present greater risk
to an investor than an investment in
a diversified company. See "Risk
Factors and Special Considerations --
Non-Diversified Status."
Industry Concentration Risk. The Fund
may invest up to 25% of its assets in
the securities of companies
principally engaged in a single
industry. In the event the Fund makes
substantial investments in a single
industry, the Fund would become more
susceptible to adverse economic or
regulatory occurrences affecting that
industry. See "Risk Factors and
Special Considerations -- Industry
Concentration Risk."
Illiquid Securities. The Fund has no
limit on the amount of its net assets
it may invest in unregistered and
otherwise illiquid investments.
Unregistered securities are
securities that cannot be sold
publicly in the United States without
registration under the Securities Act
of 1933, as amended. Unregistered
securities generally can be resold
only in privately negotiated
transactions with a limited number of
purchasers or in a public offering
registered under the Securities Act.
Considerable delay could be
encountered in either event and,
unless otherwise contractually
provided for, the Fund's proceeds
upon sale may be reduced by the costs
of registration or underwriting
discounts. The difficulties and
delays associated with such
transactions could result in the
Fund's inability to realize a
favorable price upon disposition of
unregistered securities, and at times
might make disposition of such
securities impossible. See "Risk
Factors and Special Considerations -
Illiquid Securities."
Foreign Securities Risk. The Fund may
invest up to 35% of its total net
assets in foreign securities.
Investing in securities of foreign
companies (or foreign governments),
which are generally denominated in
foreign currencies, may involve
certain risks and opportunities not
typically associated with investing
in domestic companies and could cause
the Fund to be affected favorably or
unfavorably by changes in currency
exchange rates and revaluation of
currencies. See "Risk Factors and
Special Considerations -- Foreign
Securities."
Smaller Companies. While the Fund
intends to focus on the securities of
established suppliers of accepted
products and services, the Fund may
also invest in smaller companies
which may benefit from the
development of new products and
services. These smaller companies may
present greater opportunities for
capital appreciation, and may also
involve greater investment risk than
larger, more established companies.
For example, smaller companies may
have more limited product lines,
market or financial resources, and
their securities may trade less
frequently and in lower volume than
the securities of larger, more
established companies. As a result,
the prices of the securities of such
smaller companies may fluctuate to a
greater degree than the prices of
securities of other issuers. See
"Risk Factors and Special
Considerations -- Special Risks
Related to Preferred Securities."
Lower Grade Securities. The Fund may
invest up to 10% of its total assets
in fixed-income securities rated
below investment grade by recognized
statistical rating agencies or
unrated securities of comparable
quality. The prices of these lower
grade securities are more sensitive
to negative developments, such as a
decline in the issuer's revenues or a
general economic downturn, than are
the prices of higher grade
securities. Securities of below
investment grade quality are
predominantly speculative with
respect to the issuer's capacity to
pay interest and repay principal when
due and therefore involve a greater
risk of default and are commonly
referred to as "junk bonds." See
"Risk Factors and Special
Considerations -- Lower Grade
Securities."
Special Risks of Derivative
Transactions. The Fund may
participate in certain derivative
transactions. Such transactions
entail certain execution, market,
liquidity, hedging and tax risks.
Participation in the options or
futures markets and in currency
exchange transactions involves
investment risks and transaction
costs to which the Fund would not be
subject absent the use of these
strategies. If the Investment
Adviser's prediction of movements in
the direction of the securities,
foreign currency and interest rate
markets is inaccurate, the
consequences to the Fund may leave
the Fund in a worse position than if
it had not used such strategies. See
"Risk Factors and Special
Considerations -- Special Risks of
Derivative Transactions."
Loans of Portfolio Securities. The
Fund may seek to earn income by
lending portfolio securities to
broker-dealers or other institutional
borrowers. As with other extensions
of credit, there are risks of delay
in recovery or even loss of rights in
the securities loaned if the borrower
of the securities fails financially.
See "Risk Factors and Special
Considerations -- Loans of Portfolio
Securities."
Management Risk. The Fund is subject
to management risk because it is an
actively managed portfolio. The
Investment Adviser will apply
investment techniques and risk
analyses in making investment
decisions for the Fund, but there can
be no guarantee that these will
produce the desired results.
Dependence on Key Personnel. The
Investment Adviser is dependent upon
the expertise of Mr. Mario J. Gabelli
in providing advisory services with
respect to the Fund's investments. If
the Investment Adviser were to lose the
services of Mr. Gabelli, its ability to
service the Fund could be adversely
affected. There can be no assurance
that a suitable replacement could be
found for Mr. Gabelli in the event of
his death, resignation, retirement or
inability to act on behalf of the
Investment Adviser. See "Risk Factors
and Special Considerations --
Dependence on Key Personnel."
Current Developments. As a result of
the terrorist attacks on the World
Trade Center and the Pentagon on
September 11, 2001, some of the U.S.
Securities Markets were closed for a
four-day period. These terrorists
attacks, the war in Iraq and its
aftermath and other geopolitical
events have led to, and may in the
future lead to, increased short-term
market volatility and may have
long-term effects on U.S. and world
economies and markets. Similar events
in the future or other disruptions of
financial markets could affect
interest rates, securities exchanges,
auctions, secondary trading, ratings,
credit risk, inflation and other
factors relating to the common
shares.
Anti-takeover Provisions. The Fund's
governing documents include
provisions that could limit the
ability of other entities or persons
to acquire control of the Fund or
convert the Fund to an open-end fund.
See "Anti-takeover Provisions of the
Fund's Governing Documents."
Management and Fees......................Gabelli Funds, LLC serves as the Fund's
investment adviser ("Investment
Advisor") and is compensated for its
services and its related expenses at
an annual rate of 1.00% of the Fund's
average weekly net assets, which as
used in this prospectus means the
aggregate net asset value of the
common shares plus assets
attributable to outstanding preferred
shares, if any, with no deduction for
the liquidation preference of such
preferred shares. However, the
Investment Adviser has voluntarily
agreed that in the event the Fund
issues preferred shares, it will not
charge investment management fees on
assets attributable to such preferred
shares for any calendar year except
to the extent the Fund's rate of
total return allocable to common
shareholders, including distributions
and the management fee subject to
potential waiver, is equal to or
exceeds the cost of the leverage for
that year. 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."
During periods when the Fund has
outstanding preferred shares or
borrowings for leverage, the fees
paid to the Investment Adviser for
its services to the Fund may be
higher than if the Fund did not issue
preferred shares or borrow because
such fees will be calculated on the
basis of the Fund's average weekly
net assets which (subject to the fee
waiver described above) will include
proceeds from the sale of preferred
shares and the proceeds of any
outstanding borrowings used for
leverage. Consequently, the Fund and
the Investment Adviser may have
differing interests in determining
whether to leverage the Fund's
assets. The Board of Trustees will
monitor this potential conflict.
Repurchase of Common
Shares and Anti-takeover
Provisions......................... The Fund's Board of Trustees expects to
authorize the Fund to repurchase its
common shares in the open market when
the common shares are trading at a
discount of 10% or more from net
asset value. Such repurchases are
subject to certain notice and other
requirements under the 1940 Act. See
"Repurchase of Common Shares."
Certain provisions of the Fund's
Agreement and Declaration of Trust
and By-Laws (collectively, the
"Governing Documents") may be
regarded as "anti-takeover"
provisions. Pursuant to these
provisions, only one of three classes
of trustees is elected each year, and
the affirmative vote of the holders
of 75% of the outstanding shares of
the Fund are necessary to authorize
the conversion of the Fund from a
closed-end to an open-end investment
company. The overall effect of these
provisions is to render more
difficult the accomplishment of a
merger with, or the assumption of
control by, a principal shareholder.
These provisions may have the effect
of depriving Fund shareholders of an
opportunity to sell their shares at a
premium to the prevailing market
price. See "Anti-takeover Provisions
of the Fund's Governing Documents."
Custodian, Transfer Agent and
Dividend Disbursing Agent.......... State Street Bank and Trust serves as
the custodian of the Fund's assets
pursuant to a custody agreement.
Under the custody agreement, the
custodian holds the Fund's assets in
compliance with the 1940 Act. For its
services, the Custodian will receive
a monthly fee based upon, among other
things, the average value of the
total assets of the Fund, plus
certain charges for securities
transactions.
The transfer agent serves as the
Fund's distribution disbursing agent,
as agent under the Fund's automatic
dividend reinvestment and voluntary
cash purchase plan and as transfer
agent and registrar with respect to
the common shares of the Fund.
|
SUMMARY OF FUND EXPENSES
The following table shows Fund expenses as a percentage of net assets attributable to common shares. Because the Fund has no operating history, the following tables are based on the assumption that the Fund has issued 25,000,000 in common shares and has issued preferred shares or utilized other leverage, in an aggregate amount of approximately 33% of the Fund's net assets.
Shareholder Transaction Expenses
Sales Load Paid By You (as a percentage of
offering price)......................................... 4.50%
Offering Expenses Borne by the Fund (as a percentage of
offering price)*........................................ .20%
Dividend Reinvestment Plan Fees............................ None**
Percentage of Net Assets
Attributable to Common Shares
(Assumes Preferred Shares
Are Issued)*** +
---------------------------
Annual Expenses
Management Fees...................... 1.50%
Other Expenses....................... .33%
Total Annual Expenses................ 1.83%
___________
* Gabelli Funds, LLC, the Fund's Investment Adviser, has agreed to pay
the Fund's offering and organizational costs (other than the sales
load) that exceed $.04 per share of common stock (0.20% of the
offering price).
** You will be charged a $2.50 service charge and pay brokerage charges if
you direct the plan agent to sell your common shares held in a dividend
reinvestment account.
*** If the Fund offers preferred shares, it expects to incur certain
annual expenses associated with maintaining such preferred shares.
The Fund also would expect to incur offering costs estimated to be
approximately 1.20% of the total dollar amount of the preferred share
offering, which will be borne immediately by common shareholders and
result in a reduction of the net asset value of the common shares.
Assuming the issuance of preferred shares in an amount equal to 33%
of the Fund's net assets (after their issuance) and that the Fund
issues 25,000,000 common shares, these offering costs are estimated
to be $3,000,000, or $.12 per common share (.60% of the offering
price of the common shares). These offering costs are not included
among the expenses shown in this table.
+ The table presented below in this footnote estimates what the Fund's
annual expenses would be stated as percentages of the Fund's net
assets attributable to common shares. This table assumes the Fund is
the same size as in the table above, but unlike the table above,
assumes that no preferred shares are, or other leverage is, issued or
outstanding. This would be the case, for instance, prior to the
Fund's expected issuance of preferred shares. In accordance with
these assumptions, the Fund's expenses would be estimated to be as
follows:
Percentage of Net Assets
Attributable to Common Shares
(Assumes No Preferred Shares Are Issued)
Annual Expenses
Management Fees.................. 1.00%
Other Expenses................... .20%
Total Annual Expenses............ 1.20%
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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 Fund's first year of operations and assume that the Fund issues 25,000,000 common shares. If the Fund issues fewer common shares, all other things being equal, these expenses would increase. See "Dividend Reinvestment Plan."
The following example illustrates the expenses (including the sales load of $45, estimated offering expenses of this offering of $2 and estimated offering expenses for the preferred shares of $6) that an investor would pay on a $1,000 investment in common shares, assuming (1) total net annual expenses of 1.83% of net assets attributable to common shares (2) a 2% annual cost of preferred shares issued in an amount equal to 33% of the Fund's net assets (after their issuance), and (3) a 5% annual return.*
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Total Expenses Incurred ....... $70 $112 $155 $275
___________
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* The example should not be considered a representation of future expenses. The example assumes that the estimated "Other Expenses" set forth in the Annual Expenses table are accurate and that all distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Fund's actual rate of return may be greater or less than the hypothetical 5% return shown in the example. In addition, the Fund currently expects to issue auction rate preferred shares, of which the cost to the Fund will vary depending upon, among other factors, changes in short term interest rates. Accordingly, the actual interest cost associated with such preferred shares may be greater or less than the 2% cost assumed by this example.
USE OF PROCEEDS
The net proceeds of the offering are estimated at approximately $[__] ($[__] if the Underwriters exercise the overallotment option in full), after deduction of the underwriting discounts and estimated offering expenses payable by the Fund. The Investment Adviser expects that it will initially invest the proceeds of the offering in high quality short-term debt securities and instruments. The Investment Adviser anticipates that the investment of the proceeds will be made in accordance with the Fund's investment objective and policies as appropriate investment opportunities are identified, which is expected to substantially be completed within three months; however, changes in market conditions could result in the Fund's anticipated investment period extending to as long as six months.
THE FUND
The Fund is a newly organized, non-diversified, closed-end management investment company registered under the 1940 Act. The Fund was organized as a Delaware statutory trust on August 20, 2003, pursuant to an Agreement and Declaration of Trust governed by the laws of the State of Delaware. As a newly organized entity, the Fund has no operating history. The Fund's principal office is located at One Corporate Center, Rye, New York, 10580-1422.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund's investment objective is to provide a high level of total return on its assets with an emphasis on dividends and income. Under normal market conditions, the Fund will invest at least 80% of the value of its total assets in dividend paying or income producing equity or debt securities.
Investment Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser normally will consider the following factors, among others:
o the Investment Adviser's own evaluations of the private market value (which is defined below), cash flow, earnings per share and other fundamental aspects of the underlying assets and business of the company;
o the interest or dividend income generated by the securities;
o the potential for capital appreciation of the securities;
o the prices of the securities relative to other comparable securities;
o whether the securities are entitled to the benefits of call protection or other protective covenants; and
o the existence of any anti-dilution protections or guarantees of the security.
The Investment Adviser's philosophy (as hereinafter described) with respect to debt and equity securities is to identify assets that are selling in the public market at a discount to their private market value. The Investment Adviser defines private market value as the value informed purchasers are willing to pay to acquire assets with similar characteristics. The Investment Adviser also normally evaluates an issuer's free cash flow and long-term earnings trends. Finally, the Investment Adviser looks for a catalyst, something indigenous to the company, its industry or country that will surface additional value.
Certain Investment Practices
Equity Securities. Under normal market conditions the Fund will
invest at least 50% of its total assets in dividend paying equity securities,
i.e., common stocks and preferred stocks.
Common stocks represent the residual ownership interest in the issuer and holders of common stock are entitled to the income and increase in the value of the assets and business of the issuer after all of its debt obligations and obligations to preferred stockholders are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Equity securities also include preferred stock (whether or not convertible into common stock) and debt securities convertible into or exchangeable for common or preferred stock. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similarly stated yield characteristics. The market value of preferred stock will also generally reflect whether (and if so when) the issuer may force holders to sell their preferred stock back to the issuer and whether (and if so when) the holders may force the issuer to buy back their preferred stock. Generally speaking the right of the issuer to repurchase the preferred stock tends to reduce any premium that the preferred stock might otherwise trade at due to interest rate or credit factors, while the right of the holders to require the issuer to repurchase the preferred stock tend to reduce any discount that the preferred stock might otherwise trade at due to interest rate or credit factors. In addition, some preferred stocks are non-cumulative, meaning that the dividends do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. There is no assurance that dividends or distributions on non-cumulative preferred stocks in which the Fund invests will be declared or otherwise made payable.
Securities that are convertible into or exchangeable for preferred or common stock are liabilities of the issuer but are generally subordinated to more senior elements of the issuer's balance sheet. Although such securities also generally reflect an element of conversion value, their market value also varies with interest rates and perceived credit risk. Many convertible securities are not investment grade, that is, not rated BBB or better by Standard & Poor's Corporation ("S&P") or Baa or better by Moody's Investors Service, Inc. ("Moody's") and not considered by the Investment Adviser to be of similar quality. There is no minimum credit rating or independent investment limitation for these securities in which the Fund may invest. Preferred stocks and convertible securities may have many of the same characteristics and risks as nonconvertible debt securities. See " -- Lower Grade Securities."
The Investment Adviser believes that preferred stock and convertible securities of certain companies offer the opportunity for capital appreciation as well as periodic income. This is particularly true in the case of companies that have performed below expectations. If a company's performance has been poor enough, its preferred stock and convertible securities may trade more like common stock than like fixed income securities, which may result in above average appreciation if the company's performance improves. Even if the credit quality of such a company is not in question, the market price of its convertible securities may reflect little or no element of conversion value if the price of its common stock has fallen substantially below the conversion price. This can result in the possibility of capital appreciation if the price of the company's common stock recovers.
Lower Grade Securities. The Fund may invest up to 10% of its total assets in fixed-income nonconvertible securities rated in the lower rating categories of recognized statistical rating agencies or non-rated securities of comparable quality. These securities, which may be preferred stock or debt, are predominantly speculative and involve major risk exposure to adverse conditions. Debt securities that are not rated or rated lower than "BBB" by S&P or lower than "Baa" by Moody's are referred to in the financial press as "junk bonds."
Generally, such lower grade securities and unrated securities of comparable quality offer a higher current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality bonds. In addition, such comparable unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly greater because such lower grade securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. In light of these risks, the Investment Adviser, in evaluating the creditworthiness of an issue, whether rated or unrated, will take various factors into consideration, which may include, as applicable, the issuer's operating history, financial resources and its sensitivity to economic conditions and trends, the market support for the facility financed by the issue, the perceived ability and integrity of the issuer's management and regulatory matters.
In addition, the market value of securities in lower rated categories is more volatile than that of higher quality securities, and the markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell securities at their fair value to respond to changes in the economy or the financial markets.
Lower grade securities also present risks based on payment expectations. If an issuer calls the obligation for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security, resulting in a decreased return for investors. Also, as the principal value of nonconvertible bonds and preferred stocks moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently. Interest rates are at historical lows and, therefore, it is likely that they will rise in the future.
As part of its investments in lower grade securities, the Fund may invest in securities of issuers in default. The Fund will make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing in securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection or that the value of the securities will not otherwise appreciate.
In addition to using recognized rating agencies and other sources, the Investment Adviser also performs its own analysis of issues in seeking investments that it believes to be underrated (and thus higher-yielding) in light of the financial condition of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements, value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis. Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue to hold the securities.
The market for lower grade and comparable unrated securities has experienced periods of significantly adverse price and liquidity several times, particularly at or around times of economic recessions. Past market recessions have adversely affected the value of such securities as well as the ability of certain issuers of such securities to repay principal and pay interest thereon or to refinance such securities. The market for those securities may react in a similar fashion in the future.
Securities Subject to Reorganization. The Fund may invest without limit in securities of companies for which a tender or exchange offer has been made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal has been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of high total return significantly greater than the brokerage and other transaction expenses involved.
In general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately prior to the announcement of the offer or may also discount what the stated or appraised value of the security would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount significantly overstates the risk of the contingencies involved; significantly undervalues the securities, assets or cash to be received by shareholders of the prospective portfolio company as a result of the contemplated transaction; or fails adequately to recognize the possibility that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies requires unusually broad knowledge and experience on the part of the Investment Adviser which must appraise not only the value of the issuer and its component businesses as well as the assets or securities to be received as a result of the contemplated transaction but also the financial resources and business motivation of the 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. The Investment Adviser intends to select investments of this type which, in its view, have a reasonable prospect of capital appreciation which is significant in relation to both risk involved and the potential of available alternative investments.
Temporary Defensive Investments. Under normal market conditions at
least 80% of the Fund's assets will consist of "dividend paying securities"
i.e., common stock and other equity securities of foreign and domestic
companies which have historically paid periodic dividends to holders, or
"income securities," i.e., non-dividend paying equity or debt securities
having a history of regular payments or accrual of income to holders. However,
when a temporary defensive posture is believed by the Investment Adviser to be
warranted ("temporary defensive periods"), the Fund may without limitation
hold cash or invest its assets in money market instruments and repurchase
agreements in respect of those instruments. The money market instruments in
which the Fund may invest are obligations of the U.S. government, its agencies
or instrumentalities; commercial paper rated A-1 or higher by S&P or Prime-1
by Moody's; and certificates of deposit and bankers' acceptances issued by
domestic branches of U.S. banks that are members of the Federal Deposit
Insurance Corporation. During temporary defensive periods, the Fund may also
invest to the extent permitted by applicable law in shares of money market
mutual funds, which, under current law, in the absence of an exemptive order
will not be affiliated with the Investment Adviser. Money market mutual funds
are investment companies and the investments in those companies by the Fund
are in some cases subject to certain fundamental investment restrictions and
applicable law. See "Investment Restrictions." As a shareholder in a mutual
fund, the Fund will bear its ratable share of its expenses, including
management fees, and will remain subject to payment of the fees to the
Investment Adviser, with respect to assets so invested. See "Management of the
Fund -- General." The Fund may find it more difficult to achieve it investment
objective during temporary defensive periods.
Options. The Fund may purchase or sell, i.e., write, options on securities, securities indices and foreign currencies which are listed on a national securities exchange or in the over-the-counter ("OTC") market, as a means of achieving additional return or of hedging the value of the Fund's portfolio. A call option is a contract that, in return for a premium, gives the holder of the option the right to buy from the writer of the call option the security or currency underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price during the option period. A put option is the reverse of a call option, giving the holder the right, in return for a premium, to sell the underlying security to the writer, at a specified price, and obligating the writer to purchase the underlying security from the holder at that price. The Fund may purchase call or put options as long as the aggregate initial margins and premiums, measured at the time of such investment, do not exceed 10% of the fair market value of the Fund's total assets.
If the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to predict correctly the effect of these factors. The use of options cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow the price movements of the portfolio securities subject to the hedge.
An option position may be closed out only on an exchange which provides a secondary market for an option of the same series or in a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event, it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying securities for the exercise of put options.
Although the Investment Adviser will attempt to take appropriate measures to minimize the risks relating to the Fund's writing of put and call options, there can be no assurance that the Fund will succeed in any option-writing program it undertakes.
Futures Contracts and Options on Futures. The Fund may purchase and sell financial futures contracts and options thereon which are traded on a commodities exchange or board of trade for certain hedging, yield enhancement and risk management purposes. A financial futures contract is an agreement to purchase or sell an agreed amount of securities or currencies at a set price for delivery in the future. These futures contracts and related options may be on debt securities, financial indices, securities indices, U.S. government securities and foreign currencies. The Investment Adviser has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and therefore is not subject to registration under the Commodity Exchange Act. Accordingly, the Fund's investments in derivative instruments described in this Prospectus and the SAI are not limited by or subject to regulation under the Commodity Exchange Act or otherwise regulated by the Commodity Futures Trading Commission.
Forward Foreign Currency Exchange Contracts. Subject to guidelines of the Board of Trustees, the Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio against uncertainty in the level of future currency exchange rates. The Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract at a price set on the date of the contract. The Fund expects to invest in forward currency contracts for hedging or currency risk management purposes and not in order to speculate on currency exchange rate movements. The Fund will only enter into forward currency contracts with parties which it believes to be creditworthy.
When Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase or sale of securities, including on a "when issued" or "delayed delivery" basis, in excess of customary settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a when, as and if issued security. When such transactions are negotiated, the price is fixed at the time of the commitment, with payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the settlement date if it is deemed advisable.
Securities purchased under a forward commitment are subject to market fluctuation, and no interest (or dividends) accrues to the Fund prior to the settlement date. The Fund will segregate with its custodian cash or liquid securities in an aggregate amount at least equal to the amount of its outstanding forward commitments.
Short Sales. The Fund may make short sales of securities. A short sale is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. The market value of the securities sold short of any one issuer will not exceed either 10% of the Fund's total assets or 5% of such issuer's voting securities. The Fund also will not make a short sale, if, after giving effect to such sale, the market value of all securities sold short exceeds 25% of the value of its assets. The Fund may also make short sales "against the box" without respect to such limitations. In this type of short sale, at the time of the sale, the Fund owns, or has the immediate and unconditional right to acquire at no additional cost, the identical security.
The Fund expects to make short sales both to obtain capital gains from anticipated declines in securities and as a form of hedging to offset potential declines in long positions in the same or similar securities. The short sale of a security is considered a speculative investment technique. Short sales "against the box" may be subject to special tax rules, one of the effects of which may be to accelerate income to the Fund.
When the Fund makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale in order to satisfy its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any payments received on such borrowed securities.
If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer (usually cash, U.S. government securities or other highly liquid debt securities) and the maintenance of collateral with its custodian. Although the Fund's gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
Repurchase Agreements. Repurchase agreements may be seen as loans by the Fund collateralized by an underlying debt securities. Under the terms of a typical repurchase agreement, the Fund would acquire an underlying debt obligation for a relatively short period (usually not more than one week) subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation at an agreed price and time. This arrangement results in a fixed rate of return to the Fund that is not subject to market fluctuations during the holding period. The Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the Fund is delayed in or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period in which it seeks to assert these rights. The Investment Adviser, acting under the supervision of the Board of Trustees of the Fund, reviews the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing basis the value of the securities subject to repurchase agreements to ensure that the value is maintained at the required level. The Fund will not enter into repurchase agreements with the Investment Adviser or any of its affiliates.
Restricted and Illiquid Securities. The Fund may invest in securities for which there is no readily available trading market or are otherwise illiquid. Illiquid securities include securities legally restricted as to resale, such as commercial paper issued pursuant to Section 4(2) of the Securities Act of 1933, and securities eligible for resale pursuant to Rule 144A thereunder. Section 4(2) and Rule 144A securities may, however, be treated as liquid by the Investment Adviser pursuant to procedures adopted by the Board, which require consideration of factors such as trading activity, availability of market quotations and number of dealers willing to purchase the security. If the Fund invests in Rule 144A securities, the level of portfolio illiquidity may be increased to the extent that eligible buyers become uninterested in purchasing such securities.
It may be difficult to sell such securities at a price representing the fair value until such time as such securities may be sold publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time of the decision to sell. The Fund may also acquire securities through private placements under which it may agree to contractual restrictions on the resale of such securities. Such restrictions might prevent their sale at a time when such sale would otherwise be desirable.
Foreign Securities. The Fund may invest up to 35% of its total assets in securities of non-U.S. issuers, which are generally denominated in foreign currencies. See "Risk Factors and Special Considerations -- Foreign Securities."
The Fund may purchase sponsored American Depository Receipts ("ADRs") or U.S. dollar-denominated securities of foreign issuers, which will not be included in this foreign securities limitation. ADRs are receipts issued by United States banks or trust companies in respect of securities of foreign issuers held on deposit for use in the United States securities markets.
Industry Concentration. The Fund may invest up to 25% of its total assets in securities of issuers in a single industry. See "Risk Factors and Other Special Considerations -- Industry Concentration Risk."
Leveraging. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue debt or preferred shares so long as its total assets, less certain ordinary course liabilities, exceed 300% of the amount of the debt outstanding and exceed 200% of the sum of the amount of preferred shares and debt outstanding. Any such debt or preferred shares may be convertible in accordance with Securities and Exchange Commission staff guidelines which may permit each fund to obtain leverage at attractive rates.
The Fund anticipates issuing preferred shares following the completion of this offering of common shares, upon a determination by the Board that the issuance of preferred shares is in the best interest of the common shareholders. Subject to market conditions, the Fund expects to issue preferred shares in an aggregate amount of approximately 33% of the Fund's assets under management. There can be no assurance, however, that preferred shares representing such percentage, or any percentage, of the net assets of the Fund will actually be issued.
The issuance of preferred shares would leverage the common shares. Although the timing and other terms of the offering of Preferred shares and the terms of the Preferred shares would be determined by the Fund's Board of Trustees, the Fund expects to primarily invest the proceeds of any Preferred shares offering in equity securities of the type described under "The Fund's Investments."
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. See "Risk Factors and Special Considerations -- Leveraging."
Lastly, 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.
Loans of Portfolio Securities
To increase income, the Fund may lend its portfolio securities to securities broker-dealers or financial institutions if the loan is collateralized in accordance with applicable regulatory requirements.
If the borrower fails to maintain the requisite amount of collateral, the loan automatically terminates and the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over the value of the collateral. As with any extension of credit, there are risks of delay in recovery and in some cases even loss of rights in collateral should the borrower of the securities fail financially. There can be no assurance that borrowers will not fail financially. On termination of the loan, the borrower is required to return the securities to the Fund, and any gain or loss in the market price during the loan would inure to the Fund. If the other party to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund's ability to sell the collateral and the Fund would suffer a loss. See "Investment Objective and Policies -- Investment Practices -- Loans of Portfolio Securities" in the SAI.
Portfolio Turnover
The Fund will buy and sell securities to accomplish its investment objective. The investment policies of the Fund may lead to frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange rates.
Portfolio turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the year (excluding securities whose maturities at acquisition were one year or less). Higher portfolio turnover may decrease the after-tax return to individual investors in the Fund to the extent it results in a decrease of the long term capital gains portion of distributions to shareholders.
LEVERAGE
Following the completion of the offering of common shares, the Fund expects to issue Preferred shares, subject to current market conditions, in an aggregate amount of approximately 33% of the Fund's assets under management. There can be no assurance, however, that preferred shares representing such percentage of the Fund's net assets will actually be issued. Until the Fund issues preferred shares or if the Fund were not to issue preferred shares in an aggregate amount of approximately 33% of the Fund's assets under management, the Fund may borrow from banks and other financial institutions or use such other leveraging techniques as the Investment Adviser may from time to time determine. Changes in the value of the Fund's investment portfolio, including securities bought with the proceeds of the leverage, will be borne entirely by the holders of common shares. If there is a net decrease, or increase, in the value of the Fund's investment portfolio, the leverage will decrease or increase (as the case may be) the net asset value per common share to a greater extent than if the Fund were not leveraged. During periods when the Fund has outstanding preferred shares or borrowings for leverage, the fees paid to the Investment Adviser for its services to the Fund may be higher than if the Fund did not issue preferred shares or borrow because such fees will be calculated on the basis of the Fund's average weekly net assets which (subject to the fee waiver described below) will include proceeds from the sale of preferred shares and the proceeds of any outstanding borrowings used for leverage. Consequently, the Fund and the Investment Adviser may have differing interests in determining whether to leverage the Fund's assets. The Board of Trustees will monitor this potential conflict.
Preferred Shares
Although the Fund is able to issue preferred shares in an amount up to 50% of its net assets, the Fund anticipates that under current market conditions it will offer preferred shares representing in the aggregate approximately 33% of the Fund's net assets immediately after the issuance of the preferred shares. The preferred shares would have complete priority upon distribution of assets over the common shares. The issuance of preferred shares would leverage the common shares. So long as the Fund's portfolio is invested in securities that provide a higher rate of return than the dividend rate of the preferred shares, after taking expenses into consideration, the leverage will cause common shareholders to receive a higher rate of income than if the Fund were not leveraged. The use of leverage by the Fund is based on the premise that the incremental assets of the Fund will be able to earn a higher return, including capital appreciation, than the cost of the leverage. If the Fund is able to do so, the holders of common shares will be the beneficiaries of the incremental return. Should the differential between the return on the underlying assets and the cost of leverage narrow, the incremental return "pick up" will be reduced. Leverage creates risks for holders of the shares, including the likelihood of greater volatility of net asset value and market price of the shares, and the risk that fluctuations in interest rates on borrowings and debt or in the dividend rates on any preferred shares may affect the return to the holders of the shares. If the income and capital appreciation from the securities purchased with such funds is not sufficient to cover the cost of leverage, the return on the Fund will be less than if leverage had not been used, and therefore the amount available for distribution to shareholders will be reduced. In the latter case, the Investment Adviser in its best judgment nevertheless may determine to maintain the Fund's leveraged position if it expects that the benefits to the Fund's shareholders of maintaining the leveraged position will outweigh the current reduced return. The fee paid to the Investment Adviser is calculated on the basis of the Fund's assets including proceeds from the issuance of preferred shares. However, the Investment Adviser has voluntarily agreed that in the event the Fund issues preferred shares, it will not charge investment management fees on assets attributable to such preferred shares for any calendar year except to the extent the Fund's rate of total return allocable to common shareholders, including distributions and the management fee subject to potential waiver, is equal to or exceeds the cost of the leverage for that year. This waiver will apply as long as any such preferred shares are outstanding. Consequently, during periods in which the Fund is utilizing financial leverage, the investment advisory fees payable to the Investment Adviser may be higher than if the Fund did not utilize a leveraged capital structure. The use of leverage creates risks and involves special considerations. See "Risk Factors and Special Considerations -- Leverage Risk."
If the Fund has preferred shares outstanding the Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies that may issue ratings for the preferred shares issued by the Fund. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the 1940 Act. It is not anticipated that these covenants or guidelines will impede the Investment Adviser from managing the Fund's portfolio in accordance with the Fund's investment objective and policies. Under the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the value of the Fund's total assets is at least 200% of the sum of the liquidation value of the outstanding preferred shares and any indebtedness for leverage purposes (i.e., the liquidation value may not exceed 50% of the Fund's net assets). In addition, the Fund is not permitted to declare any cash distributions on its common shares unless, at the time of such declaration, the value of the Fund's total assets is at least 200% of such liquidation value. If preferred shares are issued, the Fund intends, to the extent possible, to purchase or redeem preferred shares from time to time to the extent necessary in order to maintain coverage of any preferred shares of at least 200%. In addition, as a condition to obtaining ratings on the preferred shares, the terms of any preferred shares issued are expected to include asset coverage maintenance provisions which will require the redemption of the preferred shares in the event of non-compliance by the Fund and may also prohibit distributions on the common shares in such circumstances. In order to meet redemption requirements, the Fund may have to liquidate portfolio securities. Such liquidations and redemptions would cause the Fund to incur related transaction costs and could result in capital losses to the Fund. Prohibitions on distributions on the common shares could impair the Fund's ability to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the "Code").
If the Fund has preferred shares outstanding, two of the Fund's trustees will be elected by the holders of preferred shares voting separately as a class. The remaining trustees of the Fund will be elected by holders of common shares and preferred shares voting together as a single class. In the event the Fund failed to pay dividends on preferred shares for two years, holders of preferred shares may be entitled to elect a majority of the trustees of the Fund. The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities.
Assuming that preferred shares will represent approximately 33% of the Fund's net assets and that dividends are paid on the leverage at a blended annual average rate of 2%, the income generated by the Fund's entire portfolio (net of estimated expenses) would have to exceed 0.67% in order to cover the dividend payments related to the leverage. Of course, these numbers are merely estimates used for illustration. Actual rates on leverage are expected to vary frequently and may be significantly higher or lower than the rate estimated above. The following table is furnished in response to requirements of the Securities and Exchange Commission. It is designed to illustrate the effect of leverage on common share total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund's portfolio) of -10%, -5%, and 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. See "Risk Factors and Special Considerations." The table further reflects leverage using preferred shares representing, in the aggregate, 33 1/3% of the Fund's net assets and the Fund's currently projected annual Preferred Share dividend rate of 2%.
Assumed Portfolio Total Return (net of expenses)........ -10% -5% 0% 5% 10% Common Share Total Return .............................. -16% -8.5% -1% 6.5% 14% |
For this purpose, common share total return is composed of two elements-- (i) distributions: distributions of income paid by the Fund (the amount of which is largely determined by the net investment income of the Fund after paying dividends on preferred shares) and capital gain distributions (the amount of which is determined by netting losses against gains realized by the Fund on its securities); and (ii) the appreciation or decline in the net asset value of the Fund's shares as a result of changes in the value of the securities in the Fund's portfolio. As required by Securities and Exchange Commission rules, the table assumes that the Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% the Fund must assume that the income in excess of expenses it receives on its income producing security investments is entirely offset by losses in the value of those securities. Until the Fund borrows or issues preferred shares, the Fund's 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 shares cannot be fully achieved until the proceeds resulting from the use of leverage have been invested in accordance with the Fund's investment objective and policies.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special considerations associated with investing in the Fund.
Fund Distribution Risk
Pursuant to its distribution policy, the Fund intends to make regular quarterly distributions on its common shares. To the extent the total quarterly distributions for a year exceed the Fund's investment company taxable income and net capital gain for that year, the excess will generally constitute a return of capital. Return of capital distributions are generally tax-free up to the amount of a shareholder's tax basis in the shares. See "Taxation." In addition, such excess distributions may have the effect of decreasing the Fund's total assets and may increase the Fund's expense ratio as the Fund's fixed expenses may become a larger percentage of the Fund's average net assets. In order to make such distributions, the Fund might have to sell a portion of its investment portfolio at a time when independent investment judgment may not dictate such action.
No Operating History
The Fund is a newly organized, non-diversified, closed-end management investment company with no operating history.
Long-term Objective; Not a Complete Investment Program
The Fund is intended for investors seeking long-term capital growth and income. The Fund is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. An investment in shares of the Fund should not be considered a complete investment program. Each shareholder should take into account the Fund's investment objective as well as the shareholder's other investments when considering an investment in the Fund.
Leverage Risk
Leverage entails two primary risks. The first risk is that the use of leverage magnifies the impact on the holders of common shares of changes in net asset value. For example, if the Fund were to use 33% leverage, it would show a 1.5% increase or decline in net asset value for each 1% increase or decline in the value of its total assets. The second risk is that the cost of leverage will exceed the return on the securities acquired with the proceeds of leverage, thereby diminishing rather than enhancing the return to holders of common shares. This risk may materialize as a result of fluctuations in interest rates on borrowings and short-term debt or in the dividend rates on any preferred shares that the Fund must pay (thereby reducing the return to the shareholders) or as a result of declining markets likely to cause a greater decline in the net asset value of the shares than if the Fund were not leveraged, which may result in a greater decline in the market price of the shares. These two risks would generally make the Fund's total return to holders of common shares more volatile were it to use leverage.
So long as the Fund uses leverage it may be required to sell investments in order to meet dividend or interest payments on the debt or preferred shares when it may be disadvantageous to do so. In addition, a decline in net asset value could affect the ability of the Fund to make common share distributions and such a failure to make distributions could result in the Fund ceasing to qualify as a regulated investment company under the Code. See "Taxation." Finally, if the asset coverage for preferred shares or debt securities declines to less than 200% or 300%, respectively (as a result of market fluctuations or otherwise), the Fund may be required to sell a portion of its investments to redeem the preferred shares or repay the debt when it may be disadvantageous to do so.
Equity Risk
A principal risk of investing in the Fund is equity risk, which is the risk that the securities held by the Fund will fall due to general 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 investment in the securities owned by the Fund, which are for the most part traded on a securities exchange or in the over-the-counter markets. The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value of an investment in the Fund may at any point in time be worth less than the original investment, even after taking into account any reinvestment of distributions.
Market Discount Risk
Whether investors will realize gains or losses upon the sale of 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 Fund's net asset value per share. Since the market price of the shares will be affected by such factors as the relative demand for and supply of the shares in the market, general market and economic conditions and other factors beyond the control of the Fund, we cannot predict whether the shares will trade at, below or above net asset value or at, below or above the public offering price. Shares of closed-end funds often trade at a discount to their net asset values and the Fund's shares may trade at such a discount. This risk may be greater for investors expecting to sell their shares of the Fund soon after completion of the public offering. The shares of the Fund were designed primarily for long-term investors, and investors in the shares should not view the Fund as a vehicle for trading purposes.
Common Stock Risk
Common stock of an issuer in the Fund's portfolio may decline in price 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 to preferred stock, bonds and other debt instruments in a company's capital structure, in terms of priority to corporate income, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such issuers. In addition, while common stock has historically generated higher average returns than fixed income securities, common stock has also experienced significantly more volatility in those returns.
Distribution Risk for Equity Income Portfolio Securities
In selecting equity income securities in which the Fund will invest, the Investment Adviser will consider the issuer's history of making regular periodic distributions (i.e., dividends) to its equity holders. An issuer's history of paying dividends, however, does not guarantee that the issuer will continue to pay dividends 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, in the event the issuer does not realize sufficient income in a particular period both to service its liabilities and to pay dividends on its equity securities, it 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 issuer's discretion.
Special Risks Related to Preferred Securities
There are special risks associated with investing in preferred securities, including:
Deferral. Preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its distributions, the Fund may be required to report income for tax purposes although it has not yet received such income.
Non-Cumulative Dividends. Some preferred stocks are non-cumulative, meaning that the dividends do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative preferred securities, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred stock held by the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays may be adversely affected. There is no assurance that dividends or distributions on non-cumulative preferred stocks in which the Fund invests will be declared or otherwise made payable.
Subordination. Preferred securities are subordinated to bonds and other debt instruments in a company's capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior debt instruments.
Liquidity. Preferred securities may be substantially less liquid than many other securities, such as common stocks or U.S. Government securities.
Limited Voting Rights. Generally, preferred security holders (such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuer's board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights.
Special Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws. As with call provisions, a redemption by the issuer may negatively impact the return of the security held by the Fund.
Income Risk
The income investors in the Fund receive is based primarily on the dividends and interest the Fund earns from its investments, which can vary widely over the short and long-term. If prevailing market interest rates drop, distribution rates of the Fund's preferred shares and any bond holdings could drop as well.
Interest Rate Risk
Interest rate risk is the risk that fixed-income securities such as preferred and debt securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of such securities generally will fall. The Fund's investment in such securities means that the net asset value and market price of common shares will tend to decline if market interest rates rise. Further, while longer term fixed rate securities may pay higher interest rates than shorter term securities, longer term 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.
During periods of declining interest rates, the issuer of a security may exercise its 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 and debt securities frequently have call features that allow the issuer to redeem the securities prior to their stated maturities. An issuer may redeem an obligation if the issuer can refinance the debt 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 lock in a below market interest rate, increase the security's duration and reduce the value of the security. This is known as extension risk.
Market interest rates for investment grade fixed-income securities in which the Fund will invest have recently declined significantly below the historical average rates for such securities. This decline may have increased the risk that these rates will rise in the future (which would cause the value of the Fund's assets invested in fixed income securities to decline) and the degree to which net asset values may decline in such event; however, historical interest rate levels are not necessarily predictive of future interest rate levels.
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 Fund's shares and distributions thereon can decline. In addition, during any periods of rising inflation, dividend rates of any preferred shares the Fund may have issued would likely increase, which would tend to further reduce returns to common shareholders.
Dilution Risk for Convertible Securities
In the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of the Fund's holding may occur in the event the underlying stock is subdivided, additional equity securities are issued for below market value, a stock dividend is declared or the issuer enters into another type of corporate transaction that has a similar effect.
Value Investing Risk
The Fund focuses its investments on dividend-paying common and preferred stocks that the Investment Adviser believes are undervalued or inexpensive relative to other investments. These types of securities may present risks in addition to the general risks associated with investing in common and preferred stocks. These securities generally are selected on the basis of an issuer's fundamentals relative to current market price. Such securities are subject to the risk of mis-estimation of certain fundamental factors. In addition, during certain time periods market dynamics may strongly favor "growth" stocks of issuers that do not display strong fundamentals relative to market price based upon positive price momentum and other factors. Disciplined adherence to a "value" investment mandate during such periods can result in significant underperformance relative to overall market indices and other managed investment vehicles that pursue growth style investments and/or flexible equity style mandates.
Non-Diversified Status
The Fund is classified as a "non-diversified" investment company under the 1940 Act, which means the Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer. As a non-diversified investment company, the Fund may invest in the securities of individual issuers to a greater degree than a diversified investment company. As a result, the Fund may be more vulnerable to events affecting a single issuer and therefore, subject to greater volatility than a fund that is more broadly diversified. Accordingly, an investment in the Fund may present greater risk to an investor than an investment in a diversified company.
Industry Concentration Risk
The Fund may invest up to 25% of its total assets in securities of a single industry. Should the Fund chose to do so, the net asset value of the Fund will be more susceptible to factors affecting those particular types of companies, which, depending on the particular industry, may include, among others: governmental regulation; inflation; cost increases in raw materials, fuel and other operating expenses; technological innovations that may render existing products and equipment obsolete; and increasing interest rates resulting in high interest costs on borrowings needed for capital investment, including costs associated with compliance with environmental and other regulations. In such circumstances the Fund's investments may be subject to greater risk and market fluctuation than a fund that had securities representing a broader range of industries.
Illiquid Securities
The Fund has no limit on the amount of its net assets it may invest in unregistered and otherwise illiquid investments. Unregistered securities are securities that cannot be sold publicly in the United States without registration under the Securities Act of 1933. Unregistered securities generally can be resold only in privately negotiated transactions with a limited number of purchasers or in a public offering registered under the Securities Act. Considerable delay could be encountered in either event and, unless otherwise contractually provided for, the Fund's proceeds upon sale may be reduced by the costs of registration or underwriting discounts. The difficulties and delays associated with such transactions could result in the Fund's inability to realize a favorable price upon disposition of unregistered securities, and at times might make disposition of such securities impossible.
Foreign Securities Risk
The Fund may invest up to 35% of its total assets in the securities of foreign issuers. Investments in the securities of foreign issuers involve certain considerations and risks not ordinarily associated with investments in securities of domestic issuers. Foreign companies are not generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable to U.S. companies. Foreign securities exchanges, brokers and listed companies may be subject to less government supervision and regulation than exists in the United States. Dividend and interest income may be subject to withholding and other foreign taxes, which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing a court judgment abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries. In addition, with respect to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments that could affect assets of the Fund held in foreign countries.
There may be less publicly available information about a foreign company than a U.S. company. Foreign securities markets may have substantially less volume than U.S. securities markets and some foreign company securities are less liquid than securities of otherwise comparable U.S. companies. A portfolio of foreign securities may also be adversely affected by fluctuations in the rates of exchange between the currencies of different nations and by exchange control regulations. Foreign markets also have different clearance and settlement procedures that could cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result in the Fund missing attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities can expect to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased costs of maintaining the custody of foreign securities. The Fund does not have an independent limit on the amount of its assets that it may invest in the securities of foreign issuers.
The Fund also may purchase sponsored American Depository Receipts ("ADRs") or U.S. dollar-denominated securities of foreign issuers. ADRs are receipts issued by United States banks or trust companies in respect of securities of foreign issuers held on deposit for use in the United States securities markets. While ADRs may not necessarily be denominated in the same currency as the securities into which they may be converted, many of the risks associated with foreign securities may also apply to ADRs. In addition, the underlying issuers of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.
Smaller Companies
While the Fund intends to focus on the securities of established suppliers of accepted products and services, the Fund may also invest in smaller companies which may benefit from the development of new products and services. These smaller companies may present greater opportunities for capital appreciation, and may also involve greater investment risk than larger, more established companies. For example, smaller companies may have more limited product lines, market or financial resources and their securities may trade less frequently and in lower volume than the securities of larger, more established companies. As a result, the prices of the securities of such smaller companies may fluctuate to a greater degree than the prices of securities of other issuers.
Lower Grade Securities
The Fund may invest up to 10% of its total assets in nonconvertible preferred stock or debt securities rated in the lower rating categories of recognized statistical rating agencies or unrated securities of comparable quality, and an unlimited percentage of it assets in convertible bonds of such quality. These high yield securities, also sometimes referred to as "junk bonds," generally pay a premium above the yields of U.S. government securities or debt securities of investment grade issuers because they are subject to greater risks than these securities. These risks, which reflect their speculative character, include the following:
o greater volatility;
o greater credit risk and risk of default;
o potentially greater sensitivity to general economic or industry conditions;
o potential lack of attractive resale opportunities (illiquidity); and
o additional expenses to seek recovery from issuers who default.
In addition, the prices of these lower grade securities are more sensitive to negative developments, such as a decline in the issuer's revenues or a general economic downturn, than are the prices of higher grade securities. Lower grade securities tend to be less liquid than investment grade securities. The market value of lower grade securities may be more volatile than the market value of investment grade securities and generally tends to reflect the market's perception of the creditworthiness of the issuer and short-term market developments to a greater extent than investment grade securities, which primarily reflect fluctuations in general levels of interest rates.
Ratings are relative and subjective and not absolute standards of quality. Securities ratings are based largely on the issuer's historical financial condition and the rating agencies' analysis at the time of rating. Consequently, the rating assigned to any particular security is not necessarily a reflection of the issuer's current financial condition.
As a part of its investments in lower grade 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.
For a further description of lower grade securities and the risks associated therewith, see "Investment Objective and Policies -- Investment Practices" in the SAI. For a description of the ratings categories of certain recognized statistical ratings agencies, see Appendix A to this prospectus.
Special Risks of Derivative Transactions
Participation in the options or futures markets and in currency exchange transactions involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Investment Adviser's prediction of movements in the direction of the securities, foreign currency and interest rate markets is inaccurate, the consequences to the Fund may leave the Fund in a worse position than if it had not used such strategies. Risks inherent in the use of options, foreign currency, futures contracts and options on futures contracts, securities indices and foreign currencies include:
o dependence on the Investment Adviser's ability to predict correctly movements in the direction of interest rates, securities prices and currency markets;
o imperfect correlation between the price of options and futures contracts and options thereon and movements in the prices of the securities or currencies being hedged;
o the fact that skills needed to use these strategies are different from those needed to select portfolio securities;
o the possible absence of a liquid secondary market for any particular instrument at any time;
o the possible need to defer closing out certain hedged positions to avoid adverse tax consequences;
o the possible inability of the Fund to purchase or sell a security at a time that otherwise would be favorable for it to do so, or the possible need for the Fund to sell a security at a disadvantageous time due to a need for the Fund to maintain "cover" or to segregate securities in connection with the hedging techniques; and
o the creditworthiness of counterparties.
Futures Transactions. The Fund may invest without limit in futures contracts. Futures and options on futures entail certain risks, including but not limited to the following:
o no assurance that futures contracts or options on futures can be offset at favorable prices;
o possible reduction of the return of the Fund due to the use of hedging;
o possible reduction in value of both the securities hedged and the hedging instrument;
o possible lack of liquidity due to daily limits or price fluctuations;
o imperfect correlation between the contracts and the securities being hedged; and
o losses from investing in futures transactions that are potentially unlimited and the segregation requirements for such transactions.
Forward Currency Exchange Contracts. There is no independent limit on the Fund's ability to invest in foreign currency exchange contracts. The use of forward currency contracts may involve certain risks, including the failure of the counterparty to perform its obligations under the contract and that the use of forward contracts may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged or used for cover.
Counterparty Risk. The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
For a further description of such derivative investments, see "Investment Objective and Policies -- Investment Practices" in the SAI.
Loans of Portfolio Securities
Consistent with applicable regulatory requirements and the Fund's investment restrictions, the Fund may lend its portfolio securities to securities broker-dealers or financial institutions, provided that such loans are callable at any time by the Fund (subject to notice provisions described in the SAI), and are at all times secured by cash or cash equivalents, which are maintained in a segregated account pursuant to applicable regulations and that are at least equal to the market value, determined daily, of the loaned securities. The advantage of such loans is that the Fund continues to receive the income on the loaned securities while at the same time earns interest on the cash amounts deposited as collateral, which will be invested in short-term obligations. The Fund will not lend its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares are qualified for sale. The Fund's loans of portfolio securities will be collateralized in accordance with applicable regulatory requirements.
For a further description of such loans of portfolio securities, see "Investment Objective and Policies -- Investment Practices" in the SAI.
Management Risk
The Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect to the Fund's investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the Fund could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli in the event of his death, resignation, retirement or inability to act on behalf of the Investment Adviser.
Current Developments
As a result of the terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, some of the U.S. Securities Markets were closed for a four-day period. These terrorists attacks, the war in Iraq and its aftermath and other geopolitical events have led to, and may in the future lead to, increased short-term market volatility and may have long-term effects on U.S. and world economies and markets. Similar events in the future or other disruptions of financial markets could affect interest rates, securities exchanges, auctions, secondary trading, ratings, credit risk, inflation and other factors relating to the common shares.
Anti-takeover Provisions
The Fund's Governing Documents include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. See "Anti-takeover Provisions of the Fund's Governing Documents."
HOW THE FUND MANAGES RISK
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 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.
Interest Rate Transactions
If the Fund issues Preferred shares whose dividends vary periodically, it will consider entering into interest rate swap or cap transactions in relation to all or a portion of such Preferred shares in order to manage the impact on its portfolio of changes in the dividend rate of the Preferred 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 perpetual fixed rate Preferred shares.
The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund would agree to pay to the other party to the interest rate swap (which is known as the "counterparty") periodically a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund periodically a variable rate payment that is intended to approximate the Fund's variable rate payment obligation on its 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 dividends on the Preferred shares when due even if the counterparty defaulted. Depending on the general state of short-term interest rates and the returns on the Fund's portfolio securities at that point in time, such a default could negatively affect the Fund's ability to make dividend payments on the Preferred shares. In addition, at the time an interest rate swap or cap transactions reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the Fund's ability to make dividend payments on the 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 Preferred shares. A sudden and dramatic decline in interest rates may result in a significant decline in the asset coverage. In the event the Fund redeems the Preferred shares, such 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.
If the Fund enters into a swap transaction, it would expect to do so on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund intends to segregate cash or liquid securities having a value at least equal to the value of the Fund's net payment obligations under any swap transaction, marked to market daily. The Fund will monitor any such swap with a view to ensuring that the Fund remains in compliance with all applicable regulatory investment policy and tax requirements.
MANAGEMENT OF THE FUND
General
The Fund's Board of Trustees (who, with its officers, are described in the SAI) has overall responsibility for the management of the Fund. The Board decides upon matters of general policy and reviews the actions of the Investment Adviser, Gabelli Funds, LLC, located at One Corporate Center, Rye, New York 10580-1422, and the Sub-Administrator (as defined below). Pursuant to an investment advisory contract with the Fund, the Investment Adviser, under the supervision of the Fund's Board of Trustees, provides a continuous investment program for the Fund's portfolio; provides investment research and makes and executes recommendations for the purchase and sale of securities; and provides all facilities and personnel, including officers required for its administrative management and pays the compensation of all officers and trustees of the Fund who are its affiliates. As compensation for its services and the related expenses borne by the Investment Adviser, the Fund pays the Investment Adviser a fee, computed daily and payable monthly, equal, on an annual basis, to 1.00% of the Fund's average weekly net assets. The fee paid to the Investment Adviser is calculated on the basis of the Fund's net assets including proceeds from the issuance of preferred shares. However, the Investment Adviser has voluntarily agreed that in the event the Fund issues preferred shares, it will not charge investment management fees on assets attributable to such preferred shares for any calendar year except to the extent the Fund's rate of total return allocable to common shareholders, including distributions and the management fee subject to potential waiver, is equal to the cost of the leverage for that year. This waiver will apply as long as any such preferred shares are outstanding.
The Investment Adviser
Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an advisory agreement with the Fund. The Investment Adviser is a New York corporation with principal offices located at One Corporate Center, Rye, New York 10580. The Investment Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980. As of June 30, 2003, the Investment Adviser acted as registered investment adviser to 19 management investment companies with aggregate net assets of $9.3 billion. The Investment Adviser, together with other affiliated investment advisers noted below had assets under management totaling approximately $21.9 billion as of June 30, 2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing trusts and endowments, and as a sub-adviser to management investment companies having aggregate assets of $10.8 billion under management as of June 30, 2003. Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as investment adviser for The Treasurer's Funds (money market funds) and separate accounts having aggregate assets of $1.2 billion under management as of June 30, 2003. Gabelli Advisers, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Gabelli Westwood Funds having aggregate assets of $493 million under management as of June 30, 2003.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a New York corporation, whose Class A Common Stock is traded on the NYSE under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the basis of his ownership of a majority of the stock of Gabelli Group Capital Partners, Inc., which owns a majority of the capital stock of Gabelli Asset Management Inc.
Payment of Expenses
The Investment Adviser is obligated to pay expenses associated with providing the services contemplated by the investment advisory agreement between the Fund and the Investment Adviser (the "Advisory Agreement"), including compensation of and office space for its officers and employees connected with investment and economic research, trading and investment management and administration of the Fund (but excluding costs associated with the calculation of the net asset value), as well as the fees of all trustees of the Fund who are affiliated with the Investment Adviser.
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 independent accountant's services, stock exchange listing fees, expenses relating to the offering of preferred shares, rating agency fees, costs of printing proxies, share certificates and shareholder reports, charges of State Street Bank and Trust Company, the custodian, charges of the transfer agent, Securities and Exchange Commission fees, fees and expenses of unaffiliated trustees, accounting and printing costs, the Fund's pro rata portion of membership fees in trade organizations, fidelity bond coverage for the Fund's officers and employees, Directors' and Officers' 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 Brokers
The Advisory Agreement contains provisions relating to the selection of securities brokers to effect the portfolio transactions of the Fund. Under those provisions, the Investment Adviser may (i) direct Fund portfolio brokerage to Gabelli & Company, Inc. or other broker-dealer affiliates of the Investment Adviser and (ii) pay commissions to brokers other than Gabelli & Company, Inc. that are higher than might be charged by another qualified broker to obtain brokerage and/or research services considered by the Investment Adviser to be useful or desirable for its investment management of the Fund and/or its other advisory accounts or those of any investment adviser affiliated with it. The SAI contains further information about the Advisory Agreement, including a more complete description of the advisory and expense arrangements, exculpatory and brokerage provisions, as well as information on the brokerage practices of the Fund.
Portfolio Manager
Mario J. Gabelli currently leads the investment team responsible for the day-to-day management of the Fund. Mr. Gabelli has served as Chairman, President and Chief Investment Officer of the Investment Adviser since 1980. Mr. Gabelli also serves as Portfolio Manager for several other funds in the Gabelli fund family. Because of the diverse nature of Mr. Gabelli's responsibilities, he will devote less than all of his time to the day-to-day management at the Fund. Over the past five years, Mr. Gabelli has served as Chairman of the Board and Chief Executive Officer of Gabelli Asset Management Inc.; Chief Investment Officer of GAMCO Investors, Inc.; Vice Chairman of the Board of Lynch Corporation, a diversified manufacturing company, and Vice Chairman of the Board and Chief Executive Officer of Lynch Interactive Corporation, a multimedia and communications services company.
Barbara G. Marcin will serve as a senior porfolio manager for the Fund. Ms. Marcin joined Gabelli Asset Management Inc. in 1999 to manage larger capitalization value style portfolios. Ms. Marcin currently serves as portfolio manager of the Gabelli Blue Chip Value Fund. Prior thereto, she worked at Citibank Global Asset Management where she was head of value investments and was a member of the Global Investment Policy Committee and co-Chair of the U.S. Equity Policy Committee. Prior to joining Citibank, she worked at Fiduciary Trust Company for ten years as a portfolio manager and as an analyst in the Personal Financial Management Group at EF Hutton. Ms. Marcin received a M.B.A. from Harvard University and a B.A. from the University of Virginia.
Sub-Administrator
The Investment Adviser has entered into a sub-administration agreement with PFPC Inc. (the "Sub-Administrator") pursuant to which the Sub-Administrator provides certain administrative services necessary for the Fund's operations which do not include the investment and portfolio management services provided by the Investment Adviser. For these services and the related expenses borne by the Sub-Administrator, the Investment Adviser pays a prorated monthly fee at the annual rate of .0275% of the first $10.0 billion of the aggregate average net assets of the Fund and all other funds advised by the Investment Adviser and administered by the Sub-Administrator, .0125% of the aggregate average net assets exceeding $10 billion and .01% of the aggregate average net assets in excess of $15 billion. The Sub-Administrator has its principal office at 760 Moore Road, King of Prussia, Pennsylvania 19406.
Regulatory Matters
The Securities and Exchange Commission and various states, particularly Massachusetts and New York, have recently launched broad investigations of certain trading and valuation practices of many mutual fund complexes. The Investment Adviser, along with many other mutual fund complexes, received an information request from the Securities and Exchange Commission, which it has responded to, and has recently also received an information request in the form of a subpoena from the New York attorney general, which the Investment Adviser is in the process of responding to. These requests do not imply any wrongdoing by the recipient firms.
PORTFOLIO TRANSACTIONS
Principal transactions are not entered into with affiliates of the Fund. However, Gabelli & Company, Inc., an affiliate of the Investment Adviser, may execute portfolio transactions on stock exchanges and in the over-the-counter markets on an agency basis and receive a stated commission therefor. For a more detailed discussion of the Fund's brokerage allocation practices, see "Portfolio Transactions" in the SAI.
DIVIDENDS AND DISTRIBUTIONS
The Fund may retain for reinvestment, and pay the resulting federal income taxes on, its net capital gain, if any, although the Fund intends to distribute substantially all of its net capital gain each year. The Fund has a policy, which may be modified at any time by its Board of Trustees, of paying quarterly distributions on its common shares. The Board has initially determined to pay distributions at an annual rate of 6.00% of the initial offering price and to pay an additional distribution on an annual basis of any realized income and gain in excess of the quarterly distributions for that year. Quarterly distributions will be paid in March, June, September and December of each year, commencing in March, 2004. This policy permits holders of common shares to realize a predictable, but not assured, level of cash flow and some liquidity periodically with respect to their common shares without having to sell shares. To avoid paying income tax at the corporate level, the Fund will distribute substantially all of its net investment company taxable income and net capital gains. In the event that the Fund's net investment company taxable income and net capital gains exceed the total of the Fund's quarterly distributions, the Fund intends to pay such excess once a year. If, for any calendar year, the total quarterly distributions exceed net investment company taxable income and net capital gain, the excess will generally be treated as a tax-free return of capital up to the amount of a shareholder's tax basis in the common shares. Any distributions which (based upon the Fund's full year performance) constitute tax-free return of capital will reduce a shareholder's tax basis in the common shares, thereby increasing such shareholder's 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 will generally be taxable to the shareholder as capital gain. See "Taxation" below. Quarterly distribution notices provided by the Fund to its shareholders will describe the portion of the quarterly distribution which, in the Fund's current good faith judgment, constitutes capital gain, investment company taxable income or a 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 Fund's actual net investment company taxable income and net capital gain for the year and will be communicated to shareholders promptly.
In the event the Fund distributes amounts in excess of its investment company taxable income and net capital gain, such distributions will decrease the Fund's total assets and, therefore, have the likely effect of increasing the Fund's expense ratio as the Fund's fixed expenses will become a larger percentage of the Fund's average net assets. In addition, in order to make such distributions, the Fund may have to sell a portion of its investment portfolio at a time when independent investment judgment may not dictate such action.
The Fund, along with other closed-end registered investment companies advised by the Investment Adviser, has obtained an exemption from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to make periodic distributions of long-term capital gains provided that any distribution policy of the Fund with respect to its common shares calls for periodic (e.g., quarterly or semi-annually, but in no event more frequently than monthly) distributions in an amount equal to a fixed percentage of the Fund's average net asset value over a specified period of time or market price per common share at or about the time of distribution or pay-out of a fixed dollar amount. The Fund's current policy is to make quarterly distributions to holders of its common shares. The exemption also permits the Fund to make distributions with respect to its preferred shares, if any, in accordance with such shares' terms.
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan (the "Plan"), a shareholder whose common shares are registered in his or her own name will have all distributions reinvested automatically by 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 transfer agent as dividend disbursing agent.
Under the Plan, whenever the market price of the common shares is
equal to or exceeds net asset value at the time shares are valued for purposes
of determining the number of shares equivalent to the cash distribution,
participants in the Plan are issued common shares, valued at the greater of
(i) the net asset value as most recently determined or (ii) 95% of the
then-current market price of the common shares. The valuation date is the
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day. If the net asset value of the
common shares at the time of valuation exceeds the market price of the common
shares, participants will receive shares from the Fund, valued at market
price. If the Fund should declare a distribution payable only in cash, the Plan
agent will buy the common shares for such Plan in the open market, on the New
York Stock Exchange or elsewhere, for the participants' accounts, except that
the Plan agent will endeavor to terminate purchases in the open market and
cause the Fund to issue shares at the greater of net asset value or 95% of
market value if, following the commencement of such purchases, the market
value of the common shares exceeds net asset value.
Participants in the Plan have the option of making additional cash payments to the Plan agent, monthly, for investment in the shares as applicable. 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 1st or 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 10 days before the 15th of the month. A participant may without charge withdraw a voluntary cash payment by written notice, if the notice is received by 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 participant's shareholder account under the Plan.
In the case of shareholders such as banks, brokers or nominees, which hold shares for others who are the beneficial owners, 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 shareholder's name and held for the account of beneficial owners who participate in the Plan.
Experience under the Plan may indicate that changes are desirable. Accordingly, the Fund reserves the right to amend or terminate its Plan as applied to any voluntary cash payments made and any 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. All correspondence concerning the Plan should be directed to the transfer agent.
DESCRIPTION OF THE SHARES
The Fund offers by this prospectus, in the aggregate, $ of common 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 Fund's Agreement and Declaration of Trust and its By-Laws. For complete terms of the common shares, please refer to the actual terms of such series, which are set forth in the Agreement and Declaration of Trust.
Common Shares
The Fund is an unincorporated statutory trust organized under the laws of Delaware pursuant to a Certificate of Formation dated as of August 20, 2003. The Fund is authorized to issue an unlimited number of common shares of beneficial interest, par value $.001 per share. Each common share has one vote and, when issued and paid for in accordance with the terms of this offering, will be fully paid and non-assessable. Though the Fund expects to pay distributions quarterly on the common shares, it is not obligated to do so. All common shares are equal as to distributions, assets and voting privileges and have no conversion, preemptive or other subscription rights. The Fund will send annual and semi-annual reports, including financial statements, to all holders of its shares.
The Fund has no present intention of offering any additional common shares. Any additional offerings of shares will require approval by the Fund's Board of Trustees. Any additional offering of common shares will be subject to the requirements of the 1940 Act, which provides that shares 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 shares or with the consent of a majority of the Fund's outstanding voting securities.
The Fund's common shares are expected to be approved for listing on the New York Stock Exchange, subject to notice of issuance, under the symbol "GDV".
The Fund's net asset value per share will be reduced immediately following the offering of common shares by the amount of the sales load and organization 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 New York Stock Exchange 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 distribution levels (which are in turn affected by expenses), distribution stability, net asset value, relative demand for and supply of such shares in the market, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot assure you that 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 Fund's common shareholders will vote as a single class to elect the Fund's Board of Trustees (subject to the special voting rights of preferred shares) and on additional matters with respect to which the 1940 Act, the Fund's Declaration of Trust or resolutions adopted by the trustees provide for a vote of the Fund's common shareholders. See"Anti-Takeover Provisions of the Fund's Governing Documents."
Book-Entry
The common shares will initially be held in the name of Cede & Co. as nominee for DTC. The Fund will treat Cede & Co. as the holder of record of the 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.
Preferred Shares
The Agreement and Declaration of Trust provides that the Fund's Board of Trustees may authorize and issue Preferred shares with rights as determined by the Board of Trustees, by action of the Board of Trustees without the approval of the holders of the common shares. Holders of common shares have no preemptive right to purchase any Preferred shares that might be issued.
The Fund may elect to issue Preferred shares as part of its leverage strategy. If Preferred shares are issued, the Fund currently intends to issue Preferred shares representing approximately 33% of the Fund's net assets immediately after the Preferred shares are issued. The Board of Trustees also reserves the right to change the foregoing percentage limitation and may issue Preferred shares to the extent permitted by the 1940 Act, which currently limits the aggregate liquidation preference of all outstanding Preferred shares to 50% of the value of the Trust's total assets less liabilities and indebtedness of the Fund. We cannot assure investors, however, that any Preferred shares will be issued. Although the terms of any Preferred shares, including dividend rate, liquidation preference and redemption provisions, will be determined by the Board of Trustees, subject to applicable law and the Agreement and Declaration of Trust, it is likely that the Preferred shares will be structured to carry a relatively short-term dividend rate reflecting interest rates on short-term debt instruments, by providing for the periodic redetermination of the dividend rate at relatively short intervals through an auction, remarketing or other procedure. The Fund also believes that it is likely that the liquidation preference, voting rights and redemption provisions of the Preferred shares will be similar to those stated below, although they may differ.
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 accumulated 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 trustees of the Fund at any time two years' dividends on any Preferred shares are unpaid. The 1940 Act also requires that, in addition to any approval by shareholders that 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 Fund's subclassification as a closed-end investment company to an open-end investment company or changes in its fundamental investment restrictions. As a result of these voting rights, the Fund's 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. 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.
Redemption, Purchase and Sale of Preferred Shares By the Trust. The terms of the Preferred shares are expected to provide that (1) they are redeemable by the Fund in whole or in part at the original purchase price per share plus accumulated dividends per share, (2) the Fund may tender for or purchase Preferred shares and (3) the Fund may subsequently resell any shares so tendered for or purchased. Any redemption or purchase of Preferred shares by the Fund will reduce the leverage applicable to the common shares, while any resale of Preferred shares by the Fund will increase that leverage.
ANTI-TAKEOVER PROVISIONS OF THE FUND'S GOVERNING DOCUMENTS
The Fund presently has provisions in its Agreement and Declaration of Trust and By-Laws (together, its "Governing Documents") which could have the effect of limiting, in each case, (i) the ability of other entities or persons to acquire control of the Fund, (ii) the Fund's freedom to engage in certain transactions or (iii) the ability of the Fund's trustees or shareholders to amend the Governing Documents or effectuate changes in the Fund's management. These provisions of the Governing Documents of the Fund may be regarded as "anti-takeover" provisions. The Board of Trustees of the Fund is divided into three classes, each having a term of no more than three years (except, to ensure that the term of a class of the Fund's trustees expires each year, one class of the Fund's trustees will serve an initial one-year term and three-year terms thereafter and another class of its trustees will serve an initial two-year term and three-year terms thereafter). Each year the term of one class of trustees will expire. Accordingly, only those trustees in one class may be changed in any one year, and it would require a minimum of two years to change a majority of the Board 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 trustees. See "Trustees and Officers." A trustee of the Fund may be removed with or without cause by two-thirds of the remaining trustees and, without cause, by 66 2/3% of the votes entitled to be cast for the election of such trustees. Special voting requirements of 75% of the outstanding voting shares apply to mergers into or a sale of all or substantially all of the Fund's assets and conversion of the Fund into an open-end fund. 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:
o merger or consolidation of the Fund with or into any other entity;
o issuance of any securities of the Fund to any person or entity for cash that would increase such person or entity's holdings in the Fund to a greater percentage of any class or series of securities being offered than the percentage of any class of shares beneficially owned by such person or entity immediately prior to such offering or, in the case of securities offered in respect of another class or series, the percentage of such other class or series beneficially owned by such person or entity immediately prior to such offering;
o sale, lease or exchange of all or any substantial part of the assets of the Fund to any entity or person (except assets having an aggregate fair market value of less than $5,000,000);
o sale, lease or exchange to the Fund, in exchange for securities of the Fund, of any assets of any entity or person (except assets having an aggregate fair market value of less than $5,000,000); or
o the purchase of the Fund's common shares by the Fund from any other person or entity other than pursuant to a tender offer equally available to 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. Reference is made to the Governing Documents of the Fund, on file with the Securities and Exchange Commission, for the full text of these provisions.
The provisions of the Governing Documents described above could have the effect of depriving the owners of shares in the Fund of opportunities to sell their shares at a premium over prevailing market prices, by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a principal shareholder.
The Governing Documents of the Fund are on file with the Securities and Exchange Commission. For the full text of these provisions see "Additional Information."
CLOSED-END FUND STRUCTURE
The Fund is a newly organized, 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 fund's investments. By comparison, closed-end funds are generally able to stay more fully invested in securities that are consistent with their investment objective, and also 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 frequently 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 Fund's Board of Trustees might consider from time to time engaging in open-market repurchases, tender offers for shares or other programs intended to reduce the discount. We cannot guarantee or assure, however, that the Fund's 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. We cannot assure you that the Fund will not trade at a discount.
REPURCHASE OF COMMON SHARES
The Fund is a closed-end, non-diversified, 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 such repurchases to be made when the Fund's common shares are trading at a discount from net asset value of 10% or more (or such other percentage as the Board of Trustees of the Fund 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 unfairly 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 Fund's expense ratio.
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations affecting the Fund and its shareholders. The discussion reflects applicable tax laws of the United States as of the date of this prospectus, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively. No attempt is made to present a detailed explanation of all U.S. federal, state, local and foreign tax concerns affecting the Fund and its shareholders (including shareholders owning large positions in the Fund), and the discussion set forth herein does not constitute tax advice. Investors are urged to consult their own tax advisers to determine the tax consequences to them of investing in the Fund.
Taxation of the Fund
The Fund intends to elect to be treated and to qualify as a regulated investment company under Subchapter M of the Code. Accordingly, the Fund must, among other things, (i) derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gain from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50% of the market value of the Fund's total assets is represented by cash and cash items, U.S. government securities, the securities of other regulated investment companies and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the market value of the Fund's total assets is invested in the securities of any issuer (other than U.S. government securities and the securities of other regulated investment companies) or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related trades or businesses.
As a regulated investment company, the Fund generally is not subject to U.S. federal income tax on income and gains that it distributes each taxable year to shareholders, if it distributes at least 90% of the sum of the Fund's (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net short-term capital gain over net long-term capital loss and other taxable income, other than any net long-term capital gain, reduced by deductible expenses) determined without regard to the deduction for dividends paid and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain disallowed deductions). The Fund intends to distribute at least annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year, (ii) 98% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending on October 31of the calendar year (unless an election is made to use the Fund's fiscal year) and (iii) certain undistributed amounts from previous years on which the Fund paid no U.S. federal income tax. While the Fund intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gain will be distributed to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
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 Fund's current and accumulated earnings and profits.
Taxation of Shareholders
Distributions paid to you by the Fund from its net investment income or from an excess of net short-term capital gain over net long-term capital losses (together referred to hereinafter as "ordinary income dividends") are generally taxable to you as ordinary income to the extent of the Fund's earning and profits. Such distributions (if designated by the Fund) may, however, qualify (provided holding period and other requirements are met) (i) for the dividends received deduction in the case of corporate shareholders to the extent that the Fund's income consists of dividend income from U.S. corporations, and (ii) under the recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced maximum rate to individuals of generally 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a qualifying comprehensive tax treaty with the United States, or the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States). Distributions made to you from an excess of net long-term capital gain over net short-term capital losses ("capital gain distributions"), including capital gain distributions credited to you but retained by the Fund, are taxable to you as long-term capital gain if they have been properly designated by the Fund, regardless of the length of time you have owned Fund shares. Under the 2003 Tax Act, the maximum tax rate on net long-term capital gain of individuals is reduced generally from 20% to 15% (5% for individuals in lower brackets) for such gain realized on or after May 6, 2003 and before January 1, 2009. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of your shares and, after such adjusted tax basis is reduced to zero, will constitute capital gain to you (assuming the shares are held as a capital asset). Generally, not later than 60 days after the close of its taxable year, the Fund will provide you with a written notice designating the amount of any qualified dividend income or capital gain distributions and other distributions.
The sale or other disposition of shares of the Fund will generally result in capital gain or loss to you, and will be long-term capital gain or loss if the shares have been held for more than one year at the time of sale. Any loss upon the sale or exchange of Fund shares held for six months or less will be treated as long-term capital loss to the extent of any capital gain distributions received (including amounts credited as an undistributed capital gain distribution) by you. A loss realized on a sale or exchange of shares of the Fund will be disallowed if other substantially identical Fund shares are acquired (whether through the automatic reinvestment of distributions or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Present law taxes both long-term and short-term capital gain of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, under the 2003 Tax Act, the maximum tax rate on short-term capital gain is 35% and the maximum tax rate on long-term capital gain is 15%.
Distributions are taxable to you even though they are reinvested in additional shares of the Fund. If the Fund pays you a distribution 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 distribution 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 distribution was declared.
The Fund is required in certain circumstances to backup withhold on taxable distributions and certain other payments paid to non-corporate holders of the Fund's shares who do not furnish the Fund with their correct taxpayer identification number (in the case of individuals, their social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
The foregoing is a general and abbreviated summary of the provisions of the Code and the Treasury regulations in effect as they directly govern the taxation of the Fund and its shareholders. These provisions are subject to change by legislative or administrative action, and any such change may be retroactive. A more complete discussion of the tax rules applicable to the Fund and its shareholders can be found in the Statement of Additional Information that is incorporated by reference into this Prospectus. Shareholders are urged to consult their tax advisers regarding specific questions as to U.S. federal, foreign, state, local income or other taxes.
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust, the custodian, serves as the custodian of the Fund's assets pursuant to a custody agreement. Under the custody agreement, the custodian holds the Fund's assets in compliance with the 1940 Act. For its services, the Custodian will receive a monthly fee based upon, among other things, the average value of the total assets of the Fund, plus certain charges for securities transactions.
The transfer agent serves as the Fund's dividend disbursing agent, as agent under the Fund's automatic dividend reinvestment and voluntary cash purchase plan and as transfer agent and registrar for the common shares of the Fund.
UNDERWRITING
Subject to the terms and conditions stated in a purchase agreement dated , 2003, each underwriter named below, for which Merrill Lynch, Pierce, Fenner & Smith Incorporated is acting as representative, has severally agreed to purchase, and the Fund has agreed to sell to such underwriter, the number of common shares set forth opposite the name of such underwriter.
Number of
Underwriter Common Shares
----------- -------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................
Citigroup Global Markets Inc.......................................
A.G. Edwards & Sons, Inc...........................................
Gabelli & Company, Inc.............................................
Raymond James & Associates, Inc....................................
RBC Dain Rauscher Inc..............................................
Wells Fargo Securities, LLC........................................
Advest, Inc........................................................
BB&T Capital Markets, a division of Scott & Stringfellow, Inc......
H&R Block Financial Advisors, Inc..................................
J.J.B. Hilliard, W.L. Lyons, Inc...................................
Janney Montgomery Scott LLC........................................
Legg Mason Wood Walker, Incorporated...............................
McDonald Investments Inc., a KeyCorp Company.......................
Morgan Keegan & Company, Inc.......................................
Oppenheimer & Co., Inc.............................................
Quick & Reilly, Inc................................................
Ryan Beck & Co.....................................................
Stifel, Nicolaus & Company, Incorporated ..........................
SunTrust Capital Markets, Inc......................................
TD Waterhouse Investor Services, Inc...............................
Wedbush Morgan Securities Inc......................................
Claymore Securities, Inc...........................................
Hennion & Walsh, Inc.
-------------
Total...............................................
=============
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The purchase agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to the approval of certain legal matters by counsel and to certain other conditions. The underwriters are obligated to purchase all the common shares sold under the purchase agreement if any of the common shares are purchased. In the purchase agreement, the Fund and the Investment Adviser have agreed to indemnify the underwriters against certain liabilities, including liabilities arising under the Securities Act of 1933, as amended, or to contribute payments the underwriters may be required to make for any of those liabilities.
Commissions and Discounts
The underwriters propose to initially offer some of the common shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the common shares to certain dealers at the public offering price less a concession not in excess of $0.90 per share. The sales load the Fund will pay of $4.50 per share is equal to % of the initial offering price. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share on sales to other dealers. After the initial public offering, the public offering price, concession and discount may be changed. Investors must pay for any common shares purchased on or before , 2003.
The following table shows the public offering price, estimated offering expenses, sales load and proceeds to the Fund. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.
Per Share Without Option With Option
--------- -------------- -----------
Public offering price............. $20.00 $ $
Sales Load........................ $ .90 $ $
Estimated offering expenses....... $ .04 $ $
Proceeds to the Fund
(after expenses)................. $19.06 $ $
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The expenses of the offering are estimated at approximately $1,000,000 and are payable by the Fund. The Fund has agreed to pay the underwriters $.0067 per common share as a partial reimbursement of expenses incurred in connection with the offering. The amount paid by the Fund as this partial reimbursement to the underwriters will not exceed .00334% of the total price to the public of the common shares sold in this offering. The Investment Adviser has agreed to pay the amount by which the Fund's organizational and offering costs (other than the sales load, but including the reimbursement of expenses described in the preceding sentence) exceed $.04 per common share (the "Reimbursement Cap").
Overallotment Option
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 from the date of this prospectus solely to cover any overallotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the purchase agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the common shares is complete, Securities and Exchange Commission rules may limit underwriters and selling group members from bidding for and purchasing the Fund's common shares. However, the representative may engage in transactions that stabilize the price of the common shares, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common shares in connection with the offering, i.e., if they sell more common shares than are listed on the cover of this prospectus, the representative may reduce that short position by purchasing common shares in the open market. The representatives may also elect to reduce any short position by exercising all or part of the overallotment option described above. The underwriters also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the common shares sold in this offering for their account may be reclaimed by the syndicate if such common shares are repurchased by the syndicate in stabilizing or covering transactions. Purchases of the common shares to stabilize the price or to reduce a short position may cause the price of the common shares to be higher than it might be in the absence of such purchases.
Neither the Fund nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common shares. In addition, neither the Fund nor any of the underwriters makes any representation that the representative will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
The Fund has agreed not to offer or sell any additional common shares for a period of 180 days after the date of the purchase agreement without the prior written consent of the underwriters, except for the sale of the common shares to the underwriters pursuant to the purchase agreement and certain transactions relating to the Fund's Dividend Reinvestment Plan.
The Fund anticipates that the underwriters may from time to time act as brokers or, after they have ceased to be underwriters, dealers in executing the Fund's portfolio transactions. The underwriters are active underwriters of, and dealers in, securities and act as market makers in a number of such securities, and therefore can be expected to engage in portfolio transactions with the Fund.
The common shares will be sold to ensure that New York Stock Exchange distribution standards (i.e., round lots, public shares and aggregate market value) will be met.
Other Relationships
The Investment Adviser has also agreed to pay from its own assets additional compensation to Merrill Lynch. This additional compensation will be paid to Merrill Lynch quarterly in an amount equal to 15% of the Investment Adviser's investment management fees from the Fund in respect of common shares sold in the offering other than certain shares purchased by Gabelli & Company, Inc. or shares sold through Citigroup Global Markets Inc. along with a proportionate amount in respect of any common shares issued pursuant to any rights offering by the Fund that closes on or before the third anniversary of this offering of common shares and in respect of any preferred shares used for investment purposes issued by the Fund. The Investment Adviser has also reached a similar agreement with Citigroup Global Markets Inc. in respect of shares sold in the offering by Citigroup Global Markets Inc. These arrangements will remain in effect during the continuance of the Advisory Agreement or other advisory agreement between the Investment Adviser and the Fund. In consideration of these payments, Merrill Lynch and Citigroup Global Markets Inc. have agreed to provide certain after-market support services to the Investment Adviser designed to maintain the visibility of the Fund on an ongoing basis and to provide relevant information, studies or reports regarding the Fund and the closed-end investment company industry.
The Investment Adviser and the Fund have entered into an agreement with Claymore Securities, Inc., one of the underwriters, pursuant to which Claymore will provide distribution services during the offering, including preparation and review of marketing material and assistance in presentations to other underwriters and selected dealers. In consideration of such services, the Investment Adviser will pay Claymore an amount equal to 12% of the advisory fees received by the Fund in respect of the common shares sold in the offering (other than those sold through Gabelli & Company, Inc. or certain other underwriters, such as Citigroup Global Markets Inc.) for a period of five years after the offering. The Fund also will reimburse Claymore and the Investment Adviser (or its affiliate, Gabelli & Company, Inc., one of the underwriters, which is also providing distribution services during the offering), on a basis subordinate to other organization and offering expenses, for certain of their out-of-pocket offering expenses and payments by Claymore to its commissioned sales personnel to the extent the offering costs (other than the sales load) payable by the Fund plus such reimbursement do not exceed the reimbursement cap equal to .20% of the offering price.
The total amount of these additional compensation payments and reimbursements, plus the amount paid by the Fund as the $ per common share partial reimbursement to the underwriters, will not exceed 4.5% of the total price to the public of the common shares sold in this offering.
The sum total of all compensation to underwriters in connection with the public offering of common shares, including sales load and all forms of additional compensation to underwriters, will be limited to 9.0% of the total price to the public of the common shares sold in this offering.
One or more of the underwriters of the common shares may also act as an underwriter of the Fund's preferred shares.
The address of Merrill Lynch, Pierce, Fenner & Smith, Incorporated is 4 World Financial Center, New York, New York 10080.
LEGAL MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, special counsel to the Fund in connection with the offering of the common shares, and by Clifford Chance US LLP, New York, New York, counsel to the underwriters. Clifford Chance US LLP may rely on the opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to matters of Delaware law.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the 1940 Act and in accordance therewith files reports and other information with the Securities and Exchange Commission. Reports, proxy statements and other information filed by the Fund with the Securities and Exchange Commission pursuant to the informational requirements of such Acts can be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Securities and Exchange Commission maintains a web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically with the Securities and Exchange Commission.
The Fund expects the common shares to be listed on the New York Stock Exchange, subject to notice of issuance, under the symbol "GDV". Reports, proxy statements and other information concerning the Fund and filed with the Securities and Exchange Commission by the Fund will be available for inspection at the New York Stock Exchange, 20 Broad Street, New York, New York 10005, as the case may be.
This prospectus constitutes part of a Registration Statement filed by the Fund with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the 1940 Act. This prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Fund and the common shares offered hereby. Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Securities and Exchange Commission. Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained from the Securities and Exchange Commission upon payment of the fee prescribed by its rules and regulations or free of charge through the Security and Exchange Commission's web site (http://www.sec.gov).
PRIVACY PRINCIPLES OF THE FUND
The Fund is committed to maintaining the privacy of its shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Fund collects, how the Fund protects that information and why, in certain cases, the Fund may share information with select other parties.
Generally, the Fund does not receive any non-public personal information relating to its shareholders, although certain non-public personal information of its shareholders may become available to the Fund. The Fund does not disclose any non-public personal information about its shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).
The Fund restricts access to non-public personal information about its shareholders to employees of the Fund's investment adviser and its affiliates with a legitimate business need for the information. The Fund maintains physical, electronic and procedural safeguards designed to protect the non-public personal information of its shareholders.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Fund to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those listed under "Risk Factors and Special Considerations" and elsewhere in this prospectus. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity or achievements, and neither the Fund nor any other person assumes responsibility for the accuracy and completeness of such statements.
TABLE OF CONTENTS OF SAI
An SAI dated as of , 2003, has been filed with the Securities and Exchange Commission and is incorporated by reference in this prospectus. An SAI may be obtained without charge by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or by calling the Fund toll-free at (800) GABELLI (422-3554). The Table of Contents of the SAI is as follows:
Page
The Fund ................................................................ B-
Investment Objective and Policies ....................................... B-
Investment Restrictions.................................................. B-
Management of the Fund................................................... B-
Portfolio Transactions .................................................. B-
Portfolio Turnover ...................................................... B-
Taxation ................................................................ B-
Net Asset Value.......................................................... B-
General Information...................................................... B-
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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.
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
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Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
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Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than in Aaa Securities.
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A Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present that suggest a susceptibility to
impairment some time in the future.
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Baa Bonds that are rated Baa are considered as medium-grade obligations
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
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Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
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B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small. Moody's applies numerical modifiers
(1, 2, and 3) with respect to the bonds rated Aa through B. The
modifier 1 indicates that the company ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
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Caa Bonds that are rated Caa are of poor standing. These issues may be
in default or there may be present elements of danger with respect
to principal or interest.
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Ca Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
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C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
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STANDARD & POOR'S RATINGS SERVICES
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AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
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AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
--------------------------------------------------------------------------------
A Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
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BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
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Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation, and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions. Debt rated C 1 is reserved for income bonds on which no interest is being paid and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r" symbol is attached to derivatives, hybrids and certain other obligations that S&P believes may experience high variability in expected returns due to noncredit risks created by the terms of the obligations.
AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major categories.
"NR" indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy.
Until , 2003 (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 the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
[Gabelli Logo]
$[__]
THE GABELLI DIVIDEND & INCOME TRUST
[__] Common Shares
Merrill Lynch & Co.
Citigroup
A.G. Edwards & Sons, Inc.
Gabelli & Company, Inc.
Raymond James
RBC Capital Markets
Wells Fargo Securities, LLC
Advest, Inc.
BB&T Capital Markets, a division of Scott & Stringfellow, Inc. H&R Block Financial Advisors, Inc. J.J.B. Hilliard, W.L. Lyons, Inc. Janney Montgomery Scott LLC Legg Mason Wood Walker Incorporated McDonald Investments Inc. Morgan Keegan & Company, Inc. Oppenheimer Quick & Reilly, Inc Ryan Beck & Co.
Stifel, Nicolaus & Company
Incorporated
SunTrust Robinson Humphrey
TD Waterhouse
Wedbush Morgan Securities Inc.
Claymore Securities, Inc.
Hennion & Walsh, Inc.
Merrill Lynch & Co.
Gabelli & Company, Inc.
____, 2003
Dated [__], 2003
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Dividend & Income Trust (the "Fund") is a non-diversified, closed-end management investment company that seeks to provide a high level of total return on its assets with an emphasis on dividends and income. The Fund will attempt to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in dividend paying or other income producing securities. In addition, under normal market conditions, at least 50% of its assets will consist of dividend paying equity securities.
This Statement of Additional Information ("SAI") is not a prospectus, but should be read in conjunction with the Prospectus for the Fund dated [__], 2003 (the "Prospectus"). Investors should obtain and read the Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained without charge, by calling the Fund at 1-800-GABELLI (800-422-3554) or (914) 921-5070. This SAI incorporates by reference the entire Prospectus.
The Prospectus and this SAI omit certain of the information contained in the registration statement filed with the Securities and Exchange Commission, Washington, D.C. The registration statement may be obtained from the Securities and Exchange Commission (the "SEC") upon payment of the fee prescribed, or inspected at the SEC's office or via its website (www.sec.gov) at no charge.
This Statement of Additional Information is dated [__], 2003.
TABLE OF CONTENTS
Page
THE FUND..................................................................B-
INVESTMENT OBJECTIVE AND POLICIES.........................................B-
INVESTMENT RESTRICTIONS...................................................B-
MANAGEMENT OF THE FUND....................................................B-
PORTFOLIO TRANSACTIONS....................................................B-
PORTFOLIO TURNOVER........................................................B-
TAXATION..................................................................B-
NET ASSET VALUE...........................................................B-
GENERAL INFORMATION.......................................................B-
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THE FUND
The Gabelli Dividend & Income Trust is a newly organized closed-end non-diversified management investment company organized under the laws of the State of Delaware. The Fund's common shares of beneficial interest, par value $.001 (the "Common Shares"), are expected to be listed on the New York Stock Exchange under the symbol "GDV".
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The objective of the Fund is to provide a high level of total return on its assets with an emphasis on dividends and income. The Fund will attempt to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in dividend paying or other income producing securities. In addition, under normal market conditions, at least 50% of the Fund's assets will consist of dividend paying equity securities. In making stock selections, the Fund's Investment Adviser (as hereinafter defined) looks for securities that have a superior yield, as well as capital gains potential. No assurance can be given that the Fund will achieve its investment objective.
Additional Investment Policies -- Derivative Instruments
Options. The Fund may purchase or sell, i.e., write, options on securities, securities indices and foreign currencies which are listed on a national securities exchange or in the OTC market, as a means of achieving additional return or of hedging the value of the Fund's portfolio. The Fund my purchase call or put options as long as the aggregate initial margins and premiums, measured at the time of such investment, do not exceed 10% of the fair market value of the Fund's total assets.
A call option is a contract that gives the holder of the option the right to buy from the writer of the call option, in return for a premium, the security or currency underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment of the exercise price during the option period.
A put option is a contract that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying security at a specified price. The seller of the put option has the obligation to buy the underlying security upon exercise at the exercise price.
A call option is "covered" if the Fund owns the underlying instrument covered by the call or has an absolute and immediate right to acquire that instrument without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other instruments held in its portfolio. A call option is also covered if the Fund holds a call on the same instrument as the call written where the exercise price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price of the call written if the difference is maintained by the Fund in cash, U.S. government securities or other high-grade short-term obligations in a segregated account with its custodian. A put option is "covered" if the Fund maintains cash or other high grade short-term obligations with a value equal to the exercise price in a segregated account with its custodian, or else holds a put on the same instrument as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing the option or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to predict correctly the effect of these factors. The use of options cannot serve as a complete hedge since the price movement of securities underlying the options will not necessarily follow the price movements of the portfolio securities subject to the hedge.
An option position may be closed out only on an exchange which provides a secondary market for an option of the same series or in a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option writer, is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security until the option expires or it delivers the underlying security upon exercise or otherwise covers the position.
Options on Securities Indices. The Fund may purchase and sell securities index options. One effect of such transactions may be to hedge all or part of the Fund's securities holdings against a general decline in the securities market or a segment of the securities market. Options on securities indices are similar to options on stocks except that, rather than the right to take or make delivery of stock at a specified price, an option on a securities index gives the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the securities index upon which the option is based is greater than, in the case of a call, or less than, in the case of a put, the exercise price of the option.
The Fund's successful use of options on indices depends upon its ability to predict the direction of the market and is subject to various additional risks. The correlation between movements in the index and the price of the securities being hedged against is imperfect and the risk from imperfect correlation increases as the composition of the Fund diverges from the composition of the relevant index. Accordingly, a decrease in the value of the securities being hedged against may not be wholly offset by a gain on the exercise or sale of a securities index put option held by the Fund.
Options on Foreign Currencies. Instead of purchasing or selling currency futures (as described below), the Fund may attempt to accomplish similar objectives by purchasing put or call options on currencies or by writing put options or call options on currencies either on exchanges or in over-the-counter ("OTC") markets. A put option gives the Fund the right to sell a currency at the exercise price until the option expires. A call option gives the Fund the right to purchase a currency at the exercise price until the option expires. Both types of options serve to insure against adverse currency price movements in the underlying portfolio assets designated in a given currency. The Fund's use of options on currencies will be subject to the same limitations as its use of options on securities, described above and in the Prospectus. Currency options may be subject to position limits which may limit the ability of the Fund to fully hedge its positions by purchasing the options.
As in the case of interest rate futures contracts and options thereon, described below, the Fund may hedge against the risk of a decrease or increase in the U.S. dollar value of a foreign currency denominated debt security which the Fund owns or intends to acquire by purchasing or selling options contracts, futures contracts or options thereon with respect to a foreign currency other than the foreign currency in which such debt security is denominated, where the values of such different currencies (vis-a-vis the U.S. dollar) historically have a high degree of positive correlation.
Futures Contracts and Options on Futures. The Fund may, without limit, enter into futures contracts or options on futures contracts. It is anticipated that these investments, if any, will be made by the Fund primarily for the purpose of hedging against changes in the value of its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made if they are economically appropriate to the reduction of risks involved in the management of the Fund. In this regard, the Fund may enter into futures contracts or options on futures for the purchase or sale of securities indices or other financial instruments including but not limited to U.S. government securities.
A "sale" of a futures contract (or a "short" futures position) means the assumption of a contractual obligation to deliver the securities underlying the contract at a specified price at a specified future time. A "purchase" of a futures contract (or a "long" futures position) means the assumption of a contractual obligation to acquire the securities underlying the contract at a specified price at a specified future time. Certain futures contracts, including stock and bond index futures, are settled on a net cash payment basis rather than by the sale and delivery of the securities underlying the futures contracts.
No consideration will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount (this amount is subject to change by the exchange or board of trade on which the contract is traded and brokers or members of such board of trade may charge a higher amount). This amount is known as the "initial margin" and is in the nature of a performance bond or good faith deposit on the contract. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the index or security underlying the futures contract fluctuates. At any time prior to the expiration of the futures contract, the Fund may elect to close the position by taking an opposite position, which will operate to terminate its existing position in the contract.
An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract at a specified exercise price at any time prior to the expiration of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account attributable to that contract, which represents the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. The potential loss related to the purchase of an option on futures contracts is limited to the premium paid for the option (plus transaction costs). Because the value of the option purchased is fixed at the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option does change daily and that change would be reflected in the net assets of the Fund.
Futures and options on futures entail certain risks, including but not limited to the following: no assurance that futures contracts or options on futures can be offset at favorable prices, possible reduction of the yield of the Fund due to the use of hedging, possible reduction in value of both the securities hedged and the hedging instrument, possible lack of liquidity due to daily limits on price fluctuations, imperfect correlation between the contracts and the securities being hedged, losses from investing in futures transactions that are potentially unlimited and the segregation requirements described below.
In the event the Fund sells a put option or enters into long futures contracts, under current interpretations of the Investment Company Act of 1940, as amended (the "1940 Act"), an amount of cash, U.S. government securities or other liquid securities equal to the market value of the contract must be deposited and maintained in a segregated account with the custodian of the Fund to collateralize the positions, in order for the Fund to avoid being treated as having issued a senior security in the amount of its obligations. For short positions in futures contracts and sales of call options, the Fund may establish a segregated account (not with a futures commission merchant or broker) with cash, U.S. government securities or other high grade debt securities that, when added to amounts deposited with a futures commission merchant or a broker as margin, equal the market value of the instruments or currency underlying the futures contracts or call options, respectively (but are no less than the stock price of the call option or the market price at which the short positions were established).
Interest Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage of or to protect the Fund against fluctuations in interest rates affecting the value of debt securities which the Fund holds or intends to acquire. For example, if interest rates are expected to increase, the Fund might sell futures contracts on debt securities, the values of which historically have a high degree of positive correlation to the values of the Fund's portfolio securities. Such a sale would have an effect similar to selling an equivalent value of the Fund's portfolio securities. If interest rates increase, the value of the Fund's portfolio securities will decline, but the value of the futures contracts to the Fund will increase at approximately an equivalent rate thereby keeping the net asset value of the Fund from declining as much as it otherwise would have. The Fund could accomplish similar results by selling debt securities with longer maturities and investing in debt securities with shorter maturities when interest rates are expected to increase. However, since the futures market may be more liquid than the cash market, the use of futures contracts as a risk management technique allows the Fund to maintain a defensive position without having to sell its portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures contracts for this purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest rates) which the Fund intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate that of the debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt securities without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash market and currently liquidate its futures position. To the extent the Fund enters into futures contracts for this purpose, it will maintain in a segregated asset account with the Fund's custodian, assets sufficient to cover the Fund's obligations with respect to such futures contracts, which will consist of cash or other liquid securities from its portfolio in an amount equal to the difference between the fluctuating market value of such futures contracts and the aggregate value of the initial margin deposited by the Fund with its custodian with respect to such futures contracts.
The purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying debt securities. As with the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option on a futures contract to hedge against a market advance due to declining interest rates.
The purchase of a put option on a futures contract is similar to the purchase of protective put options on portfolio securities. The Fund will purchase a put option on a futures contract to hedge the Fund's portfolio against the risk of rising interest rates and consequent reduction in the value of portfolio securities.
The writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred in the Fund's portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against increasing prices of the securities that are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of debt securities that the Fund intends to purchase. If a put or call option the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it received. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, the Fund's losses from options on futures it has written may to some extent be reduced or increased by changes in the value of its portfolio securities.
Currency Futures and Options Thereon. Generally, foreign currency futures contracts and options thereon are similar to the interest rate futures contracts and options thereon discussed previously. By entering into currency futures and options thereon, the Fund will seek to establish the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By selling currency futures, the Fund will seek to establish the number of dollars it will receive at delivery for a certain amount of a foreign currency. In this way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value of some or all of the securities held in its portfolio that are denominated in that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be required to pay for a specified amount of a foreign currency in a future month. Thus, if the Fund intends to buy securities in the future and expects the U.S. dollar to decline against the relevant foreign currency during the period before the purchase is effected, the Fund can attempt to "lock in" the price in U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund, for the price of the premium and related transaction costs it must pay for the option, to decide whether or not to buy (in the case of a call option) or to sell (in the case of a put option) a futures contract at a specified price at any time during the period before the option expires. If the Investment Adviser, in purchasing an option, has been correct in its judgment concerning the direction in which the price of a foreign currency would move as against the U.S. dollar, the Fund may exercise the option and thereby take a futures position to hedge against the risk it had correctly anticipated or close out the option position at a gain that will offset, to some extent, currency exchange losses otherwise suffered by the Fund. If exchange rates move in a way the Fund did not anticipate, however, the Fund will have incurred the expense of the option without obtaining the expected benefit; any such movement in exchange rates may also thereby reduce rather than enhance the Fund's profits on its underlying securities transactions.
Securities Index Futures Contracts and Options Thereon. Purchases or sales of securities index futures contracts are used for hedging purposes to attempt to protect the Fund's current or intended investments from broad fluctuations in stock or bond prices. For example, the Fund may sell securities index futures contracts in anticipation of or during a market decline to attempt to offset the decrease in market value of the Fund's securities portfolio that might otherwise result. If such decline occurs, the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When the Fund is not fully invested in the securities market and anticipates a significant market advance, it may purchase securities index futures contracts in order to gain rapid market exposure that may, in part or entirely, offset increases in the cost of securities that the Fund intends to purchase. As such purchases are made, the corresponding positions in securities index futures contracts will be closed out. The Fund may write put and call options on securities index futures contracts for hedging purposes.
Forward Foreign Currency Exchange Contracts. The Fund may enter into forward foreign currency exchange contracts to protect the value of its portfolio against uncertainty in the level of future currency exchange rates between a particular foreign currency and the U.S. dollar or between foreign currencies in which its securities are or may be denominated. The Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract at a price set on the date of the contract. Forward currency contracts (i) are traded in a market conducted directly between currency traders (typically, commercial banks or other financial institutions) and their customers, (ii) generally have no deposit requirements and (iii) are typically consummated without payment of any commissions. The Fund, however, may enter into forward currency contracts requiring deposits or involving the payment of commissions. To assure that its forward currency contracts are not used to achieve investment leverage, the Fund will segregate liquid assets consisting of cash, U.S. government securities or other liquid securities with its custodian, or a designated sub-custodian, in an amount at all times equal to or exceeding its commitment with respect to the contracts.
The dealings of the Fund in forward foreign exchange are limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of one forward foreign currency for another currency with respect to specific receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities or its payment of dividends and distributions. Position hedging is the purchase or sale of one forward foreign currency for another currency with respect to portfolio security positions denominated or quoted in the foreign currency to offset the effect of an anticipated substantial appreciation or depreciation, respectively, in the value of the currency relative to the U.S. dollar. In this situation, the Fund also may, for example, enter into a forward contract to sell or purchase a different foreign currency for a fixed U.S. dollar amount where it is believed that the U.S. dollar value of the currency to be sold or bought pursuant to the forward contract will fall or rise, as the case may be, whenever there is a decline or increase, respectively, in the U.S. dollar value of the currency in which its portfolio securities are denominated (this practice being referred to as a "cross-hedge").
In hedging a specific transaction, the Fund may enter into a forward contract with respect to either the currency in which the transaction is denominated or another currency deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency contracts is limited to the amount of its aggregate investments in foreign currencies.
The use of forward currency contracts may involve certain risks, including the failure of the counterparty to perform its obligations under the contract, and such use may not serve as a complete hedge because of an imperfect correlation between movements in the prices of the contracts and the prices of the currencies hedged or used for cover. The Fund will only enter into forward currency contracts with parties which it believes to be creditworthy institutions.
Warrants and Rights. The Fund may invest without limit in warrants or rights (including those acquired in units or attached to other securities) that entitle the holder to buy equity securities at a specific price for a specific period of time but will do so only if such equity securities are deemed appropriate by the Investment Adviser for inclusion in the Fund's portfolio.
Asset-Backed and Mortgage-Backed Securities. The Fund may invest in asset-backed and mortgage-backed securities. Mortgage-backed securities represents ownership of an undivided interest in a pool of mortgages. Aggregate principal and interest payments received from the pool are used to pay principal and interest on a mortgage-backed security. Asset-backed securities are similar to mortgage-backed securities except they represent ownership in a pool of notes or receivables on assets other than real estate, such as loans, leases, credit card receivables or royalties. The Fund does not currently anticipate investments in mortgage or asset-backed securities constituting a substantial part of its investment portfolio.
Additional Risks Relating to Derivative Instruments
The Investment Adviser is Not Registered as a Commodity Pool Operator. The Investment Adviser has claimed an exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act. Accordingly, the Fund's investments in derivative instruments described in the prospectus and this SAI are not limited by or subject to regulation under the Commodity Exchange Act or otherwise regulated by the Commodity Futures Trading Commission.
Special Risk Considerations Relating to Futures and Options Thereon. The Fund's ability to establish and close out positions in futures contracts and options thereon will be subject to the development and maintenance of liquid markets. Although the Fund generally will purchase or sell only those futures contracts and options thereon for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will exist for any particular futures contract or option thereon at any particular time. In the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position, it will not be possible to effect a closing transaction in that contract or to do so at a satisfactory price and the Fund would have to either make or take delivery under the futures contract or, in the case of a written option, wait to sell the underlying securities until the option expires or is exercised or, in the case of a purchased option, exercise the option. In the case of a futures contract or an option thereon which the Fund has written and which the Fund is unable to close, the Fund would be required to maintain margin deposits on the futures contract or option thereon and to make variation margin payments until the contract is closed.
Successful use of futures contracts and options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser to predict correctly movements in the direction of interest and foreign currency rates. If the Investment Adviser's expectations are not met, the Fund will be in a worse position than if a hedging strategy had not been pursued. For example, if the Fund has hedged against the possibility of an increase in interest rates that would adversely affect the price of securities in its portfolio and the price of such securities increases instead, the Fund will lose part or all of the benefit of the increased value of its securities because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash to meet daily variation margin requirements, it may have to sell securities to meet the requirements. These sales may be, but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time when it is disadvantageous to do so.
Additional Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and Forward Contracts. Options, futures contracts and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the U.S., may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the U.S. of data on which to make trading decisions, (iii) delays in the Fund's ability to act upon economic events occurring in the foreign markets during non-business hours in the U.S., (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S. and (v) lesser trading volume.
Exchanges on which options, futures and options on futures are traded may impose limits on the positions that the Fund may take in certain circumstances.
Risks of Currency Transactions. Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action can result in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs.
Loans of Portfolio Securities. Consistent with applicable regulatory requirements and the Fund's investment restrictions, the Fund may lend its portfolio securities to securities broker-dealers or financial institutions, provided that such loans are callable at any time by the Fund (subject to notice provisions described below), and are at all times secured by cash or cash equivalents, which are maintained in a segregated account pursuant to applicable regulations and that are at least equal to the market value, determined daily, of the loaned securities. The advantage of such loans is that the Fund continues to receive the income on the loaned securities while at the same time earns interest on the cash amounts deposited as collateral, which will be invested in short-term obligations. The Fund will not lend its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares are qualified for sale. The Fund's loans of portfolio securities will be collateralized in accordance with applicable regulatory requirements.
A loan may generally be terminated by the borrower on one business day notice, or by the Fund on five business days notice. If the borrower fails to deliver the loaned securities within five days after receipt of notice, the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost over collateral. As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially. However, these loans of portfolio securities will only be made to firms deemed by the Fund's management to be creditworthy and when the income which can be earned from such loans justifies the attendant risks. The Board of Trustees will oversee the creditworthiness of the contracting parties on an ongoing basis. Upon termination of the loan, the borrower is required to return the securities to the Fund. Any gain or loss in the market price during the loan period would inure to the Fund. The risks associated with loans of portfolio securities are substantially similar to those associated with repurchase agreements. Thus, if the counter party to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund's ability to sell the collateral and the Fund would suffer a loss. When voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling the loaned securities, to be delivered within one day after notice, to permit the exercise of such rights if the matters involved would have a material effect on the Fund's investment in such loaned securities. The Fund will pay reasonable finder's, administrative and custodial fees in connection with a loan of its securities.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute fundamental policies that, except as otherwise noted, cannot be changed without the affirmative vote of the holders of a majority of the outstanding voting securities of the Fund voting together as a single class. In the event the Fund were to issue any preferred shares, the approval of a majority of such shares (as defined under the 1940 Act) voting as a separate class would also be required. Except as otherwise noted, all percentage limitations set forth below apply immediately after a purchase or initial investment and any subsequent change in any applicable percentage resulting from market fluctuations does not require any action. The Fund may not:
(1) invest 25% or more of its total assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry. This restriction does not apply to investments in U.S. government securities;
(2) purchase commodities or commodity contracts if such purchase would result in regulation of the Fund as a commodity pool operator;
(3) purchase or sell real estate, provided the Fund may invest in securities and other instruments secured by real estate or interests therein or issued by companies that invest in real estate or interests therein;
(4) make loans of money or other property, except that (i) the Fund may acquire debt obligations of any type, enter into repurchase agreements and lend portfolio assets and (ii) the Fund may lend money or other property to other investment companies advised by the Investment Adviser pursuant to a common lending program to the extent permitted by applicable law;
(5) borrow money, except to the extent permitted by applicable law;
(6) issue senior securities, except to the extent permitted by applicable law; or
(7) underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under applicable law in selling portfolio securities; provided, however, this restriction shall not apply to securities of any investment company organized by the Fund that are to be distributed pro rata as a dividend to its shareholders.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
Overall responsibility for management and supervision of the Fund rests with its Board of Trustees. The Board 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 Fund's custodian and the Fund's transfer agent. The day-to-day operations of the Fund are delegated to the Investment Adviser.
The names and business addresses of the trustees and principal officers of the Fund are set forth in the following table, together with their positions and their principal occupations during the past five years and, in the case of the trustees, their positions with certain other organizations and companies. Trustees who are "interested persons" of the Fund, as defined by the 1940 Act, are indicated by an asterisk.
Trustees
Number of
Name (and Age), Portfolios in Other
Position with the Term of Office Principal Fund Complex Directorships
Fund and and Length of Occupation During Overseen by Held by
Business Address(1) Time Served(2) Past Five Years Trustee Trustee
-------------------- -------------- ----------------- ------------- -------------
INTERESTED
----------
TRUSTEES: Since 2003* Chairman of the Board, 23 Director of
---------- Chief Executive Officer of Morgan Group
+Mario J. Gabelli Gabelli Asset Management Holdings, Inc.
(61) Inc. and Chief Investment (transportation
Trustee and Chief Officer of the Investment services); Vice
Investment Officer Adviser and GAMCO Chairman of
Investors, Inc; Lynch Corporation
Director/Trustee and Chief (diversified
Investment Officer of manufacturing
other registered company).
investment companies in
the Gabelli fund complex.
Vice Chairman and CEO of
Lynch Interactive Corp.
+Karl Otto Pohl(73) Since 2003*** Member of the Shareholder 32 Director of
Trustee Committee of Sal. Gabelli Asset
Oppenheim Jr. & Cie, Management Inc.;
Zurich (private investment Chairman,
bank); Former President of Incentive
the Deutsche Bundesbank Capital and
and Chairman of its Incentive Asset
Central Bank Council from Management
1980 through 1991; (Zurich);
Director/Trustee of other Director at Sal.
registered investment Oppenheim Jr. &
companies in the Gabelli Cie, Zurich
fund complex.
+Edward T. Tokar (56) Since 2003*** Chief Executive Officer of 1 Trustee of LEVCO
Trustee Allied Capital Management LLC, Series Trust;
since 1997; Vice President of Trustee of D.B.
Honeywell International Inc., Hedge Strategies
since 1997. Fund, LLC; Trustee
of Morgan Grenfell
Investment Trust
DISINTERESTED
TRUSTEES:
-------------
Anthony J. Colavita Since 2003** President and Attorney at 34 --
(67) law in the law firm of
Trustee Anthony J. Colavita, P.C.
since 1961; Director/Trustee
of other registered investment
companies in the Gabelli
fund complex.
James P. Conn(65) Since 2003*** Former Managing Director 12 Director of
Trustee and Chief Investment LaQuinta Corp.
Officer of Financial (hotels) and
Security Assurance First Republic
Holdings Ltd., 1992-1998; Bank
Director/Trustee of other
registered investment
companies in the Gabelli
fund complex.
Mario d'Urso (63) Since 2003* Chairman of Mittel Capital 1 Director of SJPC,
Trustee Markets S.p.A, 2001; London
Senator in the Italian
Parliament, 1996-2001.
Frank J.Fahrenkopf, Jr. Since 2003** President and CEO of the 4 --
(63) American Gaming
Trustee Association since June
1995; Partner in the law
firm of Hogan & Hartson;
Chairman of International
Trade Practice Group;
Co-Chairman of the
Commission on Presidential
Debates; Former Chairman
of the Republican National
Committee; Director/Trustee of
other registered investment
companies in the Gabelli
fund complex.
Michael J. Melarkey Since 2003* Attorney at law in the law 1 Director of the
(53) firm of Avansino, Robert S. and
Trustee Melarkey, Knobel & Mulligan. Dorothy J. Keyser
Foundation; Director
of Weigand Resources,Inc.
Salvatore M. Salibello Since 2003*** Certified Public 1 --
(58) Accountant with the
Trustee accounting firm Salibello
& Broder, since 1978.
Anthonie C. van Ekris Since 2003** Managing Director of 19 --
(68) BALMAC International, Inc.
Trustee
Salvatore J. Zizza Since 2003** Chairman of Hallmark 11 Director of
(57) Electrical Supplies Hollis Eden
Trustee Corp.; Former Pharmaceuticals
Executive Vice
President of FMG
Group (OTC) a health-
care provider.
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Officers
Name (and Age), Position Term of Office Principal
with the Fund and and Length of Occupation During
Business Address(1) Time Served Past Five Years
------------------------ -------------- -----------------
Bruce N. Alpert (51) Since 2003 Executive Vice President and
President Chief Operating Officer of the
Investment Adviser since
1988; Director and
President of Gabelli
Advisers, Inc.; Officer
of all other registered
investment companies in
the Gabelli fund complex.
James E. McKee (40) Since 2003 Vice President, General
Secretary Counsel and Secretary of the
Gabelli Asset Management Inc.
(since 1999) and of GAMCO
Investors, Inc. (since 1993);
Secretary of all of the registered
investment companies in the
Gabelli fund complex.
Richard G. Sell, Jr. (53) Since 2003 Vice President, Controller of
Treasurer Gabelli & Company, Inc. since 1998.
Carter W. Austin (36) Since 2003 Vice President of the Gabelli
Vice President Equity Trust since 2000. Vice
President of the Investment Adviser
since 1996.
Matthew Hultquist (24) Since 2003 Vice President of the Fund
Vice President and Ombudsman since 2003.
|
+ "Interested person" of the Fund, as defined in the 1940 Act. Mr.
Mario Gabelli is an "interested person" of the Fund as a result of
his employment as an officer of the Fund and the Investment Adviser.
Mr. Gabelli is also a registered representative of an affiliated
broker-dealer. Mr. Pohl is an "interested person" of the Fund as a
result of his role as director of the parent company of the
Investment Adviser. Mr. Tokar is an "interested person" of the Fund
as a result of his son's employment by an affiliate of the Investment
Adviser.
(1) Address: One Corporate Center, Rye, NY 10580-1422, unless otherwise
noted.
(2) The Fund's Board of Trustees is divided into three classes, each
class having a term of three years. Each year the term of office of
one class expires and the successor or successors elected to such
class serve for a three year term. The three year term for each class
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expires as follows:
* Term expires at the Fund's 2004 Annual Meeting of Shareholders and until their successors are duly elected and qualified.
** Term expires at the Fund's 2005 Annual Meeting of Shareholders and until their successors are duly elected and qualified.
*** Term expires at the Fund's 2006 Annual Meeting of Shareholders and until their successors are duly elected and qualified.
The Board of Trustees of the Fund are divided into three classes, each class having a term of three years except as described below. Each year the term of office of one class of trustees of the Fund will expire. However, to ensure that the term of a class of the Fund's trustees expires each year, the initial terms of the Fund's trustees will be as follows: the terms of Messrs. Mario J. Gabelli, Michael J. Melarkey and Mario d'Urso as trustees of the Fund expire in 2004; the terms of Messrs. Frank J. Fahrenkopf, Jr., Salvatore J. Zizza, Anthonie C. van Ekris, and Anthony J. Colavita as trustees of the Fund expire in 2005; and the terms of Messrs. James P. Conn, Karl Otto Pohl, Edward T. Tokar, and Salvatore M. Salibello as trustees of the Fund expire in 2006.
------------------------------------------------------------------------------------------ | Name of Trustee | Dollar Range of Equity | Aggregate Dollar Range of | | | Securities in the Fund | Equity Securities in all | | | | Registered Investment Companies | | | | Overseen by Trustees in the | | | | Fund Complex | ------------------------------------------------------------------------------------------ INTERESTED TRUSTEES ------------------------------------------------------------------------------------------ | Mario J. Gabelli | NA | Over $100,000 | | ----------------------------|---------------------------|--------------------------------| | Karl Otto Pohl | NA | None | ------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES ------------------------------------------------------------------------------------------ | Anthony J. Colavita | NA | Over $100,000 | | ----------------------------|---------------------------|--------------------------------| | James P. Conn | NA | Over $100,000 | | ----------------------------|---------------------------|--------------------------------| | Mario d'Urso | NA | Over $100,000 | | ----------------------------|---------------------------|--------------------------------| | Frank J. Fahrenkopf, Jr. | NA | $1 - $10,000 | | ----------------------------|---------------------------|--------------------------------| | Michael J. Melarkey | NA | None | | ----------------------------|---------------------------|--------------------------------| | Salvatore M. Salibello | NA | None | | ----------------------------|---------------------------|--------------------------------| | Edward T. Tokar | NA | None | | ----------------------------|---------------------------|--------------------------------| | Anthonie C. van Ekris | NA | Over $100,000 | | ----------------------------|---------------------------|--------------------------------| | Salvatore J. Zizza | NA | Over $100,000 | ------------------------------------------------------------------------------------------ |
All shares were valued as of December 31, 2002.
The Trustees serving on the Fund's Nominating Committee are Messrs. Michael Melarkey, Salvatore Zizza and Anthony Colavita (Chairman). The Nominating Committee is responsible for recommending qualified candidates to the Board in the event that a position is vacated or created. The Nominating Committee would consider recommendations by shareholders if a vacancy were to exist. Such recommendations should be forwarded to the Secretary of the Fund. The Fund does not have a standing compensation committee.
Messrs. Salvatore Zizza (Chairman), Anthonie van Ekris and Frank Fahrenkopf, who are not "interested persons" of the Fund as defined in the 1940 Act, serve on the Fund's Audit Committee. The Audit Committee is generally responsible for reviewing and evaluating issues related to the accounting and financial reporting policies and internal controls of the Fund and, as appropriate, the internal controls of certain service providers, overseeing the quality and objectivity of the Fund's financial statements and the audit thereof and to act as a liaison between the Board of Trustees and the Fund's independent accountants.
The Trust also has a Proxy Voting Committee, which, if so determined by the Board of Trustees, is authorized to exercise voting power and/or dispositive power over specific securities held in the Fund's portfolio for such period as the Board of Trustees may determine. The Trustees serving on the Proxy Voting Committee are Messrs. [ ], [ ] and [ ].
REMUNERATION OF TRUSTEES AND OFFICERS
The Fund pays each trustee who is not affiliated with the Investment Adviser or its affiliates a fee of $5,000 per year plus $1000 per board meeting attended in person ($500 if attended telephonically) and $500 per committee meeting attended, together with each trustee's actual out-of-pocket expenses relating to attendance at such meetings.
The following table shows certain compensation information for the trustees and officers of the Fund for the fiscal year ended December 31, 2002. During the Fund's Fiscal Year ending December 31, 2004, it is anticipated that the trustees will earn the following compensation in their capacity as trustees. For the year ended December 31, 2002, the trustees earned set forth below in their capacity as trustees for other funds in the Gabelli fund complex. Other officers who are employed by the Investment Adviser receive no compensation or expense reimbursement from the Fund.
COMPENSATION TABLE
TOTAL COMPENSATION FROM THE
FUND AND FUND COMPLEX PAID
NAME OF PERSON AND ESTIMATED COMPENSATION TO TRUSTEES/
POSITION FROM THE FUND OFFICERS*
Mario J. Gabelli, Chairman of
the Board $ 0 $ 0 (22)
Anthony J. Colavita $9,500 $152,286 (33)
James P. Conn $9,500 $ 53,500 (11)
Mario d'Urso $9,000 $ 0 (1)
Frank J. Fahrenkopf, Jr. $9,500 $ 31,000 (3)
Michael J. Melarkey $9,500 $ 0 (1)
Karl Otto Pohl $ 0 $ 0 (31)
Salvatore M. Salibello $9,000 $ 0 (1)
Edward T. Tokar $9,000 $ 0 (1)
Anthonie C. van Ekris $9,500 $ 67,250 (18)
Salvatore J. Zizza $10,500 $ 73,750 (11)
--------------------
TOTAL $85,000
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* Represents the total compensation paid to such persons during the calendar year ended December 31, 2002 by investment companies (including the Fund) or portfolios thereof from which such person receives compensation that are considered part of the same fund complex as the Fund because they have common or affiliated investment advisers. The total does not include, among other things, out of pocket Trustee expenses. The number in parenthesis represents the number of such investment companies.
For his services as Vice President of the Fund, Matthew Hultquist, will receive compensation in an amount to be established by the Board of Trustees.
Indemnification of Officers and Trustees; Limitations on Liability
The Agreement and Declaration of Trust of the Fund provides that the Fund will indemnify its trustees and officers and may indemnify its employees or agents against liabilities and expenses incurred in connection with litigation in which they may be involved because of their positions with the Fund, to the fullest extent permitted by law. However, nothing in the Agreement and Declaration of Trust of the Fund protects or indemnifies a trustee, officer, employee or agent of the Fund against any liability to which such person would otherwise be subject in the event of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her position.
Investment Advisory and Administrative Arrangements
Gabelli Funds, LLC acts as the Fund's investment adviser (the "Investment Adviser") pursuant to an advisory agreement with the Fund (the "Advisory Agreement"). The Investment Adviser is a New York corporation with principal offices located at One Corporate Center, Rye, New York 10580-1422. The Investment Adviser was organized in 1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980. As of June 30, 2003 the Investment Adviser acted as registered investment advisers to 19 management investment companies with aggregate net assets of $9.3 billion. The Investment Adviser, together with other affiliated investment advisers set forth below, had assets under management totaling approximately $21.9 billion, as of June 30, 2003. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as investment adviser for individuals, pension trusts, profit sharing trusts and endowments and as a sub-adviser to management investment companies, having aggregate assets of $10.8 billion under management as of June 30, 2003. Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as investment adviser for The Treasurer's Funds (money market funds) and separate accounts having aggregate assets of $1.2 billion under management as of June 30, 2003. Gabelli Advisors, Inc., an affiliate of the Investment Adviser, acts as investment manager to the Gabelli Westwood Funds, having aggregate assets of $493 million under management as of June 30, 2003.
Affiliates of the Investment Adviser may, in the ordinary course of their business, acquire for their own account or for the accounts of their advisory clients, significant (and possibly controlling) positions in the securities of companies that may also be suitable for investment by the Fund. The securities in which the Fund might invest may thereby be limited to some extent. For instance, many companies in the past several years have adopted so-called "poison pill" or other defensive measures designed to discourage or prevent the completion of non-negotiated offers for control of the company. Such defensive measures may have the effect of limiting the shares of the company which might otherwise be acquired by the Fund if the affiliates of the Investment Adviser or their advisory accounts have or acquire a significant position in the same securities. However, the Investment Adviser does not believe that the investment activities of its affiliates will have a material adverse effect upon the Fund in seeking to achieve its investment objectives. Securities purchased or sold pursuant to contemporaneous orders entered on behalf of the investment company accounts of the Investment Adviser or the advisory accounts managed by its affiliates for their unaffiliated clients are allocated pursuant to principles believed to be fair and not disadvantageous to any such accounts. In addition, all such orders are accorded priority of execution over orders entered on behalf of accounts in which the Investment Adviser or its affiliates have a substantial pecuniary interest. The Investment Adviser may on occasion give advice or take action with respect to other clients that differs from the actions taken with respect to the Fund. The Fund may invest in the securities of companies which are investment management clients of GAMCO Investors Inc. In addition, portfolio companies or their officers or directors may be minority shareholders of the Investment Adviser or its affiliates.
The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management Inc., a New York corporation, whose Class A Common Stock is traded on the New York Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a "controlling person" of the Investment Adviser on the basis of his ownership of a majority of the stock of Gabelli Group Capital Partners, Inc., which owns a majority of the capital stock of Gabelli Asset Management Inc.
Under the terms of the Advisory Agreement, the Investment Adviser manages the portfolio of the Fund in accordance with its stated investment objective and policies, makes investment decisions for the Fund, places orders to purchase and sell securities on behalf of the Fund and manages its other business and affairs, all subject to the supervision and direction of the Fund's Board of Trustees. In addition, under the Advisory Agreement, the Investment Adviser oversees the administration of all aspects of the Fund's business and affairs and provides, or arranges for others to provide, at the Investment Adviser's expense, certain enumerated services, including maintaining the Fund's books and records, preparing reports to the Fund's shareholders and supervising the calculation of the net asset value of its shares. All expenses of computing the net asset value of the Fund, including any equipment or services obtained solely for the purpose of pricing shares or valuing its investment portfolio, will be an expense of the Fund under its Advisory Agreement unless the Investment Adviser voluntarily assumes responsibility for such expense.
The Advisory Agreement combines investment advisory and administrative responsibilities in one agreement. For services rendered by the Investment Adviser on behalf of the Fund under the Advisory Agreement, the Fund pays the Investment Adviser a fee computed daily and paid monthly at the annual rate of 1.00% of the average weekly net assets of the Fund.
The Advisory Agreement provides that in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard for its obligations and duties thereunder, the Investment Adviser is not liable for any error or judgment or mistake of law or for any loss suffered by the Fund. As part of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is the Investment Adviser's property, and that in the event the Investment Adviser ceases to act as an investment adviser to the Fund, the Fund will change its name to one not including "Gabelli."
Pursuant to its terms, the Advisory Agreement will remain in effect with respect to the Fund until the second anniversary of shareholder approval of such Agreement, and from year to year thereafter if approved annually (i) by the Fund's Board of Trustees or by the holders of a majority of its outstanding voting securities and (ii) by a majority of the trustees who are not "interested persons" (as defined in the 1940 Act) of any party to the Advisory Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.
The Advisory Agreement was agreed to in principle by the Fund's Board of Trustees at a telephonic meeting of the Board of Trustees held on October 23, 2003, including a majority of the trustees who are not parties to the agreement or interested persons of any such party (as such term is defined in the 1940 Act). The 1940 Act requires that the Advisory Agreement be approved by a majority of the Fund's Board of Trustees, including a majority of the trustees who are not interested persons as that term is defined in the 1940 Act, at an in person meeting of the Board of Trustees. The Board of Trustees will meet in person to ratify, among other things, the approval of the Advisory Agreement prior to the date on which the Fund's registration statement is declared effective.
In considering whether to agree in principle to the Advisory
Agreement, the Fund's non-interested trustees considered, among other factors,
(i) the services provided to the Fund by the Investment Adviser and the
sub-administrator, (ii) the Fund's fee and expense data as compared to various
benchmarks, a peer group of closed-end funds and the other registered
investment companies managed by the Investment Adviser and (iii) the
experience and breadth of the investment advisory team expected to be utilized
by the Investment Adviser.
The Advisory Agreement terminates automatically on its assignment and may be terminated without penalty on 60 days written notice at the option of either party thereto or by a vote of a majority (as defined in the 1940 Act) of the Fund's outstanding shares.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Fund, the Investment Adviser is responsible for placing purchase and sale orders and the allocation of brokerage on behalf of the Fund. Transactions in equity securities are in most cases effected on U.S. stock exchanges and involve the payment of negotiated brokerage commissions. In general, there may be no stated commission in the case of securities traded in over-the-counter markets, but the prices of those securities may include undisclosed commissions or mark-ups. Principal transactions are not entered into with affiliates of the Fund. However, Gabelli & Company, Inc. may execute transactions in the over-the-counter markets on an agency basis and receive a stated commission therefrom. To the extent consistent with applicable provisions of the 1940 Act and the rules and exemptions adopted by the SEC thereunder, as well as other regulatory requirements, the Fund's Board of Trustees have determined that portfolio transactions may be executed through Gabelli & Company, Inc. and its broker-dealer affiliates if, in the judgment of the Investment Adviser, the use of those broker-dealers is likely to result in price and execution at least as favorable as those of other qualified broker-dealers, and if, in particular transactions, those broker-dealers charge the Fund a rate consistent with that charged to comparable unaffiliated customers in similar transactions. The Fund has no obligations to deal with any broker or group of brokers in executing transactions in portfolio securities. In executing transactions, the Investment Adviser seeks to obtain the best price and execution for the Fund, taking into account such factors as price, size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. While the Investment Adviser generally seeks reasonably competitive commission rates, the Fund does not necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who provide supplemental research, market and statistical information to the Investment Adviser or its affiliates may receive orders for transactions by the Fund. The term "research, market and statistical information" includes advice as to the value of securities, and advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities, and furnishing analyses and reports concerning issues, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. Information so received will be in addition to and not in lieu of the services required to be performed by the Investment Adviser under the Advisory Agreement and the expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. Such information may be useful to the Investment Adviser and its affiliates in providing services to clients other than the Fund, and not all such information is used by the Investment Adviser in connection with the Fund. Conversely, such information provided to the Investment Adviser and its affiliates by brokers and dealers through whom other clients of the Investment Adviser and its affiliates effect securities transactions may be useful to the Investment Adviser in providing services to the Fund.
Although investment decisions for the Fund are made independently from those of the other accounts managed by the Investment Adviser and its affiliates, investments of the kind made by the Fund may also be made by those other accounts. When the same securities are purchased for or sold by the Fund and any of such other accounts, it is the policy of the Investment Adviser and its affiliates to allocate such purchases and sales in the manner deemed fair and equitable to all of the accounts, including the Fund.
PORTFOLIO TURNOVER
Portfolio turnover rate is calculated by dividing the lesser of an investment company's annual sales or purchases of portfolio securities by the monthly average value of securities in its portfolio during the year, excluding portfolio securities the maturities of which at the time of acquisition were one year or less. A high rate of portfolio turnover involves correspondingly greater brokerage commission expense than a lower rate, which expense must be borne by the Fund and indirectly by its shareholders. A higher rate of portfolio turnover may also result in taxable gains being passed to shareholders sooner than would otherwise be the case. The Fund anticipates that its annual portfolio turnover rate will be less than 100%.
TAXATION
The following discussion is a brief summary of certain U.S. federal income tax considerations affecting the Fund and its shareholders. No attempt is made to present a detailed explanation of all U.S. federal, state, local and foreign tax concerns affecting the Fund and its shareholders (including shareholders owning a large position in the Fund), and the discussions set forth here and in the Prospectus do not constitute tax advice. Investors are urged to consult their own tax advisers with any specific questions relating to U.S. federal, state, local and foreign taxes. The discussion reflects applicable tax laws of the United States as of the date of this SAI, which tax laws may be changed or subject to new interpretations by the courts or the Internal Revenue Service (the "IRS") retroactively or prospectively.
Taxation of the Fund
The Fund intends to elect to be treated and to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") (a "RIC"). Accordingly, the Fund must, among other things, (i) derive in each taxable year at least 90% of its gross income (including tax-exempt interest) from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at least 50% of the market value of the Fund's total assets is represented by cash and cash items, U.S. government securities, the securities of other RICs and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of the Fund's total assets and not more than 10% of the outstanding voting securities of such issuer, and (b) not more than 25% of the market value of the Fund's total assets is invested in the securities of any issuer (other than U.S. government securities and the securities of other RICs) or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or related trades or businesses.
As a RIC, the Fund generally is not subject to U.S. federal income tax on income and gains that it distributes each taxable year to shareholders, if it distributes at least 90% of the sum of the Fund's (i) investment company taxable income (which includes, among other items, dividends, interest and the excess of any net short-term capital gain over net long-term capital loss and other taxable income, other than any net long-term capital gain, reduced by deductible expenses) determined without regard to the deduction for dividends paid and (ii) its net tax-exempt interest (the excess of its gross tax-exempt interest over certain disallowed deductions). The Fund intends to distribute at least annually substantially all of such income.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax at the Fund level. To avoid the tax, the Fund must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income (not taking into account any capital gain or loss) for the calendar year, (ii) 98% of its capital gain in excess of its capital loss (adjusted for certain ordinary losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made to use the Fund's fiscal year), and (iii) certain undistributed amounts from previous years on which the Fund paid no federal income tax. While the Fund intends to distribute any income and capital gain in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gain will be distributed to avoid entirely the imposition of the tax. In that event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirement.
A distribution will be treated as paid during the calendar year if it is paid during the calendar year or declared by the Fund in October, November or December of the year, payable to shareholders of record on a date during such a month and paid by the Fund during January of the following year. Any such distributions paid during January of the following year will be deemed to be received on December 31 of the year the distributions are declared, rather than when the distributions are received.
If the Fund were unable to satisfy the 90% distribution requirement or otherwise were to fail to qualify as a RIC in any year, it would be taxed in the same manner as an ordinary corporation and distributions to the Fund's shareholders would not be deductible by the Fund in computing its taxable income. To qualify again to be taxed as a RIC in a subsequent year, the Fund would be required to distribute to its shareholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Fund to the IRS. In addition, if the Fund failed to qualify as a RIC for a period greater than one taxable year, then the Fund would be required to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Fund had been liquidated) or, alternatively, to elect to be subject to taxation on such built-in gain recognized for a period of ten years, in order to qualify as a RIC in a subsequent year.
Gain or loss on the sales of securities by the Fund will be long-term capital gain or loss if the securities have been held by the Fund for more than one year. Gain or loss on the sale of securities held for one year or less will be short-term capital gain or loss.
Foreign currency gain or loss on non-U.S. dollar-denominated securities and on any non-U.S. dollar-denominated futures contracts, options and forward contracts that are not section 1256 contracts (as defined below) generally will be treated as ordinary income and loss.
Investments by the Fund in certain "passive foreign investment companies" ("PFICs") could subject the Fund to federal income tax (including interest charges) on certain distributions or dispositions with respect to those investments which cannot be eliminated by making distributions to shareholders. Elections may be available to the Fund to mitigate the effect of this tax, but such elections generally accelerate the recognition of income without the receipt of cash. Dividends paid by PFICs will not qualify for the reduced tax rates discussed below under "Taxation of Shareholders."
The Fund may invest in debt obligations purchased at a discount with the result that the Fund may be required to accrue income for U.S. federal income tax purposes before amounts due under the obligations are paid. The Fund may also invest in securities rated in the medium to lower rating categories of nationally recognized rating organizations, and in unrated securities ("high yield securities"). A portion of the interest payments on such high yield securities may be treated as dividends for certain U.S. federal income tax purposes.
As a result of investing in stock of PFICs or securities purchased at a discount or any other investment that produces income that is not matched by a corresponding cash distribution to the Fund, the Fund could be required to include in current income income it has not yet received. Any such income would be treated as income earned by the Fund and therefore would be subject to the distribution requirements of the Code. This might prevent the Fund from distributing 90% of its net investment income as is required in order to avoid Fund-level federal income taxation on all of its income, or might prevent the Fund from distributing enough ordinary income and capital gain net income to avoid completely the imposition of the excise tax. To avoid this result, the Fund may be required to borrow money or dispose of securities to be able to make distributions to its shareholders.
The Fund may issue Preferred shares. If it does and does not meet the asset coverage requirements of the 1940 Act and the Statements of Preferences, the Fund will be required to suspend distributions to the holders of the Common Shares until the asset coverage is restored. Such a suspension of distributions might prevent the Fund from distributing 90% of its investment company taxable income as is required in order to avoid Fund-level federal income taxation on all of its income, or might prevent the Fund from distributing enough income and capital gain net income to avoid completely imposition of the excise tax.
Hedging Transactions
Certain options, futures contracts and options on futures contracts are "section 1256 contracts." Any gains or losses on section 1256 contracts are generally considered 60% long-term and 40% short-term capital gain or loss ("60/40"). Also, section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market" with the result that unrealized gain or loss is treated as though it was realized and the resulting gain or loss is treated as 60/40 gain or loss.
Hedging transactions undertaken by the Fund may result in "straddles" for U.S. federal income tax purposes. The straddle rules may affect the character of gain (or loss) realized by the Fund. In addition, loss realized by the Fund on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which such loss is realized. Further, the Fund may be required to capitalize, rather than deduct currently, any interest expense on indebtedness incurred or continued to purchase or carry any positions that are part of a straddle.
The Fund may make one or more of the elections available under the Code which are applicable to straddles. If the Fund makes any of the elections, the amount, character and timing of the recognition of gain or loss from the affected straddle positions may be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections accelerate the recognition of gain or loss from the affected straddle positions.
Because application of the straddle rules may affect the character and timing of the Fund's gains, losses and deductions, the amount which must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to a fund that did not engage in such hedging transactions.
Foreign Taxes
Since the Fund may invest in foreign securities, its income from such securities may be subject to non-U.S. taxes. The Fund intends to invest less than 50% of its total assets in foreign securities. As long as the Fund continues to invest less than 50% of its assets in foreign securities it will not be eligible to elect to "pass-through" to shareholders of the Fund the ability to use the foreign tax deduction or foreign tax credit for foreign taxes paid with respect to qualifying taxes.
Taxation of Shareholders
The Fund will determine either to distribute or to retain for reinvestment all or part of its net capital gain. If any such gain is retained, the Fund will be subject to a tax of 35% of such amount. In that event, the Fund expects to designate the retained amount as undistributed capital gain in a notice to its shareholders, each of whom (i) will be required to include in income for tax purposes as long-term capital gain its share of such undistributed amounts, (ii) will be entitled to credit its proportionate share of the tax paid by the Fund against its federal income tax liability and to claim refunds to the extent that the credit exceeds such liability and (iii) will increase its basis in its shares of the Fund by an amount equal to 65% of the amount of undistributed capital gain included in such shareholder's gross income.
Distributions paid by the Fund from its net investment company taxable income, which includes net short-term capital gain, generally are taxable as ordinary income to the extent of the Fund's earnings and profits. Such distributions (if designated by the Fund) may, however, qualify (provided holding period and other requirements are met by both the Fund and the shareholder) (i) for the dividends received deduction available to corporations, but only to the extent that the Fund's income consists of dividends received from U.S. corporations and (ii) under the recently enacted Jobs and Growth Tax Relief Reconciliation Act of 2003 (effective for taxable years after December 31, 2002 through December 31, 2008) ("2003 Tax Act"), as qualified dividend income eligible for the reduced maximum rate to individuals of generally 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., generally, foreign corporations incorporated in a possession of the United States or in certain countries with a qualifying comprehensive tax treaty with the United States, or the stock with respect to which such dividend is paid is readily tradable on an established securities market in the United States). Distributions of net capital gain designated as capital gain distributions, if any, are taxable to shareholders at rates applicable to long-term capital gain, whether paid in cash or in shares, and regardless of how long the shareholder has held the Fund's shares. Capital gain distributions are not eligible for the dividends received deduction. Under the 2003 Tax Act, the maximum tax rate on net long-term capital gain of individuals is reduced generally from 20% to 15% (5% for individuals in lower brackets) for such gain realized on or after May 6, 2003 and before January 1, 2009. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gain to such holder (assuming the shares are held as a capital asset). For non-corporate taxpayers, under the 2003 Tax Act, investment company taxable income (other than qualified dividend income) will currently be taxed at a maximum rate of 35%, while net capital gain generally will be taxed at a maximum rate of 15%. For corporate taxpayers, both investment company taxable income and net capital gain are taxed at a maximum rate of 35%.
Shareholders may be entitled to offset their capital gain distributions with capital loss. There are a number of statutory provisions affecting when capital loss may be offset against capital gain, and limiting the use of loss from certain investments and activities. Accordingly, shareholders with capital loss are urged to consult their tax advisers.
The price of shares purchased at any time may reflect the amount of a forthcoming distribution. Those purchasing shares just prior to a distribution will receive a distribution which will be taxable to them even though it represents in part a return of invested capital.
Upon a sale, exchange or other disposition of shares, a shareholder will realize a taxable gain or loss depending upon his or her basis in the shares. Such gain or loss will be treated as long-term capital gain or loss if the shares have been held for more than one year. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares held by the shareholder for six months or less will be treated for tax purposes as a long-term capital loss to the extent of any capital gain distributions received by the shareholder (or amounts credited to the shareholder as an undistributed capital gain) with respect to such shares.
Ordinary income distributions and capital gain distributions also may be subject to state and local taxes. Shareholders are urged to consult their own tax advisers regarding specific questions about federal (including the application of the alternative minimum tax rules), state, local or foreign tax consequences to them of investing in the Fund.
Ordinary income distributions (but not capital gain distributions) paid to shareholders who are non-resident aliens or foreign entities (a "foreign investor") will generally be subject to a 30% U.S. withholding tax under existing provisions of the Code applicable to foreign individuals and entities, unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Different tax consequences may result if the foreign investor is engaged in a trade or business in the United States or, in the case of an individual, is present in the United States for 183 or more days during a taxable year and certain other conditions are met. Foreign investors are urged to consult their own tax advisers concerning the applicability of the U.S. withholding tax.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax on all taxable distributions and redemption proceeds payable to non-corporate shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against such shareholder's U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative action, either prospectively or retroactively. Persons considering an investment in common shares should consult their own tax advisers regarding the purchase, ownership and disposition of common shares.
NET ASSET VALUE
The net asset value of the Fund's shares will be computed based on the market value of the securities it holds and will generally be determined daily as of the close of regular trading on the New York Stock Exchange. The net asset value of the Fund's shares is reported to the financial press on a weekly basis.
Portfolio instruments of the Fund which are traded in a market subject to government regulation on which trades are reported contemporaneously generally will be valued at the last sale price on the principal market for such instruments as of the close of regular trading on the day the instruments are being valued, or lacking any sales, at the average of the bid and asked price on the principal market for such instruments on the most recent date on which bid and asked prices are available. Initial public offering securities are initially valued at cost, and thereafter as any other equity security. Other readily marketable assets will be valued at the average of quotations provided by dealers maintaining an active market in such instruments. Short-term debt instruments that are credit impaired or mature in more than 60 days for which market quotations are available are valued at the latest average of the bid and asked prices obtained from a dealer maintaining an active market in that security. Short-term investments that are not credit impaired and mature in 60 days or fewer are valued at amortized cost from purchase price or value on the 61st day prior to maturity. Securities and other assets for which market quotations are not readily available will be valued at fair value as determined in good faith by or under the direction of the Investment Adviser in accordance with guidelines adopted by the Fund. The Fund may employ recognized pricing services from time to time for the purpose of pricing portfolio instruments (including non-U.S. dollar-denominated assets and futures and options).
Trading takes place in various foreign markets on days which are not Business Days and on which therefore the Fund's net asset value per share is not calculated. The calculation of the Fund's net asset value may not take place contemporaneously with the determination of the prices of portfolio securities held by the Fund. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the NYSE will not be reflected in the Fund's calculation of net asset value unless the Investment Adviser, pursuant to procedures established by the Board of Trustees, deems that the particular event would materially affect the net asset value, in which case the fair value of those securities will be determined by consideration of other factors by or under the direction of the Board of Trustees.
Net asset value per share is calculated by dividing the value of the securities held plus any cash or other assets minus all liabilities, including accrued expenses, by the total number of shares outstanding at such time.
GENERAL INFORMATION
Book-Entry-Only Issuance
DTC will act as securities depository for the Common Shares offered pursuant to the Prospectus. The information in this section concerning DTC and DTC's book-entry system is based upon information obtained from DTC. The securities offered hereby initially will be issued only as fully-registered securities registered in the name of Cede & Co. (as nominee for DTC). One or more fully-registered global security certificates initially will be issued, representing in the aggregate the total number of securities, and deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended. DTC holds securities that its participants deposit with DTC. DTC also facilities the settlement among participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct DTC participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly through other entities.
Purchases of securities within the DTC system must be made by or through direct participants, which will receive a credit for the securities on DTC's records. The ownership interest of each actual purchaser of a security, a beneficial owner, is in turn to be recorded on the direct or indirect participants' records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owners purchased securities. Transfers of ownership interests in securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in securities, except as provided herein.
DTC has no knowledge of the actual beneficial owners of the securities being offered pursuant to this Prospectus; DTC's records reflect only the identity of the direct participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Payments on the securities will be made to DTC. DTC's practice is to credit direct participants' accounts on the relevant payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices and will be the responsibility of such participant and not of DTC or the Fund, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of distributions to DTC is the responsibility of the Fund, disbursement of such payments to direct participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of direct and indirect participants. Furthermore each beneficial owner must rely on the procedures of DTC to exercise any rights under the securities.
DTC may discontinue providing its services as securities depository with respect to the securities at any time by giving reasonable notice to the Fund. Under such circumstances, in the event that a successor securities depository is not obtained, certificates representing the securities will be printed and delivered.
Counsel and Independent Accountants
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 is special counsel to the Fund in connection with the issuance of the Common Shares.
[__], serve as auditors of the Fund and will annually render an opinion on the financial statements of the Fund.
PROXY VOTING PROCEDURES
The Fund has adopted the proxy voting procedures of the Investment Adviser and has directed the Investment Adviser to vote all proxies relating to the Fund's voting securities in accordance with such procedures. The proxy voting procedures have been filed with the Securities and Exchange Commission and can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. and information on the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 202-942-8090. The proxy voting procedures are also available on the EDGAR Database on the Securities and Exchange Commission's Internet site at http:// www.sec.gov, and copies of the proxy voting procedures may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Securities and Exchange Commission's Public Reference Section, Washington, D.C. 20549-0102. In addition, information on how the Fund voted proxies relating to voting securities during the most recent twelve month period is available, upon request, by calling 800-GABELLI (800-422-3554). The proxy voting procedures are also available at http://www.gabelli.com and on the Security and Exchange Commissions website at http://www.sec.gov.
CODE OF ETHICS
The Fund and the Investment Adviser have adopted a code of ethics. This code of ethics sets forth restrictions on the trading activities of trustees/directors, officers and employees of the Fund, the Investment Adviser and their affiliates. For example, such persons may not purchase any security for which the Fund has a purchase or sale order pending, or for which such trade is under consideration. In addition, those trustees/directors, officers and employees that are principally involved in investment decisions for client accounts are prohibited from purchasing or selling for their own account for a period of seven days a security that has been traded for a client's account, unless such trade is executed on more favorable terms for the client's account and it is determined that such trade will not adversely affect the client's account. Short-term trading by such trustee/directors, officers and employees for their own accounts in securities held by a Fund client's account is also restricted. The above examples are subject to certain exceptions and they do not represent all of the trading restrictions and policies set forth by the code of ethics. The code of ethics is on file with the Securities and Exchange Commission and can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 202-942-8090. The code of ethics is also available on the EDGAR Database on the Securities and Exchange Commission's Internet site at http:// www.sec.gov, and copies of the code of ethics may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the Securities and Exchange Commission's Public Reference Section, Washington, D.C. 20549-0102.
Appendix - Proxy Voting Procedures
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 Investors, Inc., Gabelli Funds, LLC and Gabelli Advisers, Inc. (collectively, the "Advisers") to determine how to vote proxies relating to portfolio securities held by their clients, including the procedures that the Advisers use when a vote presents a conflict between the interests of the shareholders of an investment company managed by one of the Advisers, on the one hand, and those of the Advisers; the principal underwriter; or any affiliated person of the investment company, the Advisers, or the principal underwriter. These procedures will not apply where the Advisers do not have voting discretion or where the Advisers have agreed to with a client to vote the client's proxies in accordance with specific guidelines or procedures supplied by the client (to the extent permitted by ERISA).
I. PROXY VOTING COMMITTEE
The Proxy Voting Committee was originally formed in April 1989 for the purpose of formulating guidelines and reviewing proxy statements within the parameters set by the substantive proxy voting guidelines originally published by GAMCO Investors, Inc. 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. As of June 30, 2003, the members are:
Bruce N. Alpert, Chief Operating Officer of Gabelli Funds, LLC Ivan Arteaga, Research Analyst Caesar M. P. Bryan, Portfolio Manager Stephen DeTore, Deputy General Counsel Joshua Fenton, Director of Research Douglas R. Jamieson, Chief Operating Officer of GAMCO James E. McKee, General Counsel Karyn M. Nappi, Director of Proxy Voting Services William S. Selby, Managing Director of GAMCO Howard F. Ward, Portfolio Manager Peter D. Zaglio, Senior Vice President
Peter D. Zaglio currently chairs the Committee. In his absence, the Director of Research will chair the 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 issuer's Board of Directors and not contrary to the Proxy Guidelines; (2) consistent with the recommendations of the issuer's Board of Directors and is 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.
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 Legal Department believes 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.
II. SOCIAL ISSUES AND OTHER CLIENT GUIDELINES
If a client has provided special instructions relating to the voting of proxies, they should be noted in the client's account file and forwarded to the proxy department. This is the responsibility of the investment professional or sales assistant for the client. In accordance with Department of Labor guidelines, the Advisers' policy is to vote on behalf of ERISA accounts in the best interest of the plan participants with regard to social issues that carry an economic impact. Where an account is not governed by ERISA, the Advisers will vote shares held on behalf of the client in a manner consistent with any individual investment/voting guidelines provided by the client. Otherwise the Advisers will abstain with respect to those shares.
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.
- Operations
- Legal Department
- Proxy Department
- Investment professional assigned to the account
In the event that the Board of Directors (or a Committee thereof) of one or more of the investment companies managed by one of the Advisers has retained direct voting control over any security, the Proxy Voting Department will provide each Board Member (or Committee member) with a copy of the proxy statement together with any other relevant information including recommendations of ISS or other third-party services.
IV. VOTING RECORDS
The Proxy Voting Department will retain a record of matters voted upon by the Advisers for their clients. The Advisers' staff may request proxy-voting records for use in presentations to current or prospective clients. Requests for proxy voting records should be made at least ten days prior to client meetings.
If a client wishes to receive a proxy voting record on a quarterly, semi-annual or annual basis, please notify the Proxy Voting Department. The reports will be available for mailing approximately ten days after the quarter end of the period. First quarter reports may be delayed since the end of the quarter falls during the height of the proxy season.
A letter is sent to the custodians for all clients for which the Advisers have voting responsibility instructing them to forward all proxy materials to:
[Adviser name]
Attn: Proxy Voting Department
One Corporate Center
Rye, New York 10580-1433
The sales assistant sends the letters to the custodians along with the trading/DTC instructions. Proxy voting records will be retained in compliance with Rule 204-2 under the Investment Advisers Act.
V. VOTING PROCEDURES
1. Custodian banks, outside brokerage firms and Wexford Clearing Services Corporation are responsible for forwarding proxies directly to GAMCO.
Proxies are received in one of two forms:
o Shareholder Vote Authorization Forms (VAFs) - Issued by ADP. VAFs must be voted through the issuing institution causing a time lag. ADP is an outside service contracted by the various institutions to issue proxy materials.
o Proxy cards which may be voted directly.
2. Upon receipt of the proxy, the number of shares each form represents is logged into the proxy system according to security.
3. In the case of a discrepancy such as an incorrect number of shares, an improperly signed or dated card, wrong class of security, etc., the issuing custodian is notified by phone. A corrected proxy is requested. Any arrangements are made to insure that a proper proxy is received in time to be voted (overnight delivery, fax, etc.). When securities are out on loan on record date, the custodian is requested to supply written verification.
4. Upon receipt of instructions from the proxy committee (see Administrative), the votes are cast and recorded for each account on an individual basis.
Since January 1, 1992, records have been maintained on the Proxy Edge system. The system is backed up regularly. From 1990 through 1991, records were maintained on the PROXY VOTER system and in hardcopy format. Prior to 1990, records were maintained on diskette and in hardcopy format.
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 GAMCO voted for the client on each issue
The rationale for the vote when it appropriate
Records prior to the institution of the PROXY EDGE system include:
Security name
Type of Meeting (Annual, Special, Contest)
Date of Meeting
Name of Custodian
Name of Client
Custodian Account Number
Adviser or Fund Account Number
Directors' recommendation
How the Adviser voted for the client on each issue
Date the proxy statement was received and by whom
Name of person posting the vote
Date and method by which the vote was cast
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o From these records individual client proxy voting records are compiled. It is our policy to provide institutional clients with a proxy voting record during client reviews. In addition, we will supply a proxy voting record at the request of the client on a quarterly, semi-annual or annual basis.
5. VAFs 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.
6. Shareholder Vote Authorization Forms issued by ADP are always sent directly to a specific individual at ADP.
7. If a proxy card or VAF is received too late to be voted in the conventional matter, every attempt is made to vote on one of the following manners:
o VAFs can be faxed to ADP up until the time of the meeting. This is followed up by mailing the original form.
o When a solicitor has been retained, the solicitor is called. At the solicitor's direction, the proxy is faxed.
8. In the case of a proxy contest, records are maintained for each opposing entity.
9. 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:
o Banks and brokerage firms using the services at ADP:
A call is placed to ADP requesting legal proxies. The VAFs are then sent overnight to ADP. ADP issues individual legal proxies and sends them back via overnight. 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 ADP may be implemented.
o Banks and brokerage firms issuing proxies directly:
The bank is called and/or faxed and a legal proxy is requested.
All legal proxies should appoint:
"REPRESENTATIVE OF [ADVISER NAME] WITH FULL POWER OF SUBSTITUTION."
b) The legal proxies are given to the person attending the meeting along with the following supplemental material:
o A limited Power of Attorney appointing the attendee an Adviser
representative.
o A list of all shares being voted by custodian only. Client names and
account numbers are not included. This list must be presented, along with
the proxies, to the Inspectors of Elections and/or tabulator at least
one-half hour prior to the scheduled start of the meeting. The tabulator
must "qualify" the votes (i.e. determine if the vote have previously been
cast, if the votes have been rescinded, etc. vote have previously been
cast, etc.).
o A sample ERISA and Individual contract.
o A sample of the annual authorization to vote proxies form.
o A copy of our most recent Schedule 13D filing (if applicable).
APPENDIX A
PROXY GUIDELINES
PROXY VOTING GUIDELINES
GENERAL POLICY STATEMENT
It is the policy of GABELLI ASSET MANAGEMENT INC. 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
The advisers 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:
o Historical responsiveness to shareholders
This may include such areas as:
- Paying greenmail
- Failure to adopt shareholder resolutions receiving a majority
of shareholder votes
o Qualifications
o Nominating committee in place
o Number of outside directors on the board
o Attendance at meetings
o Overall performance
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.
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 board's historical responsiveness to the rights of shareholders.
Where a classified board is in place we will generally not support attempts to change to an annually elected board.
When an annually elected board is in place, we generally will not support attempts to classify the board.
INCREASE AUTHORIZED COMMON STOCK
The request to increase the amount of outstanding shares is considered on a case-by-case basis.
Factors taken into consideration include:
o Future use of additional shares
- Stock split
- Stock option or other executive compensation plan
- Finance growth of company/strengthen balance sheet
- Aid in restructuring
- Improve credit rating
- Implement a poison pill or other takeover defense
o Amount of stock currently authorized but not yet issued or reserved
for stock option plans
o Amount of additional stock to be authorized and its dilutive effect
We will support this proposal if a detailed and verifiable plan for the use of the additional shares is contained in the proxy statement.
CONFIDENTIAL BALLOT
We support the idea that a shareholder's identity and vote should be treated with confidentiality.
However, we look at this issue on 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.
EQUAL ACCESS TO THE PROXY
The SEC's rules provide for shareholder resolutions. However, the resolutions are limited in scope and there is a 500 word limit on proponents' written arguments. Management has no such limitations. While we support equal access to the proxy, we would look at such variables as length of time required to respond, percentage of ownership, etc.
FAIR PRICE PROVISIONS
Charter provisions requiring a bidder to pay all shareholders a fair price are intended to 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 executive's 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 merger's effects on employees, the community, and consumers.
As a fiduciary, we are obligated to vote in the best economic interests of our clients. In general, this proposal does not allow us to do that. Therefore, we generally cannot support this proposal.
Reviewed on 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.
In voting on this proposal for our non-ERISA clients, we will vote according to the client's direction when applicable. Where no direction has been given, we will vote in the best economic interests of our clients. It is not our duty to impose our social judgment on others.
NORTHERN IRELAND
Shareholder proposals requesting the signing of the MacBride principles for the purpose of countering the discrimination of Catholics in hiring practices must be evaluated on a purely economic set of criteria for our ERISA clients. As such, decisions will be made on 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 state's takeover statutes. Example: Delaware law requires that a buyer must acquire at least 85% of the company's stock before the buyer can exercise control unless the board approves.
We consider this on a case-by-case basis. Our decision will be based on the following:
o State of Incorporation
o Management history of responsiveness to shareholders
o Other mitigating factors
POISON PILL
In general, we do not endorse poison pills.
In certain cases where management has a history of being responsive to the needs of shareholders and the stock is very liquid, we will reconsider this position.
REINCORPORATION
Generally, we support reincorporation for well-defined business reasons. We oppose reincorporation if proposed solely for the purpose of reincorporating in a state with more stringent anti-takeover statutes that may negatively impact the value of the stock.
STOCK OPTION PLANS
Stock option plans are an excellent way to attract, hold and motivate directors and employees. However, each stock option plan must be evaluated on its own merits, taking into consideration the following:
o Dilution of voting power or earnings per share by more than 10%
o Kind of stock to be awarded, to whom, when and how much
o Method of payment
o Amount of stock already authorized but not yet issued under
existing stock option plans
SUPERMAJORITY VOTE REQUIREMENTS
Supermajority vote requirements in a company's charter or bylaws require a level of voting approval in excess of a simple majority of the outstanding shares. In general, we oppose supermajority-voting requirements. Supermajority requirements often exceed the average level of shareholder participation. We support proposals' approvals by a simple majority of the shares voting.
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.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Part A
Report of Independent Accountants. (1)
Part B
Statement of Assets and Liabilities. (1)
(2) Exhibits
(a) Agreement and Declaration of Trust of Registrant(1)
(b) Amended and Restated By-Laws of Registrant(1)
(c) Not applicable
(d) Form of Specimen Share Certificate(2)
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan of Registrant(2)
(f) Not applicable
(g) Form of Investment Advisory Agreement between Registrant and
Gabelli Funds, LLC(2)
(h) Form of Underwriting Agreement(2)
(i) Not applicable
(j) Form of Custodian Contract (1)
(k) Form of Registrar, Transfer Agency and Service Agreement (1)
(l) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to legality(1)
(m) Not applicable
(n) (i) Consent of Independent Auditors(1)
(ii) Powers of Attorney(2)
(o) Not applicable
(p) Form of Initial Subscription Agreement (2)
(q) Not applicable
(r) (i) Codes of Ethics of the Fund and the Investment Adviser(2)
(ii) Code of Conduct for Chief Executive and Senior Financial
Officers(2)
(1) To be filed by Amendment.
(2) Filed herewith.
Item 25. Marketing Arrangements
Reference is made to Exhibit 2(h) to this Registration Statement to be filed by amendment.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
NYSE listing fee..............................................................
SEC Registration fees.........................................................
Printing/engraving expenses...................................................
Accounting fees...............................................................
Legal fees....................................................................
NASD fee......................................................................
Miscellaneous.................................................................
Total................................................................
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of October [__] , 2003
Number of Record
Title of Class Holders
-------------- ----------------
Common Shares of Beneficial Interest 0
Item 29. Indemnification
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[To Come]
Item 30. Business and Other Connections of Investment Adviser
The Investment Adviser, a limited liability company organized under the laws of the State of New York, acts as investment adviser to the Registrant. The Registrant is fulfilling the requirement of this Item 30 to provide a list of the officers and trustees of the Investment Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the Investment Adviser or those officers and trustees during the past two years, by incorporating by reference the information contained in the Form ADV of the Investment Adviser filed with the commission pursuant to the Investment Advisers Act of 1940 (Commission File No. 801-26202).
Item 31. Location of Accounts and Records
The accounts and records of the Registrant are maintained in part at the office of the Investment Adviser at One Corporate Center, Rye, New York 10580-1422, in part at the offices of the Custodian, State Street Bank and Trust Company, , at the offices of the Fund's Administrator, PFPC, Inc, 3200 Horizon Drive, King of Prussia, Pennsylvania 19406, and in part at the offices of [______________].
Item 32. Management Services
Not applicable.
Item 33. Undertakings
1. Registrant undertakes to suspend the offering of shares until the prospectus is amended, if subsequent to the effective date of this registration statement, its net asset value declines more than ten percent from its net asset value, as of the effective date of the registration statement or its net asset value increases to an amount greater than its net proceeds as stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. Registrant undertakes that, for the purpose of determining any liability under the 1933 Act the information omitted from the form of prospectus filed as part of the Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 497(h) will be deemed to be a part of the Registration Statement as of the time it was declared effective.
Registrant undertakes that, for the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of prospectus will be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
6. Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information constituting Part B of this Registration Statement.
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registrant's Registration Statement has been signed on behalf of the Registrant, in the City of Rye, State of New York, on the 24th day of October, 2003.
THE GABELLI DIVIDEND & INCOME TRUST
By: /s/ Bruce N. Alpert
-----------------------
Bruce N. Alpert
President
By: /s/ Richard C. Sell, Jr.
-----------------------
Richard C. Sell, Jr.
Treasurer
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As required by the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities set forth below on the 24th day of October, 2003.
Name Title
Signature
* Trustee, Chairman and --------------------------------------------- Chief Investment Officer
Mario J. Gabelli
* Trustee
---------------------------------------------
Anthony J. Colavita
* Trustee
---------------------------------------------
James P. Conn
* Trustee
---------------------------------------------
Mario d'Urso
* Trustee
---------------------------------------------
Anthonie C. van Ekris
* Trustee
---------------------------------------------
Frank J. Fahrenkopf, Jr.
* Trustee
---------------------------------------------
Michael J. Melarkey
Trustee
---------------------------------------------
Karl Otto Pohl
* Trustee
---------------------------------------------
Salvatore M. Salibello
Trustee
---------------------------------------------
Edward T. Tokar
* Trustee
---------------------------------------------
Salvatore J. Zizza
/s/ Bruce N. Alpert President
---------------------------------------------
Bruce N. Alpert
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Attorney-in-Fact
* Pursuant to a Power of Attorney.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99(a)(i) Agreement and Declaration of Trust*
EX-99(b) Amended and Restated By-Laws*
EX-99(d) Form of Specimen Common Share Certificate
EX-99(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan
EX-99(g) Investment Advisory Agreement between Registrant and Gabelli
Funds,LLC
EX-99(h) Form of Underwriting Agreement
EX-99(j) Custodian Agreement between Registrant and State Street Bank
and Trust Company*
EX-99(k) Registrar, Transfer Agency and Service Agreement between
Registrant and Transfer Agent*
EX-99(1) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP*
EX-99(n)(i) Consent of Independent Auditors*
EX-99(n)(ii) Powers of Attorney
EX-99(p) Form of Initial Subscription Agreement
EX-99(r)(i) Code of Ethics
EX-99(r)(ii) Code of Conduct for Chief Executive and Senior Financial
Officers
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*To be filed by amendment.
Exhibit 99(d)
COMMON SHARES Shares
OF BENEFICIAL INTEREST
Number PAR VALUE $.001
ORGANIZED UNDER THE LAWS
OF THE STATE OF DELAWARE
The Shares represented by this certificate may not be owned THIS CERTIFICATE
or transfe directly or indirectly, by or to (I) the United IS TRANSFERABLE
States, or any state or subdivision thereof, any foreign
government, any international organization, or any agency or
instrumentality of any of the foregoing, (II) any
organization (other than a farmer's cooperative described in
ss. 521 of the Internal Code of 1988, as amended (the
"Code")) that is exempt from the tax imposed by 28 U.S.C. CUSIP
ss.ss. 1-1399 and not subject to the tax imposed by 28 SEE REVERSE FOR CERTAIN DEFINITIONS
U.S.C. ss. 511; or (III) any rural electric or telephone
cooperative described in ss. 1381(A)(2)(C) of the Code.
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The Gabelli Dividend & Income Trust
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE COMMON SHARES OF BENEFICIAL INTEREST OF
The Gabelli Dividend & Income Trust, transferable on the books of the Trust by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all of the provisions of the Trust, as amended from time to time, to all of which the holder by acceptance hereof assents. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile signatures of the duly authorized officers of the Trust.
DATED:
COUNTERSIGNED AND REGISTERED:
[ ].
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE SECRETARY PRESIDENT
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The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT--....................Custodian..............
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right
of survivorship and not as Act................
tenants in common (State)
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Additional abbreviations may also be used though not in the above list.
For Value Received _______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________Common Shares of Beneficial Interest represented by the within Certificate and do hereby irrevocably constitute and appoint
________________________Attorney to transfer the said shares on the books of the within- named Trust, with full power of substitution in the premises.
Dated________________
X_________________________________________
X_________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
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Signature(s) Guaranteed
By ________________________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
Exhibit 99(e)
Terms and Conditions of Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
1. Each shareholder (a "Shareholder") holding shares of common stock ("Shares") of The Gabelli Dividend & Income Trust (the "Fund") will automatically be a participant in the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan (the "Plan"), unless the Shareholder specifically elects to receive all dividends and capital gains in cash paid by check mailed directly to the Shareholder (or sent to the Shareholder's bank account) by State Street Bank and Trust Company as agent under the Plan (the "Agent"). The Agent will open an account for each Shareholder under the Plan in the same name in which such Shareholder's shares of Common Stock are registered.
2. Whenever the Fund declares a capital gains distribution or an income dividend payable in Shares or cash, participating Shareholders will take the distribution or dividend entirely in Shares and the Agent will automatically receive the Shares, including fractions, for the Shareholder's account. The process is as follows:
Whenever the market price per Share is equal to or exceeds the net asset value at the time Shares are valued for the purpose of determining the number of Shares equivalent to the cash dividend or capital gains distribution (the "Valuation Date"), participants will be issued Shares at the greater of (i) net asset value or (ii) 95% of the then current market price of the Shares. The Valuation Date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next trading day. If the net asset value of the Shares on the Valuation Date exceeds the market price of the Shares at that time, participants will receive shares from the Fund valued at market price.
If the Fund should declare a dividend or capital gains distribution payable only in cash, the Agent will, as purchasing agent for the participants, buy Shares in the open market, on the New York Stock Exchange (the "exchange") or elsewhere, for the participants' accounts after the payment date, except that the Agent will endeavor to terminate purchases in the open market and cause the Fund to issue the remaining Shares if, following the commencement of the purchases, the market value of the Shares exceeds that day's closing net asset value. These remaining shares will be issued by the Fund at a price equal to the greater of (i) net asset value or (ii) 95% of the then current market price.
In a case where the Agent has terminated open market purchases and caused the issuance of remaining Shares by the Fund, the number of shares received by the participant in respect of the cash dividend or distribution will be based on the weighted average of prices paid for Shares purchased in the open market and the price at which the Fund issues remaining Shares. To the extent that the Agent is unable to terminate purchases in the open market before the Agent has completed its purchases, or remaining Shares cannot be issued by the Fund because the Fund declared a dividend or distribution payable only in cash, and the market price exceeds the net asset value of the Shares, the average Share purchase price paid by the Agent may exceed the net asset value of the Shares, resulting in the acquisition of fewer Shares than if the dividend or capital gains distribution had been paid in Shares issued by the Fund.
The Agent will apply all cash received as a dividend or capital gains distribution to purchase shares of common stock on the open market as soon as practicable after the payment date of the dividend or capital gains distribution, but in no event later than 45 days after that date, except when necessary to comply with applicable provisions of the federal securities laws.
3. For all purposes of the Plan: (a) the market price of Fund Shares on a particular date shall be the last sale price on the Exchange on that date or, if no sale occurred on the Exchange on that date, then the mean between the closing bid and asked quotations for the Shares on the Exchange on such date and (b) net asset value per share on a particular date shall be as determined by or on behalf of the Fund.
4. The open-market purchases provided for above may be made on any securities exchange on which the Shares of the Fund are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Agent shall determine. Funds held by the Agent uninvested will not bear interest, and it is understood that, in any event, the Agent shall have no liability in connection with any inability to purchase Shares within 45 days after the initial date of such purchase as herein provided, or with the timing of any purchases effected. The Agent shall have no responsibility as to the value of the Shares of the Fund acquired for the Shareholder's account.
5. The Agent will hold Shares acquired pursuant to the Plan in non-certificated form in the Agent's name or that of its nominee. The Agent will forward to the Shareholder any proxy solicitation material and will vote any Shares so held for the Shareholder only in accordance with the proxy returned by her or him to the Fund. Upon the Shareholder's written request, the Agent will deliver to her or him, without charge, a certificate or certificates for the full Shares.
6. The Agent will confirm to the Shareholder each acquisition made for her or his account as soon as practicable but not later than 60 days after the date thereof. Although the Shareholder may from time to time have an individual fractional interest (computed to four decimal places) in a Share of the Fund, no certificates for a fractional Share will be issued. However, dividends and distributions on fractional Shares will be credited to the Shareholder's account. In the event of a termination of a Shareholder's account under the Plan, the Agent will adjust for any such undivided fractional interest in cash at the opening market value of the Shares at the time of termination.
7. Any stock dividends or split Shares distributed by the Fund on Shares held by The Agent for the Shareholder will be credited to the Shareholder's account. In the event that the Fund makes available to the Shareholder rights to purchase additional Shares or other securities, the Shares held for a Shareholder under the Plan will be added to other shares held by the Shareholder in calculating the number of rights to be issued to such Shareholder.
8. The Agent's service fee for handling capital gains distributions or income dividends will be paid by the Fund. The Shareholder will be charged a pro rata share of brokerage commissions on all open market purchases.
9. A Shareholder wishing to terminate her or his account under the Plan may do so by written or telephone notification to the Agent of such intent. If such notice is received by the Agent less than 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 the Shareholder's account except that any shares to be received pursuant to the reinvestment of dividends or distributions shall be terminated on the first trading day after such shares have been credited to the Shareholder's account. Upon any termination the Agent will cause a certificate or certificates for the full Shares held for the Shareholder under the Plan and cash adjustment for any fraction to be delivered to her or him. If, the Shareholder elects by notice to the Agent in writing in advance of such termination to have the Agent sell part or all of her or his shares and remit the proceeds to her or him, the Agent is authorized to deduct $2.50 per transaction plus brokerage commissions for this transaction from the proceeds.
10. Shareholders have the option of sending additional funds, two times per month, in any amount from $250 to $10,000, for the purchase on the open market of shares of the common stock of the Fund for Shareholder's accounts. Voluntary payments will be invested on or shortly after the 1st or the 15th of each month, and in no event more than 45 days after such dates except where temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of federal securities law. Funds not received at least five business days before the investment date will be held for investment on the next investment date. Shareholders may withdraw their entire voluntary cash payment by written notice not less that 48 hours before such payment is to be invested.
11. Investments of voluntary cash payments and other open market purchases provided for above may be made on any securities exchange where the Fund's common stock is traded, in the over-the-counter market or in negotiated transactions and may be on such terms as to price, delivery and otherwise as the Agent shall determine. Funds held by the Agent uninvested will not bear interest, and it is understood that, in any event, the Agent shall have no liability in connection with any inability to purchase shares within 45 days after the initial date of such purchase as herein provided, or with the timing of any Purchases effected. The Agent shall have no responsibility as to the value of the common stock of the Fund acquired for the Shareholders' account. For the Purposes of cash investments the Agent may commingle Shareholder funds with those of other Shareholders of the Fund for whom the Agent also acts as Agent, and the average price (including brokerage commissions) of all shares purchased by the Agent shall be the price per share allocable to the Shareholder in connection therewith. The cost per transaction is $0.75.
12. The Agent may hold Shareholder's shares acquired pursuant to Shareholder authorization, together with the shares of other Shareholders of the Fund acquired pursuant to similar authorization, in non-certificated form in the name of the Agent or that of the Agent's nominee. The Agent will forward to each Shareholder any proxy solicitation material and will vote any shares held for the Shareholder only in accordance with the proxy returned by the Shareholder to the Fund. Upon written request the Agent will deliver to the Shareholder, without charge, a certificate or certificates for the full shares.
13. These terms and conditions may be amended or supplemented by the Agent or the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to the Shareholder appropriate written notice at least 90 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by the Shareholder unless, prior to the effective date thereof, the Agent receives written notice of the termination of the Shareholder account under the Plan. Any such amendment may include an appointment by the Fund of a successor agent in its place and stead under these terms and conditions, with full power and authority to perform all or any of the acts to be performed by the Agent. Upon any such appointment of an Agent for the purpose of receiving dividends and distributions, the Fund will be authorized to pay to such successor Agent, for Shareholders' accounts, all dividends and distributions payable on Shares held in the Shareholders' name or under the Plan for retention or application by such successor Agent as provided in these terms and conditions.
14. In the case of Shareholders, such as banks, brokers or nominees, which hold Shares for others who are the beneficial owners, the Agent will administer the Plan on the basis of the number of Shares certified from time to time by the Shareholders as representing the total amount registered in the Shareholder's name and held for the account of beneficial owners who are to participate in the Plan.
15. The Agent shall at all times act in good faith and agree to use its best efforts within reasonable limits to insure the accuracy of all services performed under this agreement and to comply with applicable law, but assumes no responsibility and shall not be liable for loss or damage due to errors unless the errors are caused by its negligence, bad faith or willful misconduct or that of its employees.
Exhibit 99(g)
INVESTMENT ADVISORY AGREEMENT
_____________, 2003
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580-1434
Dear Sir:
The Gabelli Dividend & Income Trust (the "Fund"), a statutory trust organized under the laws of the state of Delaware, confirms its investment advisory agreement with Gabelli Funds, LLC (the "Adviser"), as follows:
The Fund desires to employ its capital by investing and reinvesting in investments of the kind and in accordance with the limitations specified in its Agreement and Declaration of Trust, as amended from time to time (the "Declaration of Trust"), and in its Registration Statement on Form N-2 under the Investment Company Act of 1940, as amended (the "1940 Act") as from time to time in effect (the "Registration Statement") and in such manner and to such extent as may from time to time be approved by the Fund's Board of Trustees. Copies of the Declaration of Trust and the Registration Statement have been submitted to the Adviser. The Fund desires to employ and hereby appoints the Adviser to act as its investment Adviser and to oversee the administration of all aspects of the Fund's business and affairs and provide, or arrange for others whom it believes to be competent to provide, certain services as specified in subparagraph (b) below. The Adviser accepts the appointment and agrees to furnish the services set forth below for the compensation set forth below. Nothing contained herein shall be construed to restrict the Fund's right to hire its own employees or to contract for administrative services to be performed by third parties, including but not limited to, the calculation of the net asset value of the Fund's shares.
(a) Investment Advice. Subject to the direction and control of the Fund's Board of Trustees, the Adviser will (i) act in strict conformity with the Declaration of Trust, the 1940 Act and the Investment Advisers Act of 1940, as the same may from time to time be amended, (ii) manage the Fund's assets in accordance with the Fund's investment objective and policies as stated in the Registration Statement, (iii) make investment decisions for the Fund and (iv) place purchase and sale orders on behalf of the Fund. In rendering those services, the Adviser will provide investment research and supervision of the Fund's investments and conduct a continual program of investment, evaluation and, if appropriate, sale and reinvestment of the Fund's assets. In addition, the Adviser will furnish the Fund with whatever statistical information the Fund may reasonably request with respect to the securities that the Fund may hold or contemplate purchasing.
(b) Administration. The specific services to be provided or arranged for by the Adviser for the Fund are (i) maintaining the Fund's books and records, such as journals, ledger accounts and other records in accordance with application laws and regulations to the extent not maintained by the Fund's custodian, transfer agent or dividend disbursing agent; (ii) initiating all money transfers to the Fund's custodian and from the Fund's custodian for the payment of the Fund's expenses, investments, and dividends; (iii) reconciling account information and balances among the Fund's custodian, transfer agent, dividend disbursing agent and the Adviser; (iv) providing the Fund, upon request, with such office space and facilities, utilities and office equipment as are adequate for the Fund's needs; (v) preparing, but not paying for, all reports by the Fund to its shareholders and all reports and filings required to maintain registration and qualification of the Fund's shares under federal and state law including the updating of the Fund's Registration Statement, when necessary; (vi) supervising the calculation of net asset value of the Fund's shares; and (vii) preparing notices and agendas for meetings of the Fund's shareholders and the Fund's Board of Trustees as well as minutes of such meetings in all matters required by applicable law to be acted upon by the Board of Trustees.
In executing transactions for the Fund and selecting brokers or dealers, the Adviser will use its best efforts to seek the best overall terms available. In assessing the best overall terms available for any transaction on behalf of the Fund, the Adviser will consider all factors it deems relevant including, but not limited to, the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of any commission for the specific transaction and on a continuing basis. In selecting brokers or dealers to execute a particular transaction and in evaluating the best overall terms available, the Adviser may consider the brokerage and research services provided to the Fund and/or other accounts over which the Adviser or an affiliate of the Adviser exercises investment discretion.
The Adviser will keep the Fund informed of developments materially affecting the Fund, and will, on its own initiative, furnish the Fund from time to time with whatever information the Adviser believes is appropriate for this purpose.
The Adviser shall exercise its best judgment in rendering the services described in paragraphs 2 and 3 above. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters of which this Agreement relates, provided that nothing in this paragraph shall be deemed to protect or purport to protect the Adviser against any liability to the Fund or to its shareholders to which the Adviser would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or by reason of the Adviser's reckless disregard of its obligations and duties under this Agreement.
In consideration of the services rendered pursuant to this Agreement, the Fund will pay the Adviser, on the first business day of each month, a fee for the previous month at an annual rate equal to 1.00% of the Fund's average weekly net assets. Upon any termination of this Agreement before the end of a month, the fee for such part of that month shall be prorated according to the proportion that such period bears to the full monthly period and shall be payable upon the date of termination of this Agreement. For the purpose of determining fees payable to the Adviser, the value of the Fund's net assets shall be computed at the times and in the manner specified in the Registration Statement.
The Adviser will bear all expenses in connection with the performance of its services under this Agreement. The Fund will bear certain other expenses to be incurred in its operation, including: expenses for legal and independent accountants' services, costs of printing proxies, stock certificates and shareholder reports, charges of the custodian, any sub-custodian and transfer and dividend paying agent, expenses in connection with the Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan, Securities and Exchange Commission fees, fees and expenses of unaffiliated directors, accounting and pricing costs, membership fees in trade associations, fidelity bond coverage for the Fund's officers and employees, directors' and officers' errors and omissions insurance coverage, interest, brokerage costs, taxes, stock exchange listing fees and expenses, all expenses of computing the Fund's net asset value per share, including any equipment or services obtained solely for the purpose of pricing shares or valuing the Fund's investment portfolios, expenses of qualifying the Fund's shares for sale in various states, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Fund.
The Fund understands that the Adviser now acts and will continue to act as investment Adviser to other investment companies and may act in the future as investment Adviser to other investment companies or portfolios, and the Fund has no objection to the Adviser so acting, provided that whenever the Fund and one or more other portfolios of or investment companies advised by the Adviser and its affiliates have available funds for investment, investments suitable and appropriate for each will be allocated in a manner believed to be equitable to each and that whenever the Fund and one or more other portfolios of or investment companies advised by the Adviser and its affiliates desire to dispose of the same assets, such dispositions will be allocated in a manner believed equitable to each. The Fund recognizes that in some cases this procedure may adversely affect the size of the position obtainable for the Fund. In addition, the Fund understands that the Adviser's duties under this Agreement will not devote their full time to such service and nothing contained herein shall be deemed to limit or restrict the right of the Adviser or any affiliate of the Adviser to engage in and devote time and attention to other businesses or to render services of whatever kind of nature.
It is understood and agreed that the word "Gabelli" is the Adviser's property for copyright and other purposes. The Fund further agrees that the word "Gabelli" in its name is derived from the name of Mario J. Gabelli and such name may freely be used by the Adviser of other investment companies, entities or products. The Fund further agrees that, in the event that the Adviser shall cease to act as an investment Adviser to the Fund, the Fund shall promptly take all necessary and appropriate action to change its name to one that does not include the word "Gabelli"; provided, however, that the Fund may continue to use such name if the Adviser consents in writing to such use.
This Agreement shall become effective on the date it is approved by the shareholders of the Fund and shall continue in effect for two years and thereafter shall continue for successive annual periods, provided such continuance is specifically approved at least annually in accordance with the requirements of the 1940 Act. This Agreement is terminable, without penalty, on 60 days' written notice by the Fund's Board of Trustees, by vote of holders of a majority of the Fund's shares, or by the Adviser. This Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act and the rules thereunder).
The Adviser and the Fund may amend this Agreement without shareholder approval so long as such amendment does not materially change the advisory relationship between the Adviser and the Fund.
If the foregoing is in accordance with your understanding, kindly indicate your acceptance of this Agreement by signing and returning the enclosed copy.
Very truly yours,
THE GABELLI DIVIDEND & INCOME FUND
By: ___________________________
Name:
Title:
Agreed to and Accepted:
GABELLI FUNDS, LLC
By: ___________________________
Name:
Title:
Exhibit 99(h)
FORM OF AGREEMENT
[__]
(a Delaware statutory trust)
[__]Common Shares of Beneficial Interest
(Par Value $.001 Per Share)
PURCHASE AGREEMENT
[__], 2003
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
[__]
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10080
Ladies and Gentlemen:
[__], a Delaware statutory trust (the "Fund"), the Fund's investment adviser, [__], a Delaware corporation ("[__]" the "Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), [__] and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch is acting as representative (in such capacity, the "Representative"), with respect to the issue and sale by the Fund and the purchase by the Underwriters, acting severally and not jointly, of the respective number of common shares of beneficial interest, par value $.001 per share, of the Fund ("Common Shares") set forth in said Schedule A, and with respect to the grant by the Fund to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [__] additional Common Shares to cover over-allotments, if any. The aforesaid [__] Common Shares (the "Initial Securities") to be purchased by the Underwriters and all or any part of the [__] Common Shares subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities."
The Fund understands that the Underwriters propose to make a public offering of the Securities as soon as the Representative deems advisable after this Agreement has been executed and delivered.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. [__]and No. [__])
covering the registration of the Securities under the Securities Act of 1933,
as amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses, and a notification on Form N-8A of registration of the Fund as
an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules and regulations of the Commission under the
1933 Act and the 1940 Act (the "Rules and Regulations"). Promptly after
execution and delivery of this Agreement, the Fund will either (i) prepare and
file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A")
of the Rules and Regulations and paragraph (c) or (h) of Rule 497 ("Rule 497")
of the Rules and Regulations or (ii) if the Fund has elected to rely upon Rule
434 ("Rule 434") of the Rules and Regulations, prepare and file a term sheet
(a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 497.
The information included in any such prospectus or in any such Term Sheet, as
the case may be, that was omitted from such registration statement at the time
it became effective but that is deemed to be part of such registration
statement at the time it became effective, if applicable, (a) pursuant to
paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b)
pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434
Information." Each prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such
effectiveness and prior to the execution and delivery of this Agreement,
including in each case any statement of additional information incorporated
therein by reference, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and schedules thereto
at the time it became effective and including the Rule 430A Information and
the Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
Rules and Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the
form first furnished to the Underwriters for use in connection with the
offering of the Securities, including the statement of additional information
incorporated therein by reference, is herein called the "Prospectus." If Rule
434 is relied on, the term "Prospectus" shall refer to the preliminary
prospectus dated [__], 2003 together with the Term Sheet and all references in
this Agreement to the date of the Prospectus shall mean the date of the Term
Sheet. For purposes of this Agreement, all references to the Registration
Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be.
SECTION 1 Representations and Warranties.
(a) Representations and Warranties by the Fund and the Adviser. The
Fund and the Adviser jointly and severally represent and warrant to each
Underwriter as of the date hereof, as of the Closing Time referred to in
Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in
Section 2(b) hereof, and agree with each Underwriter, as follows:
(i) Compliance With Registration Requirements. Each Prepricing Prospectus included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 497 of the 1933 Act Rules and Regulations, complied when so filed in all material respects with the provisions of the 1933 Act, the 1940 Act and the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus.
The Registration Statement in the form in which it became or becomes effective and also in such form as it may be when any post effective amendment thereto shall become effective and the Prospectus and any amendment or supplement thereto when filed with the Commission under Rule 497 of the 1933 Act Rules and Regulations and the 1940 Act Notification when originally filed with the Commission and any amendment or supplement thereto when filed with the Commission, complied or will comply in all material respects with the provisions of the 1933 Act, the 1940 Act and the Rules and Regulations and did not or will not at any such times contain an 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, except that this representation and warranty does not apply to statements in or omissions from the Registration Statement or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Fund in writing by or on behalf of any Underwriter through you expressly for use therein.
The Fund has filed in a timely manner each document or report required to be filed by it pursuant to the 1934 Act and the rules and regulations of Commission promulgated thereunder (the "1934 Act Rules and Regulations"); each such document or report at the time it was filed conformed to the requirements of the 1934 Act and the 1934 Act Rules and Regulations; and none of such documents or reports contained an untrue statement of any material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading.
The Fund, subject to the Registration Statement having been declared effective and the filing of the Prospectus under Rule 497 under the Rules and Regulations, has taken all required action under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Common Shares as contemplated by this Agreement.
(ii) Independent Accountants. The accountants,
[PricewaterhouseCoopers LLP], who have audited and certified or shall
audit and certify the financial statements included or incorporated
by reference in the Registration Statement and the Prospectus (or any
amendment or supplement to either of them) are independent public
accountants as required by the 1933 Act, the 1940 Act and the Rules
and Regulations.
(iii) Financial Statements. The financial statements, together with related schedules and notes, included or incorporated by reference in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), present fairly the financial position, results of operations and changes in financial position of the Fund on the basis stated or incorporated by reference in the Registration Statement and the Prospectus at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included in the Registration Statement and the Prospectus (and any amendment or supplement to either of them) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Fund.
(iv) Expense Summary. The information set forth in the Prospectus in the Fee Table has been prepared in accordance with the requirements of Form N-2 and to the extent estimated or projected, such estimates or projections are reasonably believed to be attainable and reasonably based.
(v) No Material Adverse Change. Except as disclosed in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), the Fund has not incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Fund, and there has not been any change in the capital stock, or material increase in the short term debt or long term debt, of the Fund, or any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund, whether or not arising in the ordinary course of business.
(vi) Good Standing of the Fund. The Fund is a statutory trust duly organized and validly existing in good standing under the laws of the State of Delaware, with full trust power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify does not have a material adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Fund.
(vii) No Subsidiaries. The Fund has no subsidiaries.
(viii) Investment Company Status. The Fund is duly registered under the 1940 Act as a closed-end non-diversified management investment company and the 1940 Act Notification has been duly filed with the Commission and, at the time of filing thereof and any amendment or supplement thereto, conformed in all material respects with all applicable provisions of the 1940 Act and the Rules and Regulations. The Fund is, and at all times through the completion of the transactions contemplated hereby, will be, in compliance in all material respects with the terms and conditions of the 1933 Act and the 1940 Act.
(ix) Officers and Trustees. To the best knowledge of each of the Fund and the Adviser, no person is serving as an officer, trustee or investment adviser of the Fund except in accordance with the 1940 Act and the 1940 Act Rules and Regulations and the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and the rules and regulations of the Commission promulgated under the Advisers Act (the "Advisers Act Rules and Regulations"). Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), no trustee of the Fund is an "interested person" (as defined in the 1940 Act) of the Fund or an "affiliated person" (as defined in the 1940 Act) of any Underwriter. No person is serving or acting as an officer, trustee or investment adviser of the Fund except in accordance with the provisions of the 1940 Act and the 1940 Act Rules and Regulations and the Advisers Act and the Advisers Act Rules and Regulations.
(x) Capitalization and Authorization of Securities. All the outstanding shares of capital stock of the Fund have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Common Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights and will conform to the description thereof in the Registration Statement and the Prospectus (and any amendment or supplement to either of them). The capital stock of the Fund conforms to the description thereof in the Registration Statement and the Prospectus (and any amendment or supplement to either of them).
(xi) Compliance With Governing Documents and Law. The Fund is not in violation of its Agreement and Declaration of Trust or by-laws, or other organizational documents, or of any law, ordinance, administrative or governmental rule or regulation applicable to the Fund or of any decree of the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court or governmental agency, body or official having jurisdiction over the Fund, or in default in any material respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any contract required to be included as an exhibit to the Registration Statement (each, a "Material Fund Agreement").
(xii) Absence of Proceedings. There are no legal or governmental proceedings pending or threatened, against the Fund, or to which the Fund or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus (and any amendment or supplement to either of them) but are not described as required, and there are no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (and any amendment or supplement to either of them) or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the 1933 Act, the 1940 Act or the Rules and Regulations.
(xiii) Possession of Intellectual Property. The conduct by the Fund of its business (as described in the Prospectus) does not require it to be the owner, possessor or licensee of any patents, patent licenses, trademarks, service marks or trade names which it does not own, possess or license.
(xiv) Absence of Further Requirements. Neither the issuance and sale of the Common Shares, the execution, delivery or performance of this Agreement or any of the Investment Advisory Agreement, the Custodian Agreement and the Transfer Agency Agreement (the "Fund Agreements") by the Fund, nor the consummation by the Fund of the transactions contemplated hereby or thereby (A) requires any consent, approval, authorization or other order of or registration or filing with, the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may have been obtained prior to the date hereof and such as may be required for compliance with the state securities or blue sky laws of various jurisdictions which have been or will be effected in accordance with this Agreement) or conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the Agreement and Declaration of Trust, including the Statement of Preferences, or by-laws, or other organizational documents, of the Fund or (B) conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, any agreement, indenture, lease or other instrument to which the Fund is a party or by which it or any of its properties may be bound, or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Fund or any of its properties, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of its property or assets is subject. The Fund is not subject to any order of any court or of any arbitrator, governmental authority or administrative agency.
(xv) Advertisements. All advertising, sales literature or other promotional material (including "prospectus wrappers," "broker kits," "road show slides" and "road show scripts"), whether in printed or electronic form, authorized in writing by or prepared by the Fund or the Adviser for use in connection with the offering and sale of the Common Shares (collectively, "sales material") complied and comply in all material respects with the applicable requirements of the 1933 Act, the 1940 Act, the Rules and Regulations and the rules and interpretations of the NASD and no such sales material contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(xvi) Subchapter M. At all times since its inception, as required by Subchapter M of the Code, the Fund has complied with the requirements to qualify as a regulated investment company under the Code.
(xvii) Distribution of Offering Materials. The Fund has not distributed and, prior to the later to occur of (A) the Closing Date and (B) completion of the distribution of the Common Shares, will not distribute any offering material in connection with the offering and sale of the Common Shares other than the Registration Statement, the Prepricing Prospectus, the Prospectus or other materials, if any, permitted by the 1933 Act, the 1940 Act or the Rules and Regulations.
(xviii) Accounting Controls. The Fund maintains and will maintain a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization and with the investment policies and restrictions of the Fund and with the applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and the Internal Revenue Code of 1986, as amended (the "Code"); (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles, to calculate net asset value, and to maintain accountability for assets and to maintain compliance with the books and records requirements under the 1940 Act and the 1940 Act Rules and Regulations; (C) access to assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
(xix) Absence of Undisclosed Payments. To the Fund's knowledge, except as disclosed in the Prospectus, neither the Fund nor any employee or agent of the Fund has made any payment of funds of the Fund or received or retained any funds, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus.
(xx) Material Agreements. The execution and delivery of, and the performance by the Fund of its obligations under, this Agreement and the Fund Agreements have been duly and validly authorized by the Fund, and this Agreement and the Fund Agreements have been duly executed and delivered by the Fund and constitute the valid and legally binding agreements of the Fund, enforceable against the Fund in accordance with their terms, except as rights to indemnity and contribution hereunder and thereunder may be limited by federal or state securities laws. Each of the Fund Agreements and the Fund's and the Adviser's obligations under this Agreement and each of the Fund Agreements comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act the Advisers Act Rules and Regulations.
(xxi) Registration Rights. No holder of any security of the Fund has any right to require registration of any shares of capital stock or any other security of the Fund because of the filing of the Registration Statement or consummation of the transactions contemplated by this Agreement.
(xxii) NYSE Listing. The Securities have been duly authorized for listing, upon notice of issuance, on the New York Stock Exchange ("NYSE") and the Fund's registration statement on Form 8-A under the 1934 Act been filed.
(xxiii) Taxes. The Fund has filed all tax returns required to be filed, which returns are complete and correct, and the Fund is not in material default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto.
(xxiv) Market Stabilization Activities. Except as stated in this Agreement and in the Prospectus (and any amendment or supplement thereto), the Fund has not taken, nor will it take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any securities issued by the Fund to facilitate the sale or resale of the Common Shares, and the Fund is not aware of any such action taken or to be taken by any affiliates of the Fund.
(b) Representations and Warranties by the Adviser. The Adviser represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof as follows:
(i) Good Standing of the Adviser. The Adviser is a limited liability company duly organized and validly existing in good standing under the laws of the State of New York, with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or to qualify does not have a material adverse effect on the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser and its subsidiaries, taken as a whole, or on the ability of the Adviser to perform its obligations under this Agreement and the Investment Advisory Agreement.
(ii) Adviser Status. The Adviser is duly registered with the Commission as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the Advisers Act Rules and Regulations, the 1940 Act or the 1940 Act Rules and Regulations from acting under the Investment Advisory Agreement for the Fund as contemplated by the Prospectus (or any amendment or supplement thereto). There does not exist any proceeding or any facts or circumstances the existence of which could lead to any proceeding which might adversely affect the registration of the Adviser with the Commission.
(iii) Description of the Adviser. The description of the Adviser in the Registration Statement and the Prospectus (and any amendment or supplement thereto) complied and comply in all material respects with the provisions the 1933 Act, the 1940 Act, the Advisers Act, the Rules and Regulations and the Advisers Act Rules and Regulations and did not and will not contain an 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, in light of the circumstances under which they were made, not misleading.
(iv) Capitalization. The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Prospectus (or any amendment or supplement thereto) and under this Agreement and the Investment Advisory Agreement.
(v) Authorization. The execution and delivery of, and the performance by the Adviser of its obligations under, this Agreement and the Investment Advisory Agreement have been duly and validly authorized by the Adviser, and this Agreement and the Investment Advisory Agreement have been duly executed and delivered by the Adviser and each constitutes the valid and legally binding agreement of the Adviser, enforceable against the Adviser in accordance with its terms except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws.
(vi) Absence of Proceedings. There are no legal or governmental proceedings pending or, to the knowledge of the Adviser, threatened against the Adviser, or to which the Adviser or any of its properties is subject, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them) but are not described as required or that may reasonably be expected to involve a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser and its subsidiaries, taken as a whole, or on the ability of the Adviser to perform its obligations under this Agreement and the Investment Advisory Agreement.
(vii) Absence of Violation or Default. The Adviser is not in violation of its articles of organization, by-laws or other organizational documents or in default under any agreement, indenture or instrument, where such violation or default would reasonably be expected to have a material adverse effect on the ability of the Adviser to function as an investment adviser or perform its obligations under the Investment Advisory Agreement.
(viii) Absence of Required Approvals and Conflicts. Neither the execution, delivery or performance of this Agreement or the Investment Advisory Agreement by the Adviser, nor the consummation by the Adviser of the transactions contemplated hereby or thereby (A) requires the Adviser to obtain any consent, approval, authorization or other order of or registration or filing with, the Commission, the NASD, any state securities commission, any national securities exchange, any arbitrator, any court, regulatory body, administrative agency or other governmental body, agency or official or conflicts or will conflict with or constitutes or will constitute a breach of or a default under the certificate of incorporation or by-laws, or other organizational documents of the Adviser or (B) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any agreement, indenture, lease or other instrument to which the Adviser is a party or by which it or any of its properties may be bound, or violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Adviser or any of its properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser pursuant to the terms of any agreement or instrument to which it is a party or by which it may be bound or to which any of the property or assets of the Adviser is subject. The Adviser is not subject to any order of any court or of any arbitrator, governmental authority or administrative agency except for (1) an Order of the Securities and Exchange Commission, dated August 17, 1988 and (2) an Order of the Federal Communications Commission, dated August 21, 1992.
(ix) Absence of Undisclosed Liabilities. Except as disclosed in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), subsequent to the respective dates as of which such information is given in the Registration Statement and the Prospectus (or any amendment or supplement to either of them), the Adviser has not incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Adviser and its subsidiaries, taken as a whole, and that is required to be disclosed in the Registration Statement or in the Prospectus and there has not been any material adverse change, or any development involving or which may reasonably be expected to involve, a prospective material adverse change, in the condition (financial or other), business, prospects, properties, net assets or results of operations of the Adviser and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business, or which, in each case, may reasonably be expected to have a material adverse effect on the ability of the Adviser to perform its obligations under this Agreement and the Investment Advisory Agreement.
(x) Permits and Licenses. The Adviser has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits") as are necessary to own its properties and to conduct its business in the manner described in the Prospectus (and any amendment or supplement thereto); the Adviser has fulfilled and performed all its material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Adviser under any such permit; and, except as described in the Prospectus (and any amendment or supplement thereto), none of such permits contains any restriction that is materially burdensome to the Adviser.
(xi) Market Stabilization Activities. Except as stated in this Agreement and in the Prospectus (and in any amendment or supplement thereto), the Adviser has not taken, nor will it take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities issued by the Fund to facilitate the sale or resale of the Common Shares, and the Adviser is not aware of any such action taken or to be taken by any affiliates of the Adviser; it being understood that the Underwriters include certain affiliates of the Adviser and that stabilization or other activity by you shall not be deemed to be violative of this representation.
(xii) Key Personnel. Mario J. Gabelli is the validly appointed Chief Investment Officer of the Adviser and the portfolio manager of the Fund; Mr. Gabelli has not given notice nor made known an intention to give notice of termination of his employment and the Adviser knows of no reason why Mr. Gabelli should be unable to serve as portfolio manager to the Fund.
(xiii) Control of Electronic Information. In the event that the Fund or the Adviser makes available any promotional materials intended for use only by qualified broker dealers and registered representatives thereof by means of a proprietary Internet web site administered by such party or similar electronic means, the Fund or the Adviser will install and maintain pre-qualification and password protection or similar procedures which are reasonably designed to restrict access to such promotional materials by persons other than qualified broker dealers and representatives thereof.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Fund, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Fund hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
[__]Common Shares in the aggregate at the price per share set forth in
Schedule B, less an amount per share equal to any dividends or distributions
declared by the Fund and payable on the Initial Securities but not payable on
the Option Securities. The option hereby granted will expire 45 days after the
date hereof and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial Securities upon notice by
the Representative to the Fund setting forth the number of Option Securities
as to which the several Underwriters are then exercising the option and the
time and date of payment and delivery for such Option Securities. Any such
time and date of delivery (a "Date of Delivery") shall be determined by the
Representative, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial Securities set
forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as
Merrill Lynch in its discretion shall make to eliminate any sales or purchases
of a fractional number of Option Securities.
(c) Payment. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 4 Times Square, New York, New York 10036, or at such other place as shall be agreed upon by the Representative and the Fund, at [__](Eastern time) on the third (fourth, if the pricing occurs after [__]. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representative and the Fund (such time and date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representative and the Fund, on each Date of Delivery as specified in the notice from the Representative to the Fund.
Payment shall be made to the Fund by wire transfer of immediately available funds to a bank account designated by the Fund, against delivery to the Representative for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representative, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Representative may request in writing at
least one full business day before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representative in the City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants.
(a) The Fund and the Adviser, jointly and severally, covenant with each Underwriter as follows:
(i) Compliance with Securities Regulations and Commission
Requests. The Fund, subject to Section 3(a)(ii), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representative immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectus or any
amended Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of
the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Fund will promptly effect
the filings necessary pursuant to Rule 497 and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 497 was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Fund will make every reasonable
effort to prevent the issuance of any stop order, or order of
suspension or revocation of registration pursuant to Section 8(e) of
the 1940 Act, and, if any such stop order or order of suspension or
revocation of registration is issued, to obtain the lifting thereof
at the earliest possible moment.
(ii) Filing of Amendments. The Fund will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, will furnish the Representative with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriters shall object.
(iii) Delivery of Registration Statements. The Fund has furnished or will deliver to the Representative and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representative, without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment 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.
(iv) Delivery of Prospectuses. The Fund has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Fund hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Fund will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The 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.
(v) Continued Compliance with Securities Laws. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Fund, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the Rules and Regulations, the Fund will promptly prepare and file with the Commission, subject to Section 3(a)(ii), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Fund will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request.
(vi) Blue Sky Qualifications. The Fund will use its best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representative 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 and any Rule 462(b) 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 corporation 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 and any Rule 462(b) Registration Statement.
(vii) Rule 158. The Fund will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(viii) Use of Proceeds. The Fund will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds".
(ix) Listing. The Fund will use its reasonable best efforts to effect the listing of the Securities on the NYSE, subject to notice of issuance, concurrently with the effectiveness of the Registration Statement.
(x) Restriction on Sale of Securities. During a period of 180 days from the date of the Prospectus, the Fund will not, without the prior written consent of Merrill Lynch, (A) directly or indirectly, 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 or otherwise transfer or dispose of Common Shares or any securities convertible into or exercisable or exchangeable for Common Shares or file any registration statement under the 1933 Act with respect to any of the foregoing or (B) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Shares, whether any such swap or transaction described in clause (A) or (B) above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (1) the Securities to be sold hereunder or (2) Common Shares issued pursuant to any dividend reinvestment plan.
(xi) Reporting Requirements. The Fund, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1940 Act and the 1934 Act within the time periods required by the 1940 Act and the Rules and Regulations and the 1934 Act and the rules and regulations of the Commission thereunder, respectively.
(xii) Subchapter M. The Fund will comply with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.
(xiii) No Manipulation of Market for Securities. The Fund
will not (a) take, directly or indirectly, any action designed to
cause or to result in, or that might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Fund to facilitate the sale or resale of the
Securities, and (b) until the Closing Date, or the Date of Delivery,
if any, (i) sell, bid for or purchase the Securities or pay any
person any compensation for soliciting purchases of the Securities or
(ii) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Fund .
(xiv) Rule 462(b) Registration Statement. If the Fund elects to rely upon Rule 462(b), the Fund shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Fund shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b) Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 111(b) under the 1933 Act.
SECTION 4. Payment of Expenses.
(a) Expenses. The Fund will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Fund's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(a)(vi) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the NASD of the terms of the sale of the Securities, (x) the fees and expenses incurred in connection with the listing of the Securities on the NYSE and (xi) the printing of any sales material. Also, the Fund shall pay to Merrill Lynch, on behalf of the Underwriters, $[__] per share of the securities purchased pursuant to this agreement as partial reimbursement of expenses incurred in connection with the offering. The Adviser has agreed to pay organizational expenses and offering costs of the Fund (other than sales load, but including the partial reimbursement of expenses described in the preceding sentence) that exceed $[__] per Common Share.
(b) Termination of Agreement. If this Agreement is terminated by the Representative in accordance with the provisions of Section 5 or Section 9(a) hereof, the Fund and the Adviser, jointly and severally, agree that they shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations.
The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Fund and the Adviser contained in Section 1 hereof or in certificates of any officer of the Fund or the Adviser delivered pursuant to the provisions hereof, to the performance by the Fund and the Adviser of their respective covenants and other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act, no notice or order pursuant to Section 8(e) of the 1940 Act shall have been issued, and no proceedings with respect to either shall have been initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 497 (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Fund has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 497.
(b) Opinion of Counsel for Fund and the Adviser. At Closing Time, the Representative shall have received the favorable opinions, dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Fund and the Adviser, and James McKee, counsel for the Fund, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letters for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel to the Underwriters may reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time, the Representative shall have received the favorable opinion, dated as of Closing Time, of Clifford Chance US LLP, 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. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York and the federal law of the United States, upon the opinions of counsel satisfactory to the Representative. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Fund and certificates of public officials.
(d) Officers' Certificates. At Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business, and the Representative shall have received a certificate of a duly authorized officer of the Fund and of the chief financial or chief accounting officer of the Fund and of the President or a Vice President or Managing Director of each of the Adviser, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Sections 1(a) and (b) hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) each of the Fund and the Adviser, respectively, has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement, or order of suspension or revocation of registration pursuant to Section 8(e) of the 1940 Act, has been issued and no proceedings for any such purpose have been instituted or are pending or are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution of this Agreement, the Representative shall have received from [__] a letter dated such date, in form and substance satisfactory to the Representative, together with signed or reproduced copies of such letter for each of the other Underwriters 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 Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the Representative shall have received from [__] a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have been approved for listing on the NYSE, subject only to official notice of issuance.
(h) No Objection. The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.
(i) Execution of Additional Compensation Agreement. At Closing Time, Merrill Lynch shall have received the Additional Compensation Agreement, dated as of the Closing Date, as executed by [__].
(j) Conditions to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Fund contained herein and the statements in any certificates furnished by the Fund hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representative shall have received:
(i) Officers' Certificates. Certificates, dated such Date of Delivery, of a duly authorized officer of the Fund and of the chief financial or chief accounting officer of the Fund and of the President or a Vice President or Managing Director of the Adviser confirming that the information contained in the certificate delivered by each of them at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.
(ii) Opinions of Counsel for the Fund and the Adviser. The favorable opinion of each Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Fund and the Adviser, and James McKee, counsel for the Fund, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for the Underwriters. The favorable opinion of Clifford Chance US LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from
[PricewaterhouseCoopers LLP], in form and substance satisfactory to
the Representative and dated such Date of Delivery, substantially in
the same form and substance as the letter furnished to the
Representative pursuant to Section 5(f) hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of
Delivery.
(k) Additional Documents. At Closing Time and at each Date of Delivery, 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 Securities 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 Securities as herein contemplated shall be satisfactory in form and substance to the Representative and counsel for the Underwriters.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representative by notice to the Fund at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7, 8 and
13 shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Fund and the Adviser, jointly and severally, agree to indemnify and hold harmless each of you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation), joint or several, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, the Prospectus, any Prepricing Prospectus, any sales material (or any amendment or supplement to any of the foregoing), or arising out of or based upon 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, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to such Underwriter furnished in writing to the Fund by or on behalf of any Underwriter through you expressly for use in connection therewith; provided, however, that the indemnification contained in this paragraph (a) with respect to any Prepricing Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) on account of any such loss, claim, damage, liability or expense arising from the sale of the Shares by such Underwriter to any person if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the 1933 Act and the 1933 Act Rules and Regulations, and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such Prepricing Prospectus was corrected in the Prospectus, provided that the Fund has delivered the Prospectus to the several Underwriters in requisite quantity on a timely basis to permit such delivery or sending. The foregoing indemnity agreement shall be in addition to any liability that the Fund or the Adviser may otherwise have.
(b) Procedure. If any action, suit or proceeding shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Fund or the Adviser, such Underwriter or such controlling person shall promptly notify the Fund or the Adviser, and the Fund or the Adviser shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the Fund or the Adviser has agreed in writing to pay such fees and expenses, (ii) the Fund and the Adviser have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both such Underwriter or such controlling person and the Fund or the Adviser and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and the Fund or the Adviser by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the Fund and the Adviser shall not have the right to assume the defense of such action, suit or proceeding on behalf of such Underwriter or such controlling person). It is understood, however, that the Fund and the Adviser shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for all such Underwriters and controlling persons not having actual or potential differing interests with you or among themselves, which firm shall be designated in writing by Merrill Lynch, Pierce, Fenner & Smith Incorporated, and that all such fees and expenses shall be reimbursed as they are incurred. The Fund and the Adviser shall not be liable for any settlement of any such action, suit or proceeding effected without its written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the Fund and the Adviser agree to indemnify and hold harmless any Underwriter, to the extent provided in the preceding paragraph, and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment.
(c) Indemnification of Fund and Adviser by Underwriters. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Fund and the Adviser, their trustees, their directors, any officers who sign the Registration Statement, and any person who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, to the same extent as the foregoing indemnity from the Fund and the Adviser to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such Underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Fund or the Adviser, any of their trustees, their directors, any such officer, or any such controlling person based on the Registration Statement, the Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto, and in respect of which indemnity may be sought against any Underwriter pursuant to this paragraph (c), such Underwriter shall have the rights and duties given to the Fund and the Adviser by paragraph (b) above (except that if the Fund or the Adviser shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Fund and the Adviser, their trustees, their directors, any such officer, and any such controlling person shall have the rights and duties given to the Underwriters by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability that the Underwriters may otherwise have.
(d) Settlement and Consent. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or 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 action, suit or proceeding.
(e) Survival. Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 6 or Section 7 shall be paid by the indemnifying party to
the indemnified party as such losses, claims, damages, liabilities or expenses
are incurred. The indemnity and contribution agreements contained in this
Section 6 and Section 7 and the representations and warranties of the Fund and
the Adviser set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter, the Fund, the
Adviser, their trustees, their directors or officers, or any person
controlling the Fund or the Adviser, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor
to any Underwriter or any person controlling any Underwriter, or to the Fund,
the Adviser, their trustees, their directors or officers, or any person
controlling the Fund or the Adviser, shall be entitled to the benefits of the
indemnity, contribution, and reimbursement agreements contained in this
Section 6 or Section 7.
(f) Notwithstanding any other provisions in this Section 6 or Section 7, no party shall be entitled to indemnification or contribution under this Agreement against any loss, claim, liability, expense or damage arising by reason of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of its duties in the performance of its duties hereunder.
SECTION 7. Contribution.
(a) If the indemnification provided for in Section 6 is unavailable to an indemnified party under paragraphs (a) or (c) thereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other hand from the offering of the Shares, or (ii) if the allocation provided by clause (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 (i) above but also the relative fault of the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Fund bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Fund and the Adviser on the one hand (treated jointly for this purpose as one person) 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 and the Adviser on the one hand (treated jointly for this purpose as one person) or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(b) The Fund, the Adviser and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by a 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 paragraph (a) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (a) above 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 any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which 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 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective numbers of Shares set forth opposite their names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Fund or the Advisers submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Fund or the Advisers, and shall survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative may terminate this Agreement, by notice to the Fund, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus (exclusive of any supplement thereto), any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund or the Advisers, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representative, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Common Shares of the Fund has been suspended or materially limited by the Commission or the NYSE, or if trading generally on the New York Stock Exchange or the NYSE or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the NASD or any other governmental authority, or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (iv) if a banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8 and 13 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters.
If one or more of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representative shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Fund to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Fund to sell the relevant Option Securities, as the case may be, either the Representative or the Fund shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Tax Disclosure.
Notwithstanding any other provision of this Agreement, from the commencement of discussions with respect to the transactions contemplated hereby, the Fund (and each employee, representative or other agent of the Fund) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure (as such terms are used in Sections 6011, 6111 and 6112 of the U.S. Code and the Treasury Regulations promulgated thereunder) of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided relating to such tax treatment and tax structure.
SECTION 12. Notices.
All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative, c/o Merrill Lynch & Co., North Tower, World Financial Center, New York, New York 10080, attention of Equity Capital Markets; and notices to the Fund or the Adviser shall be directed, as appropriate, to the office of [__], Attention: [__]
SECTION 13. Parties.
This Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Fund, the Advisers and their respective partners and successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Fund, the Advisers and their respective successors and the controlling persons and officers, trustees and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Fund, the Advisers and their respective partners and successors, and said controlling persons and officers, trustees and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. UNLESS OTHERWISE EXPLICITLY PROVIDED, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Fund and the Advisers in accordance with its terms.
Very truly yours,
[__]
By:_____________________________ Name:
Title:
[__]
By:_____________________________
Name:
Title:
[__]
By:_____________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:______________________________
Authorized Signatory
For themselves and as
Representative of the
other Underwriters named
in Schedule A hereto.
SCHEDULE A
Number of
Name of Underwriter Initial Securities
------------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
TOTAL: [__]
Sch A-1
SCHEDULE B
[__]
[__]Common Shares of Beneficial Interest
(Par Value $.001 Per Share)
1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[20.00].
2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $[__], being an amount equal to the initial public offering price set forth above less $[__] per share; provided that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Fund and payable on the Initial Securities but not payable on the Option Securities.
Sch B-1
Exhibit A
FORM OF OPINION OF FUND'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b) WITH RESPECT TO THE FUND
Ladies and Gentlemen:
We have acted as counsel to [__], a Delaware statutory trust (the "Fund"), in connection with the issuance and sale by the Fund of [__] (the "Shares"), pursuant to the Underwriting Agreement, dated as of [__], 2003 (the "Underwriting Agreement"), between the Fund and Gabelli Funds, LLC (the "Adviser") and you.
This opinion is being furnished pursuant to Sections [__] of the Underwriting Agreement. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Underwriting Agreement.
In connection with this opinion, we have examined [__] and
[__] such other documents as we have deemed necessary or appropriate as a
basis for the opinions set forth herein. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such records
of the Fund and such agreements, certificates of public officials,
certificates of officers or other representatives of the Fund and others, and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinion set forth herein.
In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of executed documents, we have assumed that the parties thereto had the corporate power to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and, except to the extent set forth in numbered paragraph 6 below, the validity and binding effect thereof. In rendering the opinion set forth in numbered paragraph 4 below, we have also assumed that the execution and delivery by the Fund of the Underwriting Agreement and the performance by the Fund of its obligations thereunder do not and will not violate or constitute a default under (i) any agreement or instrument to which the Fund is subject other than Material Agreements, (ii) any law, rule, or regulation to which the Fund is subject (except that we do not make the assumption set forth in this clause (ii) with respect to Applicable Laws (as defined below)), (iii) any judicial or regulatory decree of any Governmental Authority other than as identified on a certificate or of which we have actual knowledge or (iv) any consent, approval, license, authorization or validation of, or filing, recording or registration with any Governmental Authority other than as identified on an Officer's Certificate or of which we have actual knowledge. As to any facts material to the opinions expressed herein that we did not independently establish or verify, we have relied upon oral or written statements and representations of officers and other representatives of the Fund and others.
With respect to any agreement or instrument examined by us which by its terms purports to be governed by the laws of any jurisdiction other than the Federal laws of the United States, the Delaware Statutory Trust Act or the laws of the State of New York, our opinions are based solely upon our understanding of the plain language of such agreement or instrument, and we do not express any opinion with respect to the interpretation, validity, binding nature or enforceability of any agreement or instrument which by its terms purports to be governed by the laws of any jurisdiction other than the United States, the State of Delaware or the State of New York.
As used herein, (i) the term "Applicable Laws" means the New York Business Corporation Law, the Delaware Statutory Trust Act and those laws, rules and regulations of the State of Delaware, the State of New York and the United States of America that, in our experience, are normally applicable to entities such as the Fund or transactions of the type contemplated by the Underwriting Agreement, but without our having made any special investigation concerning any other laws, rules or regulations; provided that the term "Applicable Laws" does not include (a) the rules and regulations of the National Association of Securities Dealers, Inc., (b) any federal or state securities or blue sky laws, (c) any antifraud laws or (d) any law, rule or regulation that may have become applicable to the Fund as a result of the Underwriters' involvement with the transactions contemplated by the Underwriting Agreement or because of any facts specifically pertaining to the Underwriters; (ii) the term "Material Agreement" means any bond, debenture, note or other evidence of indebtedness or any contract or agreement included as an exhibit to the Registration Statement; (iii) the term "Governmental Authority" means any Delaware, New York or federal executive, legislative, judicial, administrative or regulatory body under Applicable Laws and the New York Stock Exchange; and (iv) the term "Governmental Approval" means any consent, approval, license, authorization, order or validation of, or filing, recording or registration with, any Governmental Authority pursuant to Applicable Laws.
The opinions set forth herein as to our knowledge are based on our discussions with the officers of the Fund responsible for the matters discussed therein and our review of documents furnished to us by the Fund, and we have not made any search of the public docket records of any court, governmental agency or body or administrative agency.
Members of our firm are admitted to the Bar in the State of New York and the State of Delaware, and we do not express any opinion as to the laws of any other jurisdiction other than the laws of the United States of America to the extent referred to specifically herein.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Fund is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware with full trust power to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them in effect as of the date hereof). The opinion set forth in this paragraph 1 with respect to the Fund's formation, existence and standing is based solely upon our review of a certificate of the Secretary of State of Delaware and a telephonic confirmation from the Secretary of State of the State of Delaware.
2. The Shares have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable. The issuance of the Shares will not be subject to preemptive or other similar rights entitling any person to purchase or acquire any of the Shares upon the issuance thereof by the Fund which arise by operation of the laws of the State of Delaware or under the Agreement and Declaration of Trust or the By-Laws.
3. The authorized and outstanding capital shares of the Fund are as set forth under the caption "[__]" in the Prospectus and the authorized capital shares of the Fund (including the Shares) conform in all material respects to the description thereof contained in the Prospectus under the captions "[__]".
4. The Fund has the requisite trust power and authority to enter into and execute and deliver the Underwriting Agreement and to issue, sell and deliver the Shares to the Underwriters as provided for therein.
5. Each Fund Agreement and the Underwriting Agreement has been duly executed and delivered by the Fund and is a valid, legal and binding agreement of the Fund, enforceable against the
Fund in accordance with its terms, except to the extent that (i) enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally or (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity) and
(ii) enforcement of rights to indemnity and contribution under the Fund
Agreements and the Underwriting Agreement may be limited by Federal or state
securities laws or principles of public policy.
6. Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of the Underwriting Agreement and the Fund Agreements by the Fund, compliance by the Fund with the provisions of such Fund Agreements or the Underwriting Agreement nor consummation by the Fund of the transactions contemplated by the Underwriting Agreement and the Fund Agreements conflicts or will conflict with or constitutes or will constitute a breach of, or a default under the Agreement and Declaration of Trust, the statement of preferences relating to each series of the Fund's preferred shares (including the Statement of Preferences), the By-Laws or any Material Agreement or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund under any Material Agreement, nor will any such action result in any violation of (i) any Applicable Law or (ii) any judgment, order or decree identified in an Officer's Certificate (a) of a Governmental Authority or (b) pursuant to the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act") and the Investment Company Act.
7. The Fund has full trust power and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies required under Applicable Law (except where the failure to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Fund), to own its properties and to conduct business as described in the Prospectus.
8. No consent, approval, authorization or other order of, or registration or filing with, any securities commission, court, regulatory body, administrative agency or other governmental body, agency, or official of the State of Delaware is required on the part of the Fund for the valid issuance and sale of the Shares to the Underwriters as contemplated by the Underwriting Agreement, the execution and delivery by the Fund of the Underwriting Agreement and the performance by the Fund of its obligations thereunder or the consummation of the transactions contemplated thereby by the Fund, except those as may be required under the securities or blue sky laws of the State of Delaware (as to which we express no opinion); it being understood that we do not express any opinion as to any such consent, approval, authorization or other order of, or registration or filing, which may be required as a result of the involvement of any other parties to the Underwriting Agreement.
9. No (i) Governmental Approval or (ii) consent, approval, license, authorization, order or validation of, or filing, recording or registration with, any Governmental Authority pursuant to the 1933 Act, the 1934 Act and the Investment Company Act ("Other Approvals") is required for the valid issuance and sale of the Shares to the Underwriters or the execution, delivery and performance by the Fund of the Underwriting Agreement and the Fund Agreements or consummation of the transactions contemplated thereby except such Governmental Approvals and Other Approvals as have been obtained.
10. The 1940 Act Notification, the Registration Statement, the Prospectus, the Fund's Registration Statement on Form 8-A under the 1934 Act and any supplement or amendment thereto in effect as of the date hereof (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included therein, as to which we express no opinion) comply as to form in all material respects with the requirements of the 1933 Act, the Investment Company Act and the 1934 Act and the rules and regulations under the 1933 Act, the Investment Company Act and the 1934 Act.
11. To our actual knowledge, after reasonable inquiry, other than as described or contemplated in the Registration Statement or Prospectus (or any supplement thereto), there are (i) no legal or governmental proceedings in the State of Delaware, the State of New York or, to our actual knowledge, any other state, pending or threatened against the Fund, or to which the Fund or any of its properties is subject, which are required to be described in the Registration Statement or Prospectus (or any amendment or supplement to either of them in effect as of the date hereof) that are not described as required and (ii) no agreements, contracts, indentures, leases or other instruments that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them in effect as of the date hereof) or to be filed as an exhibit to the Registration Statement that are not described or filed as required, as the case may be.
12. Each of the Fund Agreements and the Fund's and the Adviser's obligations under each of the Underwriting Agreement and the Fund Agreements comply as to form in all material respects with all applicable provisions of the 1933 Act, the Investment Company Act, the Investment Advisers Act of 1940 and the rules and regulations under each of the 1933 Act, the Investment Company Act and the Investment Advisers Act of 1940.
13. The Fund is duly registered with the Commission under the Investment Company Act as a closed-end, non-diversified management investment company; and the provisions of the Fund's Agreement and Declaration of Trust and the statement of preferences relating to each series of the Fund's preferred shares (including but not limited to the Statement of Preferences) and the By-Laws, as supplemented, amended and restated, the investment policies and restrictions described in the Registration Statement and the Prospectus under the captions "[The Fund]," "[Investment Objective and Policies]," "[Risk Factors and Special Considerations]" and "[Investment Restrictions]" (in the statement of additional information) comply in all material respects with the requirements of the Investment Company Act, and all action has been taken by the Fund as is required of the Fund by the 1933 Act and the Investment Company Act and the rules and regulations under the 1933 Act and the Investment Company Act in connection with the issuance and sale of the Shares to make the public offering and consummate the sale of the Shares as contemplated by the Underwriting Agreement.
14. To our actual knowledge after reasonable inquiry, except as described in the Prospectus, there is no holder of any security of the Fund or any other person who has the right, contractual or otherwise pursuant to any Material Agreement, to cause the Fund to sell or otherwise issue to them, or to permit them to underwrite the sale of, the Shares or the right to have any securities of the Fund included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the 1933 Act of any securities of the Fund.
15. The forms of certificates for the Shares do not conflict with any requirements of Delaware Statutory Trust law.
We have been orally advised that the Registration Statement was declared effective at [__] on [__], 2003 and, to our best knowledge after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement or order pursuant to Section 8(e) of the Investment Company Act has been issued and no proceedings for that purpose are pending before or contemplated by the Commission; and any required filing of the Prospectus pursuant to Rule 497 has been made in accordance with Rule 497.
With respect to the opinions set forth in numbered paragraph
[2] above, we point out that our opinion as to preemptive rights or other
rights to subscribe to or purchase securities is only as to the rights that
would be created as a matter of Delaware law or under the Agreement and
Declaration of Trust or the By-Laws. We do not express any opinion as to
preemptive or other similar rights of shareholders of the Fund that may exist
under the terms of any contractual arrangement to which the Fund may be a
party.
This opinion is furnished to you solely for your benefit, the benefit of the other Underwriters and, solely with respect to matters relating to the Delaware Statutory Trust Act, [__], counsel to the Underwriters, in connection with the closing under the Underwriting Agreement occurring today and is not to be used, circulated, quoted or otherwise referred to for any other purpose without our prior express written permission, except to the extent that such use, circulation, quotation, or reference is necessary so that the issuance of the Shares is not treated as a "confidential transaction" within the meaning of Treasury Regulations section 1.6011-4(b)(3).
Very truly yours,
FORM OF OPINION OF ADVISER'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b) WITH RESPECT TO THE ADVISER
Ladies and Gentlemen:
We have acted as special counsel to Gabelli Funds, LLC, a New York limited liability company (the "Adviser"), in connection with the issuance and sale by [__] (the "Fund"), a Delaware statutory trust, of [__] (the "Shares"), pursuant to the Underwriting Agreement, dated as of [__], 2003 (the "Underwriting Agreement"), between the Fund, the Adviser and you.
This opinion is being furnished pursuant to Section [__] of the Underwriting Agreement. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Underwriting Agreement.
In connection with this opinion, we have examined [__] and
[__] such other documents as we have deemed necessary or appropriate as a
basis for the opinions set forth herein. We have also examined originals or
copies, certified or otherwise identified to our satisfaction, of such records
of the Fund and such agreements, certificates of public officials,
certificates of officers or other representatives of the Fund and others, and
such other documents, certificates and records as we have deemed necessary or
appropriate as a basis for the opinion set forth herein.
In our examination, we have assumed the legal capacity of
all natural persons, the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such latter documents. In making our
examination of executed documents, we have assumed that the parties thereto
other than the Adviser had the corporate power to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
parties other than the Adviser of such documents and, except to the extent set
forth in numbered paragraph 3 below, the validity and binding effect thereof.
In rendering the opinion set forth in numbered paragraph 3 below, we have also
assumed that the execution and delivery by the Adviser of the Underwriting
Agreement and the performance by the Adviser of its obligations thereunder do
not and will not violate or constitute default under (i) any agreement or
instrument to which the Adviser is subject other than Material Agreements (as
defined below); (ii) any law, rule, or regulation to which the Adviser is
subject (except that we do not make the assumption set forth in this clause
(ii) with respect to Applicable Laws (as defined below)); (iii) any judicial
or regulatory decree of any Governmental Authority (as defined below) other
than as identified on an Officer's Certificate or of which we have actual
knowledge; or (iv) any consent, approval, license, authorization or validation
of, or filing, recording or registration with any Governmental Authority other
than as identified on an Officer's Certificate or of which we have actual
knowledge. As to any facts material to the opinions expressed herein that we
did not independently establish or verify, we have relied upon oral or written
statements and representations of officers and other representatives of the
Fund and others.
With respect to any agreement or instrument examined by us which by its terms purports to be governed by the laws of any jurisdiction other than the Federal laws of the United States or the laws of the State of New York, our opinions are based solely upon our understanding of the plain language of such agreement or instrument, and we do not express any opinion with respect to the interpretation, validity, binding nature or enforceability of any agreement or instrument which by its terms purports to be governed by the laws of any jurisdiction other than the United States or the State of New York.
As used herein, (i) the term "Applicable Laws" means the New York Business Corporation Law and those laws, rules and regulations of the State of New York and the United States of America that, in our experience, are normally applicable to entities such as the Adviser or transactions of the type contemplated by the Underwriting Agreement, but without our having made any special investigation concerning any other laws, rules or regulations; provided that the term "Applicable Laws" does not include (a) the rules and regulations of the National Association of Securities Dealers, Inc., (b) any federal or state securities or blue sky laws, (c) any antifraud laws or (d) any law, rule or regulation that may have become applicable to the Adviser as a result of the Underwriters' involvement with the transactions contemplated by the Underwriting Agreement or because of any facts specifically pertaining to the Underwriters; (ii) the term "Material Agreement" means any contract or agreement identified in an Officer's Certificate as material or as one which could have an effect on the type of transactions contemplated by the Underwriting Agreement; (iii) the term "Governmental Authority" means any New York or federal executive, legislative, judicial, administrative or regulatory body under Applicable Laws and the New York Stock Exchange; and (iv) the term "Governmental Approval" means any consent, approval, license, authorization, order or validation of, or filing, recording or registration with, any Governmental Authority pursuant to Applicable Laws.
The opinions set forth herein as to our knowledge are based on our discussions with the officers of the Adviser responsible for the matters discussed therein and our review of documents furnished to us by the Adviser, and we have not made any search of the public docket records of any court, governmental agency or body or administrative agency.
Members of our firm are admitted to the Bar in the State of New York, and we do not express any opinion as to the laws of any other jurisdiction other than the laws of the United States of America to the extent referred to specifically herein.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Adviser is a limited liability company duly organized and validly existing in good standing under the laws of the State of New York with full limited liability company power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement to either of them in effect as of the date hereof). The opinion set forth in this paragraph 1 with respect to the Adviser subsisting and in good standing as a corporation under the laws of the State of New York is based solely upon our review of a certificate of the Secretary of State of the State of New York and a telephonic confirmation from the Secretary of State of the State of New York.
2. The Adviser is duly registered with the Commission as an investment adviser under the Investment Advisers Act of 1940 (the "Advisers Act") and is not prohibited by the Advisers Act, the Investment Company Act or the rules and regulations under each of the Advisers Act and the Investment Company Act from acting under the Investment Advisory Agreement for the Fund as contemplated by the Prospectus (or any amendment or supplement thereto in effect as of the date hereof).
3. The Adviser has limited liability company power and authority to enter into the Underwriting Agreement and the Investment Advisory Agreement, and the Underwriting Agreement and the Investment Advisory Agreement have been duly authorized, executed and delivered by the Adviser and each is a valid, legal and binding agreement of the Adviser, enforceable against the Adviser in accordance with its terms except to the extent that (i) enforcement thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and (ii) enforcement of rights to indemnity and contribution under the Fund Agreements and the Underwriting Agreement may be limited by Federal or state securities laws or principles of public policy.
4. Neither the execution, delivery or performance of the Underwriting Agreement or the Investment Advisory Agreement by the Adviser, compliance by the Adviser with the provisions of the Underwriting Agreement or the Investment Advisory Agreement nor consummation by the Adviser of the transactions contemplated by the Underwriting Agreement and the Investment Advisory Agreement conflicts or will conflict with, or constitutes or will constitute a breach of or default under the Certificate of Formation or Operating Agreement, or other organizational documents, of the Adviser or any Material Agreement to which the Adviser is a party or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser under any Material Agreement, nor will any such action result in any violation of any Applicable Law.
5. No (i) Governmental Approval or (ii) consent, approval, license, authorization, order or validation of, or filing, recording or registration with, any Governmental Authority pursuant to the 1933 Act, the Securities Exchange Act of 1934, the Investment Company Act and the Advisers Act ("Other Approvals") is required on the part of the Adviser for the execution, delivery and performance by it of the Underwriting Agreement and the Investment Advisory Agreement to which it is a party or the consummation by it of the transactions contemplated by such agreements except such Governmental Approvals and Other Approvals as have been obtained.
6. To our actual knowledge after reasonable inquiry, there are no legal or governmental proceedings pending or threatened against the Adviser or to which the Adviser or any of its properties is subject, which are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement to either of them in effect as of the date hereof) but are not described as required or which could be reasonably expected to adversely affect the ability of the Adviser to perform its obligations under the Underwriting Agreement or the Investment Advisory Agreement.
7. The obligations of the Adviser under the Underwriting Agreement and the Investment Advisory Agreement comply in all material respects with all applicable provisions of the Investment Company Act, the Advisers Act and the rules and regulations under each of the Investment Company Act and the Advisers Act.
8. The Adviser has full limited liability company power and authority and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies required under Applicable Law (except where the failure so to have any such authorizations, approvals, orders, licenses, certificates, franchises or permits, individually or in the aggregate, would not have a material adverse effect on the business, properties, operations or financial condition of the Adviser and its subsidiaries), to own its properties and to conduct business including specifically its business of acting as investment adviser to registered investment companies and as otherwise described in the Prospectus, and to perform its obligations under the Investment Advisory Agreement.
We have been advised by the Adviser that the Adviser is not registered or qualified to conduct its business as a foreign corporation in any jurisdiction and that it believes there is no such jurisdiction where the nature of its properties or the conduct of its business requires such registration or qualification and where the failure to register or qualify would have a material adverse effect on the operations of the Adviser or on the ability of the Adviser to perform its obligations under the Underwriting Agreement or the Investment Advisory Agreement.
This opinion is furnished to you solely for your benefit and the benefit of the other Underwriters in connection with the closing under the Underwriting Agreement occurring today and is not to be used, circulated, quoted or otherwise referred to for any other purpose without our prior express written permission, except to the extent that such use, circulation, quotation, or reference is necessary so that the issuance of the Shares is not treated as a "confidential transaction" within the meaning of Treasury Regulations section 1.6011-4(b)(3).
Very truly yours,
FORM OF OPINION OF JAMES MCKEE
TO BE DELIVERED PURSUANT TO
SECTION 5(b) WITH RESPECT TO THE FUND
Ladies and Gentlemen:
I have acted as counsel to [__], a Delaware statutory trust (the "Fund"), in connection with the issuance and sale by the Fund of [__] (the "Shares"), pursuant to the Underwriting Agreement, dated as of [__], 2003 (the "Underwriting Agreement"), between the Fund and Gabelli Funds, LLC (the "Adviser") and you.
This opinion is being furnished pursuant to Section [__] of the Underwriting Agreement. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Underwriting Agreement.
In connection with this opinion, I have examined [__] (such Agreement and Declaration of Trust, the "Governing Documents") and By-Laws of the Fund, each as amended through the date hereof, [__] (the "Fund Agreements") and [__] such other documents as I have deemed necessary or appropriate as a basis for the opinions set forth herein. I have also examined originals or copies, certified or otherwise identified to my satisfaction, of such records of the Fund and such agreements, certificates of public officials, certificates of officers or other representatives of the Fund and others, and such other documents, certificates and records as I have deemed necessary or appropriate as a basis for the opinion set forth herein.
In my examination, I have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic copies and the authenticity of the originals of such latter documents. In making my examination of executed documents, I have assumed that the parties thereto had the corporate power to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and the validity and binding effect thereof. I have also assumed that the execution and delivery by the Fund of the Underwriting Agreement and the performance by the Fund of its obligations thereunder do not and will not violate or constitute a default under any law, rule, or regulation to which the Fund is subject (except that I do not make the assumption set forth in this clause with respect to Applicable Laws (as defined below)). As to any facts material to the opinions expressed herein that I did not independently establish or verify. I have relied upon oral or written statements and representations of officers and other representatives of the Fund and others.
With respect to any agreement or instrument examined by me which by its terms purports to be governed by the laws of any jurisdiction other than the Federal laws of the United States or the laws of the State of New York, my opinions are based solely upon my understanding of the plain language of such agreement or instrument, and I do not express any opinion with respect to the interpretation, validity, binding nature or enforceability of any agreement or instrument which by its terms purports to be governed by the laws of any jurisdiction other than the United States or the State of New York.
As used herein, (a) the term "Applicable Laws" means the New York Business Corporation Law and those laws, rules and regulations of the State of New York and the United States of America that, in my experience, are normally applicable to entities such as the Fund and transactions of the type contemplated by the Underwriting Agreement, but without my having made any special investigation concerning any other laws, rules or regulations; provided that the term "Applicable Laws" does not include (1) the rules and regulations of the National Association of Securities Dealers, Inc., (2) any federal or state securities or blue sky laws other than the 1933 Act, the 1934 Act, the Investment
Company Act and the applicable rules and regulations thereunder to the extent not excluded by item 3 below, (3) any antifraud laws under the 1933 Act or the 1934 Act as they are applicable to the Prospectus and the Registration Statement or (4) any law, rule or regulation that may have become applicable to the Fund as a result of the Underwriters' involvement with the transactions contemplated by the Underwriting Agreement or because of any facts specifically pertaining to the Underwriters; and (b) the term "Material Agreement" means any contract included or required to be included as an exhibit to the Registration Statement; and (c) the term "Governmental Authority" means any New York or federal executive, legislative, judicial, administrative or regulatory body under Applicable Laws and the New York Stock Exchange.
The opinions set forth herein as to my knowledge are based on my own knowledge and my discussions with the officers of the Fund and the Adviser responsible for the matters discussed therein and my review of documents of the Fund and the Adviser, and I have not made any search of the public docket records of any court, governmental agency or body or administrative agency.
I am admitted to the Bar in the State of New York, and I do not express any opinion as to the laws of any other jurisdiction other than the laws of the United States of America to the extent referred to specifically herein.
Based upon the subject to the foregoing, I am of the opinion that:
1. The Fund is not in violation of its Governing Documents, or By-Laws and to my actual knowledge after reasonable inquiry, is not in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness, except as may be disclosed in the Prospectus.
2. The Fund is not in violation of any Material Agreement.
3. To my actual knowledge after reasonable inquiry, the Fund is not in violation of any Applicable Law or any order, judgment or decree of any Governmental Authority.
This opinion is furnished to you solely for your benefit and the benefit of the other Underwriters in connection with the closing under the Underwriting Agreement occurring today and is not to be used, circulated, quoted or otherwise referred to for any other purpose without my prior express written permission, except to the extent that such use, circulation, quotation, or reference is necessary so that the issuance of the Shares is not treated as a "confidential transaction" within the meaning of Treasury Regulations section 1.6011-4(b)(3).
Very truly yours,
James E. McKee
FORM OF RULE 10B-5 NEGATIVE ASSURANCE LETTER OF FUND'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b) WITH RESPECT TO THE FUND OPINION
Ladies and Gentlemen:
We have acted as counsel to [__], a Delaware statutory trust (the "Fund"), in connection with the issuance and sale by the Fund [__] (the "Shares"), pursuant to the Underwriting Agreement, dated as of [__], 2003 (the "Underwriting Agreement"), between the Fund and Gabelli Funds, LLC (the "Adviser") and you.
This letter is being furnished pursuant to Section [__] of the Underwriting Agreement. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in our opinion to you dated the date hereof as counsel to the Fund with respect to the [__] (the "Opinion").
In connection with this letter, we have examined [__] and
[__] such other documents as we have deemed necessary or appropriate. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Fund and such agreements, certificates of
public officials, certificates of officers or other representatives of the
Fund and others, and such other documents, certificates and records as we have
deemed necessary or appropriate.
In addition, we have participated in conferences with officers and employees of the Fund, representatives of the independent accountants for the Fund, and you and your counsel at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus except to the limited extent otherwise covered by paragraphs [3, 12 and 14] of our Opinion, and have made no independent check or verification thereof, on the basis of the foregoing, no facts have come to our attention that have led us to believe that the Registration Statement, or any amendment or supplement thereto, at the time it became effective, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, or any amendment or supplement thereto, as of its issue date and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that we express no belief with respect to the financial statements, schedules and other financial information and statistical data included therein or excluded therefrom or the exhibits to the Registration Statement.
This letter is furnished to you solely for your benefit, the benefit of the other Underwriters in connection with the closing under the Underwriting Agreement occurring today and is not to be used, circulated, quoted or otherwise referred to for any other purpose without our prior express written permission, except to the extent that such use, circulation, quotation, or reference is necessary so that the issuance of the Shares is not treated as a "confidential transaction" within the meaning of Treasury Regulations section 1.6011-4(b)(3).
Very truly yours,
FORM OF RULE 10B-5 NEGATIVE ASSURANCE LETTER OF ADVISER'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b) WITH RESPECT TO THE ADVISER OPINION
Ladies and Gentlemen:
We have acted as special counsel to Gabelli Funds, LLC, a New York limited liability company (the "Adviser"), in connection with the issuance and sale by [__] (the "Fund"), a Delaware statutory trust, of [__] (the "Shares"), pursuant to the Underwriting Agreement, dated as of [__], 2003 (the "Underwriting Agreement"), between the Fund, the Adviser and you.
This letter is being furnished pursuant to Section [__] of the
Underwriting Agreement. Capitalized terms used and not otherwise defined
herein shall have the respective meanings set forth in our opinion to you
dated the date hereof as special counsel to the Adviser with respect to the
[__] (the "Opinion").
In connection with this letter, we have examined [__] and [__] such other documents as we have deemed necessary or appropriate. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Fund and such agreements, certificates of public officials, certificates of officers or other representatives of the Fund and others, and such other documents, certificates and records as we have deemed necessary or appropriate.
In addition, we have participated in conferences with officers and employees of the Adviser, with representatives of the independent accountants for the Adviser and with you and your counsel at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus and have made no independent check or verification thereof, on the basis of the foregoing, no facts have come to our attention that have led us to believe that the Registration Statement or any amendment or supplement thereto in effect as of the date hereof, at the time it became effective, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto in effect as of the date hereof, as of its issue date and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that we express no belief with respect to the financial statements, schedules and other financial information and statistical data included therein or excluded therefrom or the exhibits to the Registration Statement.
This letter is furnished to you solely for your benefit and the benefit of the other Underwriters in connection with the closing under the Underwriting Agreement occurring today and is not to be used, circulated, quoted or otherwise referred to for any other purpose without our prior express written permission, except to the extent that such use, circulation, quotation, or reference is necessary so that the issuance of the Shares is not treated as a "confidential transaction" within the meaning of Treasury Regulations section 1.6011-4(b)(3).
Very truly yours,
FORM OF OPINION WITH RESPECT TO TAX MATTERS OF FUND'S
COUNSEL TO BE DELIVERED PURSUANT TO
SECTION 5(b)
We have acted as counsel to [__], a statutory trust (the "Fund") created under the Delaware Statutory Trust Act (the "Delaware Statutory Trust Act"), in connection with the preparation, execution and delivery of the Purchase Agreement, dated [__], 2003 (the "Purchase Agreement"), by and among the Fund [__], [__](the "Advisor"), and you, Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several underwriters named therein (the "Underwriters"), relating to the issuance and sale by the Fund of [__]shares (the "Shares") of the Fund's common shares of beneficial interest, par value $0.001 per share (the "Common Shares"). This opinion is being delivered pursuant to Section 5(b) of the Purchase Agreement.
In rendering the opinion set forth herein, we have examined and relied on originals or copies of the final Prospectus and Statement of Additional Information of the Fund, as filed with the Commission on [__], 2003 pursuant to Rule 497(h) of the 1933 Act Rules and Regulations (collectively, the "Prospectus") and such other documents as we have deemed necessary or appropriate as a basis for the opinion set forth below.
In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as facsimile, electronic, certified or photostatic copies, and the authenticity of the originals of such copies. As to any facts material to the opinion expressed herein that we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Fund, the Advisor, the Sub-Advisor and others and of public officials. Capitalized terms used herein and not otherwise defined herein shall have the same meanings herein as ascribed thereto in the Purchase Agreement.
In rendering our opinion we have considered the current provisions of the Internal Revenue Code of 1986, as amended, Treasury regulations promulgated thereunder, judicial authorities, interpretive rulings of the Internal Revenue Service (the "Service"), and such other authorities as we have considered relevant, all of which are subject to change or differing interpretations, possibly on a retroactive basis. Moreover, there can be no assurance that the opinion expressed herein will be accepted by the Service or other relevant tax authorities or, if challenged, by a court of law. A change in the authorities or in the accuracy or completeness of any of the information, documents, certificates, records, statements, representations, covenants, or assumptions on which our opinion is based could affect our conclusions. This opinion is expressed as of the date hereof, and we are under no obligation to supplement or revise our opinion to reflect any changes (including changes that have retroactive effect) in applicable law or any information, document, certificate, record, statement, representation, covenant or assumption relied upon herein that becomes incorrect or untrue.
Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, although the discussion in the Prospectus under the heading "Federal Income Tax Matters" and in the Statement of Additional Information under the headings "U.S. Federal Income Tax Matters," does not purport to discuss all possible United States federal income tax consequences relating to the taxation of the Fund and the purchase, ownership and disposition of the Common Shares, such discussion constitutes, in all material respects, a fair summary of law and is based on our understanding of the Fund's proposed operations as disclosed in the Prospectus.
Except as set forth above, we express no other opinion. This opinion is being furnished only to you in connection with the closing under the Purchase Agreement occurring today and is solely for your
benefit and is not to be relied upon by any other person for any other purpose without our prior written consent.
We advise you that the Firm has rendered legal advice to the Advisor, other investment funds advised by the Advisor and certain other of their respective affiliates in connection with various matters.
Very truly yours,
Exhibit B
FORM OF OPINION OF COUNSEL FOR UNDERWRITERS
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
EXHIBIT 99(n)(ii)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears below nominates, constitutes and appoints Bruce N. Alpert and James E. McKee (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his place and stead in any and all capacities, to make execute and sign all amendments and supplements to the Registration Statement on Form N-2 under the Securities Act of 1933 and the Investment Company Act of 1940 of THE GABELLI DIVIDEND & INCOME TRUST (the "Trust"), and to file with the Securities and Exchange Commission, and any other regulatory authority having jurisdiction over the offer and sale of shares of beneficial interest, par value $.001 per share, of the Trust, and any and all amendments and supplements to such Registration Statement, and any and all exhibits and other documents requisite in connection therewith, granting unto said attorneys and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as the undersigned officers and Trustees themselves might or could do.
IN WITNESS WHEREOF, each of the undersigned officers and Trustees have hereunto set their hand this 23rd day of October, 2003
/s/ Mario J. Gabelli /s/ Frank J. Fahrenkopf, Jr.
------------------------------- -------------------------------
Mario J. Gabelli Frank J. Fahernkopf, Jr.
Trustee Trustee
/s/ James P. Conn
------------------------------- -------------------------------
Karl Otto Pohl James P. Conn
Trustee Trustee
/s/ Michael J. Melarkey /s/ Anthony J. Colavita
------------------------------- -------------------------------
Michael J. Melarkey Anthony J. Colavita
Trustee Trustee
/s/ Mario d'Urso /s/ Anthonie C. van Ekris
------------------------------- -------------------------------
Mario d'Urso Anthonie C. van Ekris
Trustee Trustee
/s/ Salvatore J. Zizza
------------------------------- -------------------------------
Edward T. Tokar Salvatore J. Zizza
Trustee Trustee
/s/ Salvatore M. Salibello
-------------------------------
Salvatore M. Salibello
Trustee
|
Exhibit 99(p)
The Gabelli Dividend & Income Trust (the "Fund"), a Delaware statutory trust, and Gabelli Funds, LLC (the "Buyer") hereby agree as follows:
1. The Fund hereby offers the Buyer and the Buyer hereby purchases
[5,112] Common Shares of Beneficial Interest of the Fund, par value $.0001, at
$[19.56] per share. The Shares are the "initial shares" of the Fund. The Buyer
hereby acknowledges receipt of a purchase confirmation reflecting the purchase
of the Shares, and the Fund hereby acknowledges receipt from the Buyer of
funds in the amount of $[100,000] in full payment for the Shares.
2. The Buyer represents and warrants to the Fund that the Shares purchased by the Buyer are being acquired for investment purposes and not for the purpose of distribution.
3. This Agreement has been executed on behalf of the Fund by the undersigned officer of the Fund in his or her capacity as an officer of the Fund.
4. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day of October, 2003.
THE GABELLI DIVIDEND &
INCOME TRUST
By:________________________
GABELLI FUNDS, LLC
By:________________________
Exhibit 99(r)(i)
Code of Ethics
Gabelli Funds, LLC
GAMCO Investors, Inc.
Gabelli & Company, Inc.
Gabelli Advisers, Inc.
Gabelli Fixed Income LLC
Each Registered Investment Company or
series thereof (each of which is
considered to be a Company for this
purpose) for which any of the
Companies listed above presently or
hereafter provides investment
advisory or principal underwriting
services, other than a money market
fund or a fund that does not invest
in Securities.
Introduction
This Code of Ethics establishes rules of conduct for persons who are associated with the companies named above or with the registered investment companies for which such companies provide investment advisory or principal underwriter services. The Code governs their personal investment and other investment-related activities.
The basic rule is very simple: put the client's interests first. The rest of the rules elaborate this principle. Some of the rules are imposed specifically by law. For example, the laws that govern investment advisers specifically prohibit fraudulent activity, making statements that are not true or that are misleading or omit something that is significant in the context and engaging in manipulative practices. These are general words, of course, and over the years the courts, the regulators and investment advisers have interpreted these words and established codes of conduct for their employees and others who have access to their investment decisions and trading activities. Indeed, the rules obligate investment advisers to adopt written rules that are reasonably designed to prevent the illegal activities described above and must follow procedures that will enable them to prevent such activities.
This Code is intended to assist the companies in fulfilling their obligations under the law. The first part lays out who the Code applies to, the second part deals with personal investment activities, the third part deals with other sensitive business practices, and subsequent parts deal with reporting and administrative procedures.
The Code is very important to the companies and their employees. Violations can not only cause the companies embarrassment, loss of business, legal restrictions, fines and other punishments but for employees can lead to demotion, suspension, firing, ejection from the securities business and very large fines.
I. Applicability
A. The Code applies to each of the following:
1. The Companies named or described at the top of page one of the Code and all entities that are under common management with these Companies or otherwise agree to be subject to the Code ("Affiliates"). A listing of the Affiliates, which is periodically updated, is attached as Exhibit A.
2. Any officer, director or employee of any Company, Affiliate or Fund Client (as defined below) whose job regularly involves him in the investment process. This includes the formulation and making of investment recommendations and decisions, the purchase and sale of securities for clients and the utilization of information about investment recommendations, decisions and trades. Due to the manner in which the Companies and the Affiliates conduct their business, every employee should assume that he is subject to the Code unless the Compliance Officer specifies otherwise.
3. With respect to all of the Companies, Affiliates and Fund Clients except Gabelli & Company, Inc., any natural person who controls any of the Companies, Affiliates or Fund Clients and who obtains information regarding the Companies' or the Affiliates' investment recommendations or decisions. However, a person whose control arises only as a result of his official position with such entity is excluded. Disinterested directors of Fund Clients and Independent Directors, for example, are excluded from coverage under this item.
4. With respect to all of the Companies and Fund Clients except Gabelli & Company, Inc., any director, officer, general partner or person performing a similar function even if he has no knowledge of and is not involved in the investment process. Disinterested directors of Fund Clients and Independent Directors are included in coverage under this item.
5. As an exception, the Code does not apply to any director, officer or employee of any Fund Client (such as certain of The Gabelli Westwood Funds) with respect to which the Companies' services do not involve the formulation or making of investment recommendations or decisions or the execution of portfolio transactions if that person is also a director, officer or employee of any entity that does perform such services (such as Westwood Management Corp.). These individuals are covered by codes of ethics adopted by such entities.
B. Definitions
1. Access Persons. The Companies and the persons described in items (A)2 and (A)3 above other than those excluded by item (A)5 above.
2. Access Person Account. Includes all advisory, brokerage, trust or other accounts or forms of direct beneficial ownership in which one or more Access Persons and/or one or more members of an Access Person's immediate family have a substantial proportionate economic interest. Immediate family includes an Access Person's spouse and minor children living with the Access Person. A substantial proportionate economic interest will generally be 10% of the equity in the account in the case of any single Access Person and 25% of the equity in the account in the case of all Access Persons in the aggregate, whichever is first applicable. Investment partnerships and similar indirect means of ownership other than registered open-end investment companies are also treated as accounts.
As an exception, accounts in which one or more Access Persons and/or their immediate family have a substantial proportionate interest which are maintained with persons who have no affiliation with the Companies and with respect to which no Access Person has, in the judgment of the Compliance Officer after reviewing the terms and circumstances, any direct or indirect influence or control over the investment or portfolio execution process are not Access Person Accounts.
As a further exception, subject to the provisions of Article II(I)7, bona fide market making accounts of Gabelli & Company, Inc. are not Access Person Accounts.
As a further exception, subject to the provisions of Article II(I)7, bona fide error accounts of the Companies and the Affiliates are not Access Person Accounts.
3. Associate Portfolio Managers. Access Persons who are engaged in securities research and analysis for designated Clients or are responsible for investment recommendations for designated Clients but who are not principally responsible for investment decisions with respect to any Client accounts.
4. Clients. Investment advisory accounts maintained with any of the Companies or Affiliates by any person, other than Access Person Accounts. However, Fund Clients covered by item (A)(5) above are considered Client accounts only with respect to employees specifically identified by the Compliance Officer as having regular information regarding investment recommendations or decisions or portfolio transactions for such Fund Clients.
5. Companies. The companies named or described at the top of page one of the Code.
6. Compliance Officer. The persons designated as the compliance officers of the Companies.
7. Covered Persons. The Companies, the Access Persons and the persons described in item (A)4 above.
8. Fund Clients. Clients that are registered investment companies or series thereof.
9. Independent Directors. A director of any of the Companies or Affiliates who would not be an "interested person" of any of such entities under Section 2(a)(19)(B) of the Investment Company Act of 1940 but for the fact that he serves as such a director and may own beneficially less than 5% of the voting securities of any such entity and who does not have any involvement in the day-to-day activities of any of the Companies or Fund Clients.
10. Portfolio Managers. Access Persons who are principally responsible for investment decisions with respect to any Client accounts.
11. Security. Any financial instrument treated as a security for investment purposes and any related instrument such as a futures, forward or swap contract entered into with respect to one or more securities, a basket of or an index of securities or components of securities. However, the term security does not include securities issued by the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements, or shares of registered open-end investment companies.
II. Restrictions on Personal Investing Activities
A. Basic Restriction on Investing Activities
If a purchase or sale order is pending or under active consideration for any Client account by any Company or Affiliate, neither the same Security nor any related Security (such as an option, warrant or convertible security) may be bought or sold for any Access Person Account.
B. Initial Public Offerings
No Security or related Security may be acquired in an initial public offering for any Access Person Account.
C. Blackout Period
No Security or related Security may be bought or sold for the account of any Portfolio Manager or Associate Portfolio Manager during the period commencing seven (7) days prior to and ending seven (7) calendar days after the purchase or sale (or entry of an order for the purchase or sale) of that Security or any related Security for the account of any Client with respect to which such person has been designated a Portfolio Manager or Associate Portfolio Manager, unless the Client account receives at least as good a price as the account of the Portfolio Manager or Associate Portfolio Manager and the Compliance Officer determines under the circumstances that the Client account has not been adversely affected (including with respect to the amount of such Security able to be bought by the Client account) by the transaction for the account of the Portfolio Manager or Associate Portfolio Manager.
D. Short-term Trading
No Security or related Security may, within a 60 day period, be bought and sold or sold and bought at a profit for any Access Person Account if the Security or related Security was held at any time during that period in any Client account.
E. Exempt Transactions
Participation on an ongoing basis in an issuer's dividend reinvestment or stock purchase plan, participation in any transaction over which no Access Person had any direct or indirect influence or control and involuntary transactions (such as mergers, inheritances, gifts, etc.) are exempt from the restrictions set forth in paragraphs (A) and (C) above without case by case preclearance under paragraph (G) below.
F. Permitted Exceptions
Purchases and sales of the following Securities for Access Person Accounts are exempt from the restrictions set forth in paragraphs A, C and D above if such purchases and sales comply with the pre-clearance requirements of paragraph (G) below:
1. Non-convertible fixed income Securities rated at least "A";
2. Equity Securities of a class having a market capitalization in excess of $1 billion;
3. Equity Securities of a class having a market capitalization in excess of $500 million if the transaction in question and the aggregate amount of such Securities and any related Securities purchased and sold for the Access Person Account in question during the preceding 60 days does not exceed 100 shares;
4. Municipal Securities; and
5. Securities transactions effected for federal, state or local income tax purposes that are identified to the Compliance Officer at the time as being effected for such purposes.
In addition, the exercise of rights that were received pro rata with other security holders is exempt if the pre-clearance procedures are satisfied.
G. Pre-Clearance of Personal Securities Transactions
No Security may be bought or sold for an Access Person Account unless (i) the Access Person obtains prior approval from the Compliance Officer or, in the absence of the Compliance Officer, from the general counsel of Gabelli Asset Management Inc.; (ii) the approved transaction is completed on the same day approval is received; and (iii) the Compliance Officer or the general counsel does not rescind such approval prior to execution of the transaction (See paragraph I below for details of the Pre-Clearance Process.)
H. Private Placements
The Compliance Officer will not approve purchases or sale of Securities that are not publicly traded, unless the Access Person provides full details of the proposed transaction (including written certification that the investment opportunity did not arise by virtue of such person's activities on behalf of any Client) and the Compliance Officer concludes, after consultation with one or more of the relevant Portfolio Managers, that the Companies would have no foreseeable interest in investing in such Security or any related Security for the account of any Client.
I. Pre-Clearance Process
1. No Securities may be purchased or sold for any Access Person Account unless the particular transaction has been approved in writing by the Compliance Officer or, in his absence, the general counsel of Gabelli Asset Management Inc. The Compliance Officer shall review not less frequently than weekly reports from the trading desk (or, if applicable, confirmations from brokers) to assure that all transactions effected for Access Person Accounts are effected in compliance with this Code.
2. No Securities may be purchased or sold for any Access Person Account other than through the trading desk of Gabelli & Company, Inc., unless express permission is granted by the Compliance Officer. Such permission may be granted only on the condition that the third party broker supply the Compliance Officer, on a timely basis, duplicate copies of confirmations of all personal Securities transactions for such Access Person in the accounts maintained with such third party broker and copies of periodic statements for all such accounts.
3. A Trading Approval Form, attached as Exhibit B, must be completed and submitted to the Compliance Officer for approval prior to entry of an order.
4. After reviewing the proposed trade, the level of potential investment interest on behalf of Clients in the Security in question and the Companies' restricted lists, the Compliance Officer shall approve (or disapprove) a trading order on behalf of an Access Person as expeditiously as possible. The Compliance Officer will generally approve transactions described in paragraph (F) above unless the Security in question or a related security is on the Restricted List or the Compliance Officer believes for any other reason that the Access Person Account should not trade in such Security at such time.
5. Once an Access Person's Trading Approval Form is approved, the form must be forwarded to the trading desk (or, if a third party broker is permitted, to the Compliance Officer) for execution on the same day. If the Access Person's trading order request is not approved, or is not executed on the same day it is approved, the clearance lapses although such trading order request maybe resubmitted at a later date.
6. In the absence of the Compliance Officer, an Access Person may submit his or her Trading Approval Form to the general counsel of Gabelli Asset Management Inc. Trading approval for the Compliance Officer must be obtained from the general counsel, and trading approval for the general counsel must be obtained from the Compliance Officer. In no case will the Trading Desk accept an order for an Access Person Account unless it is accompanied by a signed Trading Approval Form.
7. The Compliance Officer shall review all Trading Approval Forms, all initial, quarterly and annual disclosure certifications and the trading activities on behalf of all Client accounts with a view to ensuring that all Covered Persons are complying with the spirit as well as the detailed requirements of this Code. The Compliance Officer will review all transactions in the market making accounts of Gabelli & Company, Inc. and the error accounts of the Companies and the Affiliates in order to ensure that such transactions are bona fide market making or error transactions or are conducted in accordance with the requirements of this Article II.
III. Other Investment-Related Restrictions
A. Gifts
No Access Person shall accept any gift or other item of more than $100 in value from any person or entity that does business with or on behalf of any Client.
B. Service As a Director
No Access Person shall commence service on the Board of Directors of a publicly traded company or any company in which any Client account has an interest without prior authorization from the Compliance Committee based upon a determination that the Board service would not be inconsistent with the interests of the Clients. The Compliance Committee shall include the senior Compliance Officer of Gabelli Asset Management Inc., the general counsel of Gabelli Asset Management Inc. and at least two of the senior executives from among the Companies.
IV. Reports and Additional Compliance Procedures
A. Every Covered Person must submit a report (a form of which is appended as Exhibit C) containing the information set forth in paragraph (B) below with respect to transactions in any Security in which such Covered Person has or by reason of such transaction acquires, any direct or indirect beneficial ownership (as defined in Exhibit D) in the Security, and with respect to any account established by the Covered Person in which any Securities were held for the direct or indirect benefit of the Covered Person; provided, however, that:
1. a Covered Person who is required to make reports only because he is a director of one of the Fund Clients and who is a "disinterested" director thereof or who is an Independent Director need not make a report with respect to any transactions other than those where he knew or should have known in the course of his duties as a director that any Fund Client has made or makes a purchase or sale of the same or a related Security, or the investment adviser of any such Fund Client has considered causing any Fund Client to purchase or sell the same or a related Security, within 15 days before or after the purchase or sale of such Security or related Security by such director.
2. a Covered Person need not make a report with respect to any transaction effected for, and Securities held in, any account over which such person does not have any direct or indirect influence or control; and
3. a Covered Person will be deemed to have complied with the requirements of this Article IV insofar as the Compliance Officer receives in a timely fashion duplicate monthly or quarterly brokerage statements or transaction confirmations on which all transactions required to be reported hereunder are described.
B. A Covered Person must submit the report required by this Article to the Compliance Officer no later than 10 days after the end of the calendar quarter in which the transaction or account to which the report relates was effected or established, and the report must contain the date that the report is submitted.
1. This report must contain the following information with respect to transactions:
a. The date of the transaction, the title and number of shares and the principal amount of each Security involved;
b. The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
c. The price at which the transaction was effected; and
d. The name of the broker, dealer or bank with or through whom the transaction was effected.
2. This report must contain the following information with respect to accounts established:
a. The name of the broker, dealer or bank with whom the account was established; and
b. The date the account was established.
C. Any report submitted to comply with the requirements of this Article IV may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the Security to which the report relates. A person need not make any report under this Article IV with respect to transactions effected for, and Securities held in, any account over which the person has no direct or indirect influence or control.
D. No later than 10 days after beginning employment with any of the Companies or Affiliates or otherwise becoming a Covered Person, each Covered Person (except for a "disinterested" director of the Fund Client or an Independent Director who is required to submit reports under this Article IV solely by reason of being such a director) must submit a report containing the following information:
1. The title, number of shares and principal amount of each Security in which the Covered Person had any direct or indirect beneficial ownership when the person became a Covered Person;
2. The name of any broker, dealer or bank with whom the Covered Person maintained an account in which any Securities were held for the direct or indirect benefit of the Covered Person as of the date the person became a Covered Person; and
3. The date that the report is submitted.
The form of such report is attached as Exhibit E.
E. Annually each Covered Person must certify that he has read and understood the Code and recognizes that he is subject to such Code. In addition, annually each Covered Person must certify that he has disclosed or reported all personal Securities transactions required to be disclosed or reported under the Code and that he is not subject to any regulatory disability described in the annual certification form. Furthermore, each Covered Person (except for a "disinterested" director of the Fund Client or an Independent Director who is required to submit reports under this Article IV solely by reason of being such a director) annually must submit a report containing the following information (which information must be current as of a date no more than 30 days before the report is submitted):
1. The title, number of shares and principal amount of each Security in which the Covered Person had any direct or indirect beneficial ownership;
2. The name of any broker, dealer or bank with whom the Covered Person maintains an account in which any Securities are held for the direct or indirect benefit of the Covered Person; and
3. The date that the report is submitted.
The form of such certification and report is attached as Exhibit F.
F. At least annually (or quarterly in the case of Items 4 and 5 below), each of the Companies that has a Fund Client or that provides principal underwriting services for a Fund Client shall, together with each Fund Client, furnish a written report to the Board of Directors of the Fund Client that:
1. Describes any issues arising under the Code since the last report.
2. Certifies that the Companies have developed procedures concerning Covered Persons' personal trading activities and reporting requirements relevant to such Fund Clients that are reasonably necessary to prevent violations of the Code;
3. Recommends changes, if any, to the Fund Clients' or the Companies' Codes of Ethics or procedures;
4. Provides a summary of any material or substantive violations of this Code by Covered Persons with respect to such Fund Clients which occurred during the past quarter and the nature of any remedial action taken; and
5. Describes any material or significant exceptions to any provisions of this Code of Ethics as determined under Article VI below.
G. The Compliance Officer shall notify each employee of any of the Companies or Affiliates as to whether such person is considered to be an Access Person or Covered Person and shall notify each other person that is considered to be an Access Person or Covered Person.
V. Sanctions
Upon discovering that a Covered Person has not complied with the requirements of this Code, the Board of Directors of the relevant Company or of the relevant Fund Client, whichever is most appropriate under the circumstances, may impose on that person whatever sanctions the Board deems appropriate, including, among other things, disgorgement of profit, censure, suspension or termination of employment. Material violations of requirements of this Code by employees of Covered Persons and any sanctions imposed in connection therewith shall be reported not less frequently than quarterly to the Board of Directors of any relevant Company or Fund Client, as applicable.
VI. Exceptions
The Compliance Committee of the Companies reserves the right to decide, on a case-by-case basis, exceptions to any provisions under this Code. Any exceptions made hereunder will be maintained in writing by the Compliance Committee and presented to the Board of Directors of any relevant Fund Client at its next scheduled meeting.
VII. Preservation of Documents
This Code, a copy of each report by a Covered Person, any written report made hereunder by the Companies or the Compliance Officer, lists of all persons required to make reports, a list of any exceptions, and the reasons therefor, with respect to Article II.B, and any records under Article II.G with respect to purchases pursuant to Article II.H above, shall be preserved with the records of the relevant Company and any relevant Fund Client for the period required by Rule 17j-1.
VIII. Other Laws, Rules and Statements of Policy
Nothing contained in this Code shall be interpreted as relieving any Covered Person from acting in accordance with the provision of any applicable law, rule or regulation or any other statement of policy or procedure governing the conduct of such person adopted by the Companies, the Affiliates or the Fund Clients.
IX. Further Information
If any person has any question with regard to the applicability of the provisions of this Code generally or with regard to any Securities transaction or transactions, he should consult the Compliance Officer.
EXHIBIT A
LIST OF AFFILIATES OF THE COMPANIES
ALCE Partners, L.P.
Darien Associates LLC
Gabelli Asset Management Inc.
Gabelli Asset Management (UK) Limited
Gabelli Associates Fund
Gabelli Associates Limited
Gabelli Direct Inc.
Gabelli Fixed Income Distributors, Inc.
Gabelli Fixed Income, Inc.
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli International Gold Fund Limited
Gabelli International Limited
Gabelli International II Limited
Gabelli Multimedia Partners, L.P.
Gabelli Performance Partnership L.P.
Gabelli Securities, Inc.
Gabelli Securities International Limited
Gage Limited
Gemini Capital Management, LLC
GLI, Inc.
Gabelli Group Capital Partners, Inc. and Subsidiaries
Gabelli Global Partners, L.P.
Gabelli Global Partners, Ltd.
Gabelli European Partners, L.P.
Gabelli European Partners, Ltd.
Gabelli Fund, LDC
MJG Associates, Inc.
New Century Capital Partners, L.P.
OpNet Partners, L.P.
EXHIBIT B
PRE-CLEARANCE TRADING APPROVAL FORM
I, ______________________________________ (name), am an Access Person or authorized officer thereof and seek pre-clearance to engage in the transaction described below for the benefit of myself or another Access Person:
Acquisition or Disposition (circle one)
Name of Account:______________________________________________________________
Account Number:_______________________________________________________________
Date of Request:______________________________________________________________
Security: ____________________________________________________________________
Amount or # of Shares: _______________________________________________________
Broker: ______________________________________________________________________
If the transaction involves a Security that is not publicly traded, a description of proposed transaction, source of investment opportunity and any potential conflicts of interest:
I hereby certify that, to the best of my knowledge, the transaction described herein is not prohibited by the Code of Ethics and that the opportunity to engage in the transaction did not arise by virtue of my activities on behalf of any Client.
Signature:_____________________________ Print Name:___________________________
Approved or Disapproved(Circle One)
Date of Approval:_____________________________________
Signature:____________________________ Print Name:___________________________
If approval is granted, please forward this form to the trading desk (or if a third party broker is permitted, to the Compliance Officer) for immediate execution.
EXHIBIT C
TRANSACTION REPORT
Report submitted by:___________________________________________________________ Print Name
This transaction report (the "Report") is submitted pursuant to Section IV (B) of the Code of Ethics of the Companies and supplies information with respect to transactions in any Security in which you may be deemed to have, or by reason of such transaction acquire, any direct or indirect beneficial ownership interest, and with respect to accounts established by you in which any Securities were held for your direct or indirect benefit, for the period specified below. If you were not employed by or affiliated with us during this entire period, amend the dates specified below to cover your period of employment or affiliation.
Unless the context otherwise requires, all terms used in the Report shall have the same meaning as set forth in the Code of Ethics.
If you have no reportable transactions or new accounts, sign and return this page only. If you have reportable transactions or new accounts, complete, sign and return Page 2 and any attachments.
I HAD NO REPORTABLE SECURITIES TRANSACTIONS OR ACCOUNTS ESTABLISHED DURING THE PERIOD _________________ THROUGH __________________. I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
Signature______________________________________________________________________
Position_______________________________________________________________________
Date___________________________________________________________________________
TRANSACTION REPORT
Report submitted by:___________________________________________________________ Print Name
The following tables supply the information required by Section IV (B) of the Code of Ethics for the period specified below. Transactions reported on brokerage statements or duplicate confirmations actually received by the Compliance Officer do not have to be listed although it is your responsibility to make sure that such statements or confirmations are complete and have been received in a timely fashion.
TRANSACTIONS
__________________________________________________________________________________________________________________________________
Whether Purchase,
Sale, Short Sale or Name of Broker/Dealer
Securities (Name Other Type of with or through Whom Nature of
and Symbol) Date of Disposition or Quantity of Price per Share the Transaction Ownership of
Transaction Acquisition Securities or Other Unit was Effected Securities
|
NEW ACCOUNTS ESTABLISHED
_______________________________________________________________________________________________________________
Name of Broker, Dealer or Bank Account Number Date Account Established
|
* To the extent specified above, I hereby disclaim beneficial ownership of any securities listed in this Report or brokerage statements or transaction confirmations provided by me.
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT FOR THE PERIOD OF ____________ THROUGH ______________.
Signature____________________________ Date_________________________________
Position_____________________________
EXHIBIT D
BENEFICIAL OWNERSHIP
For purposes of the attached Code of Ethics, "beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except the determination of direct or indirect beneficial ownership shall apply to all securities that a Covered Person has or acquires. The term "beneficial ownership" of securities would include not only ownership of securities held be a Covered Person for his own benefit, whether in bearer form or registered in his name or otherwise, but also ownership of securities held for his benefit by others (regardless of whether or how they are registered) such as custodians, brokers, executors, administrators, or trustees (including trusts in which he has only a remainder interest), and securities held for his account by pledges, securities owned by a partnership in which he is a member if he may exercise a controlling influence over the purchase, sale of voting of such securities, and securities owned by any corporation or similar entry in which he owns securities if the shareholder is a control-ling shareholder of the entity and has or shares investment control over the entity's portfolio.
Ordinarily, this term would not include securities held by executors or administrators in estates in which a Covered Person is a legatee or beneficiary unless there is a specified legacy to such person of such securities or such person is the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such legacy, or the securities are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as beneficially owned by a Covered Person where such person enjoys "financial benefits substantially equivalent to ownership." The Securities and Exchange Commission has said that, although the final determination of beneficial ownership is a question to be determined in the light of the facts of the particular case, generally a person is regarded as the beneficial owner of securities held in the name of his or her spouse and their minor children. Absent special circumstances such relationship ordinarily results in such person obtaining financial benefits substantially equivalent to ownership, e.g., application of the income derived from such securities to maintain a common home, or to meet expenses that such person otherwise would meet from other sources, or the ability to exercises a controlling influence over the purchase, sale or voting of such securities.
A Covered Person also may be regarded as the beneficial owner of securities held in the name of another person, if by reason of any contract, understanding, relationship, agreement, or other agreement, he obtains therefrom financial benefits substantially equivalent to those of ownership.
A Covered Person also is regarded as the beneficial owner of securities held in the name of a spouse, minor children or other person, even though he does not obtain therefrom the aforementioned benefits of ownership, if he can vest or revest title in himself at once or at some future time.
EXHIBIT E
INITIAL HOLDINGS REPORT
Report submitted by:___________________________________________________________ Print Name
This initial holdings report (the "Report") is submitted pursuant to Section IV (D) of the Code of Ethics of the Companies and supplies information with respect to any Security in which you may be deemed to have any direct or indirect beneficial ownership interest and any accounts established by you in which any Securities were held for your direct or indirect benefit, as of the date you became subject to the Code of Ethics.
Unless the context otherwise requires, all terms used in the Report shall have the same meaning as set forth in the Code of Ethics.
If you have no reportable Securities or accounts, sign and return this page only. If you have reportable Securities or accounts, complete, sign and return Page 2 and any attachments.
I HAVE NO REPORTABLE SECURITIES OR ACCOUNTS AS OF ___________________. I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION FURNISHED IN THIS REPORT IS TRUE AND CORRECT.
Signature _____________________________________________________________________
Position ______________________________________________________________________
Date __________________________________________________________________________
INITIAL HOLDINGS REPORT
Report submitted by:___________________________________________________________ Print Name
The following tables supply the information required by Section IV (D) of the Code of Ethics as of the date you became subject to the Code.
SECURITIES HOLDINGS
________________________________________________________________________________________________________________________
Name of Broker/Dealer Where Nature of Ownership of
Securities (Name and Symbol) Quantity of Securities Securities Are Held Securities
|
ACCOUNTS
________________________________________________________________________________________________________________________
Name of Broker, Dealer or Bank Account Number
|
I CERTIFY THAT I AM FULLY FAMILIAR WITH THE CODE OF ETHICS AND THAT, TO THE BEST OF MY KNOWLEDGE, THE INFORMATION IN THIS REPORT IS TRUE AND CORRECT AS OF __________________________________.
Signature _________________________________ Date___________________________
Position __________________________________
EXHIBIT F
ANNUAL CERTIFICATION OF CODE OF ETHICS
A. I (a Covered Person) hereby certify that I have read and understood the Code of Ethics dated February 2001, and recognize that I am subject to its provisions. In addition, I hereby certify that I have disclosed or reported all personal Securities transactions required to be disclosed or reported under the Code of Ethics;
B. Within the last ten years there have been no complaints or disciplinary actions filed against me by any regulated securities or commodities exchange, any self-regulatory securities or commodities organization, any attorney general, or any governmental office or agency regulating insurance, securities, commodities or financial transactions in the United States, in any state of the United States, or in any other country;
C. I have not within the last ten years been convicted of or acknowledged commission of any felony or misdemeanor arising out of my conduct as an employee, salesperson, officer, director, insurance agent, broker, dealer, underwriter, investment manager or investment advisor; and
D. I have not been denied permission or otherwise enjoined by order, judgment or decree of any court of competent jurisdiction, regulated securities or commodities exchange, self-regulatory securities or commodities organization or other federal or state regulatory authority from acting as an investment advisor, securities or commodities broker or dealer, commodity pool operator or trading advisor or as an affiliated person or employee of any investment company, bank, insurance company or commodity broker, dealer, pool operator or trading advisor, or from engaging in or continuing any conduct or practice in connection with any such activity or the purchase or sale of any security.
E. Unless I am exempt from filing an Annual Holdings Report (as a "disinterested" director of a Fund Client or an independent director of an Affiliate), I have attached a completed Annual Holdings Report which is accurate as of a date no more than 30 days ago.
Print Name:____________________________________________________________________
Signature:_____________________________________________________________________
Date: _________________________________________________________________________
ANNUAL holdings REPORT
Report submitted by:___________________________________________________________ Print Name
The following tables supply the information required by Section IV (E) of the Code of Ethics as of a date no more than 30 days before this report is submitted. If you have no reportable Securities holdings or accounts, write "None" in the space provided.
SECURITIES HOLDINGS
________________________________________________________________________________________________________________________
Name of Broker/Dealer Where Nature of Ownership
Securities (Name and Symbol) Quantity of Securities Securities Are Held of Securities
|
ACCOUNTS
________________________________________________________________________________________________________________________
Name of Broker, Dealer or Bank Account Number
|
Signature ______________________________ Date ______________________________
Position _______________________________
Exhibit 99(r)(ii)
CODE OF CONDUCT FOR
CHIEF EXECUTIVE AND SENIOR FINANCIAL OFFICERS
OF
THE GABELLI FUNDS
AS ADOPTED BY THE BOARDS OF TRUSTEES/DIRECTORS
MAY 2003
Each Fund listed on Exhibit 1 hereto (each a "Company") is committed to conducting business in accordance with applicable laws, rules and regulations and the highest standards of business ethics, and to full and accurate disclosure -- financial and otherwise -- in compliance with applicable law. This Code of Conduct, applicable to each Company's Chief Executive Officer, President, Chief Financial Officer and Treasurer (or persons performing similar functions) (together, "Senior Officers"), sets forth policies to guide you in the performance of your duties.
As a Senior Officer, you must comply with applicable law. You also have a responsibility to conduct yourself in an honest and ethical manner. You have leadership responsibilities that include creating a culture of high ethical standards and a commitment to compliance, maintaining a work environment that encourages the internal reporting of compliance concerns and promptly addressing compliance concerns.
This Code of Conduct recognizes that the Senior Officers are subject to certain conflicts of interest inherent in the operation of investment companies, because the Senior Officers currently or may in the future serve as Senior Officers of each of the Companies, as officers or employees of the investment advisor to the Companies (the "Advisor") and/or affiliates of the Advisor (the "Advisory Group") and as officers or trustees/directors of other registered investment companies and unregistered investment funds advised by the Advisory Group. This Code of Conduct also recognizes that certain laws and regulations applicable to, and certain policies and procedures adopted by, the Companies or the Advisory Group govern your conduct in connection with many of the conflict of interest situations that arise in connection with the operations of the Companies, including:
o the Investment Company Act of 1940, and the rules and regulation promulgated thereunder by the Securities and Exchange Commission (the "1940 Act");
o the Investment Advisers Act of 1940, and the rules and regulations promulgated thereunder by the Securities and Exchange Commission (the "Advisers Act");
o the Code of Ethics adopted by each Company pursuant to Rule 17j-1(c) under the 1940 Act (collectively, the "Company's 1940 Act Code of Ethics");
o one or more codes of ethics adopted by the Advisory Group that have been reviewed and approved by those trustees/directors (the "Directors") of each Company that are not "interested persons" of such Company (the "Independent Directors") within the meaning of the 1940 Act (the "Advisory Group's 1940 Act Code of Ethics" and, together with such Company's 1940 Act Code of Ethics, the "1940 Act Codes of Ethics");
o the policies and procedures adopted by each Company to address conflict of interest situations, such as procedures under Rule 10f-3, Rule 17a-7, Rule 17d-1 and Rule 17e-1 under the 1940 Act (collectively, the "Conflict Policies"); and
o the Advisory Group's policies and procedures to address, among other things, conflict of interest situations and related matters (collectively, the "Advisory Policies").
The provisions of the 1940 Act, the Advisers Act, the 1940 Act Codes of Ethics, the Conflict Policies and the Advisory Policies are referred to herein collectively as the "Additional Conflict Rules".
This Code of Conduct is different from, and is intended to supplement, the Additional Conflict Rules. Accordingly, a violation of the Additional Conflict Rules by a Senior Officer is hereby deemed not to be a violation of this Code of Conduct, unless and until the Directors shall determine that any such violation of the Additional Conflict Rules is also a violation of this Code of Conduct.
Senior Officers Should Act Honestly and Candidly
Each Senior Officer has a responsibility to each Company to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity.
Each Senior Officer must:
o act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Additional Conflict Rules;
o comply with the laws, rules and regulations that govern the conduct of each Company's operations and report any suspected violations thereof in accordance with the section below entitled "Compliance With Code Of Conduct"; and
o adhere to a high standard of business ethics.
Conflicts Of Interest
A conflict of interest for the purpose of this Code of Conduct occurs when your private interests interfere in any way, or even appear to interfere, with the interests of a Company.
Senior Officers are expected to use objective and unbiased standards when making decisions that affect each Company, keeping in mind that Senior Officers are subject to certain inherent conflicts of interest because Senior Officers of a Company also are or may be officers of other Companies and/or the Advisory Group (as a result of which it is incumbent upon you to be familiar with and to seek to comply with the Additional Conflict Rules).
You are required to conduct the business of each Company in an honest and ethical manner, including the ethical handling of actual or apparent conflicts of interest between personal and business relationships. When making any investment, accepting any position or benefits, participating in any transaction or business arrangement or otherwise acting in a manner that creates or appears to create a conflict of interest with respect to each Company where you are receiving a personal benefit, you should act in accordance with the letter and spirit of this Code of Conduct.
If you are in doubt as to the application or interpretation of this Code of Conduct to you as a Senior Officer of a Company, you should make full disclosure of all relevant facts and circumstances to the general counsel of the Advisory Group (the "General Counsel") and obtain the approval of the General Counsel prior to taking action.
Some conflict of interest situations that should always be approved by the General Counsel, if material, include the following:
o the receipt of any entertainment or non-nominal gift by the Senior Officer, or a member of his or her family, from any company with which a Company has current or prospective business dealings (other than the Advisory Group), unless such entertainment or gift is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety;
o any ownership interest in, or any consulting or employment relationship with, of any of the Companies' service providers, other than the Advisory Group; or
o a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Senior Officer's employment by the Advisory Group, such as compensation or equity ownership.
Disclosures
It is the policy of each Company to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that such Company files with, or submits to, the Securities and Exchange Commission or a national securities exchange and in all other public communications made by such Company. As a Senior Officer, you are required to promote compliance with this policy and to abide by such Company 's standards, policies and procedures designed to promote compliance with this policy.
Each Senior Officer must:
o familiarize himself or herself with the disclosure requirements applicable to each Company as well as the business and financial operations of each Company; and
o not knowingly misrepresent, or cause others to misrepresent, facts about any Company to others, including to the Directors, such Company's independent auditors, such Company's counsel, any counsel to the Independent Directors, governmental regulators or self-regulatory organizations.
Compliance With Code Of Conduct
If you know of or suspect a violation of this Code of Conduct or other laws, regulations, policies or procedures applicable to any Company, you must report that information on a timely basis to the General Counsel or report it anonymously by following the "whistle blower" policies adopted by the Advisory Group from time to time. No one will be subject to retaliation because of a good faith report of a suspected violation.
Each Company will follow these procedures in investigating and enforcing this Code of Conduct, and in reporting on this Code of Conduct:
o the General Counsel will take all appropriate action to investigate any actual or potential violations reported to him or her;
o violations and potential violations will be reported to the Board of Directors of each affected Company after such investigation;
o if the Board of Directors determines that a violation has occurred, it will take all appropriate disciplinary or preventive action; and
o appropriate disciplinary or preventive action may include a letter of censure, suspension, dismissal or, in the event of criminal or other serious violations of law, notification to the Securities and Exchange Commission or other appropriate law enforcement authorities.
Waivers Of Code Of Conduct
Except as otherwise provided in this Code of Conduct, the General Counsel is responsible for applying this Code of Conduct to specific situations in which questions are presented to the General Counsel and has the authority to interpret this Code of Conduct in any particular situation. The General Counsel shall take all action he or she considers appropriate to investigate any actual or potential violations reported under this Code of Conduct.
The General Counsel is authorized to consult, as appropriate, with counsel to the affected Company, the Advisory Group or the Independent Directors, and is encouraged to do so.
The Board of Directors of the affected Company is responsible for granting waivers of this Code of Conduct, as appropriate. Any changes to or waivers of this Code of Conduct will, to the extent required, be disclosed on Form N-CSR, or otherwise, as provided by Securities and Exchange Commission rules.
Recordkeeping
Each Company will maintain and preserve for a period of not less than six (6) years from the date an action is taken, the first two (2) years in an easily accessible place, a copy of the information or materials supplied to the Boards of Directors pursuant to this Code of Conduct:
o that provided the basis for any amendment or waiver to this Code of Conduct; and
o relating to any violation of this Code of Conduct and sanctions imposed for such violation, together with a written record of the approval or action taken by the relevant Board of Directors.
Confidentiality
All reports and records prepared or maintained pursuant to this Code of Conduct shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code of Conduct, such matters shall not be disclosed to anyone other than the Independent Directors and their counsel, the Companies and their counsel, the Advisory Group and its counsel and any other advisors, consultants or counsel retained by the Directors, the Independent Directors or any committee of Directors.
Amendments
This Code of Conduct may not be amended as to any Company except in written form, which is specifically approved by a majority vote of the affected Company's Directors, including a majority of its Independent Directors.
No Rights Created
This Code of Conduct is a statement of certain fundamental principles, policies and procedures that govern each of the Senior Officers in the conduct of the Companies' business. It is not intended to and does not create any rights in any employee, investor, supplier, competitor, shareholder or any other person or entity.
ACKNOWLEDGMENT FORM
I have received and read the Joint Code of Conduct for Chief Executive and Senior Financial Officers, and I understand its contents. I agree to comply fully with the standards contained in the Code of Conduct and the Company's related policies and procedures. I understand that I have an obligation to report any suspected violations of the Code of Conduct on a timely basis to the General Counsel or report it anonymously by following the "whistle blower" policies adopted by the Advisory Group from time to time.