As filed with the Securities and Exchange Commission on March 17, 2003
Securities Act File No. 333-102755
Investment Company Act File No. 811-8476
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM N-2
________________________
[X] Registration Statement under the Securities Act of 1933
[X] Pre-Effective Amendment No. 1
[ ] Post-Effective Amendment No.
and/or
[X] Registration Statement under the Investment
Company Act of 1940
[X] Amendment No. 8
(Check Appropriate Box or Boxes)
________________________
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
(Exact Name of Registrant as Specified in Charter)
________________________
One Corporate Center
Rye, New York 10580-1434
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 422-3554
Bruce N. Alpert
The Gabelli Global Multimedia Trust Inc.
One Corporate Center
Rye, New York 10580-1422
(914) 921-5100
(Name and Address of Agent for Service)
________________________
Copies to:
Richard T. Prins, Esq. James McKee, Esq. Cynthia G. Cobden, Esq.
Skadden, Arps, Slate, The Gabelli Global Multimedia Trust Inc. Simpson Thacher & Bartlett
Meagher & Flom LLP One Corporate Center 425 Lexington Avenue
Four Times Square Rye, New York 10580-14 New York, New York 10017 New York, New York 10036
(212) 735-3000 (914) 921-5100 (212) 455-2000
________________________
Approximate date of proposed public offering: As soon as practicable
after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, as amended, other than securities offered in connection with a
dividend reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective
(check appropriate box)
[X] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date
for a previously filed
[post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the
Securities Act registration statement number of the earlier
effective registration statement for the same offering is
[ ].
________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed
Proposed Maximum
Maximum Aggregate
Amount Being Offering Price Offering Amount of
Title of Securities Registered Per Share Price (1) Registration Fee (2)
------------------- ------------ -------------- ----------- --------------------
Series B ___% Cumulative 40,000 Shares $25 $1,000,000 $92
Preferred Stock
Series C Auction Rate Cumulative 100 Shares $25,000 $2,500,000 $230
Preferred Stock
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Previously paid.
________________________
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
CROSS-REFERENCE SHEET
N-2 Item Number Location in Part A (Caption)
-------------------------------------------------------------------------------------------------------------------
PART A
i. Outside Front Cover................................ Outside Front Cover Page
ii. Inside Front and Outside Back Cover
Page............................................. Outside Front Cover Page; Inside
Front Cover Page
iii. Fee Table and Synopsis............................. Not Applicable
iv. Financial Highlights............................... Financial Highlights
v. Plan of Distribution............................... Outside Front Cover Page; Sum
mary; Underwriting
vi. Selling Shareholders............................... Not Applicable
vii. Use of Proceeds.................................... Use of Proceeds; Investment Ob
jectives and Policies
viii. General Description of the
Registrant....................................... Outside Front Cover Page; Sum
mary; The Fund; Investment Objec
tives and Policies; Risk Factors &
Special Considerations; How the
Fund Manages Risk; Description of
Series B Preferred and Series C
Auction Rate Preferred; Anti-take
over Provisions of the Charter and
By-Laws
ix. Management......................................... Outside Front Cover Page; Sum
mary; Management of the Fund;
Custodian, Transfer Agent, Auc
tion Agent and Divi
dend-Disbursing Agent
x. Capital Stock, Long-Term Debt,
and Other Securities............................. Outside Front Cover Page; Sum
mary; Investment Objectives and
Policies; Description of Series B
Preferred and Series C Auction
Rate Preferred; Description of Cap
ital Stock and Other Securities;
Taxation
xi. Defaults and Arrears on Senior
Securities....................................... Not Applicable
xii. Legal Proceedings.................................. Not Applicable
xiii. 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...................... The Fund
17. Investment Objectives and
Policies..................... Investment Objectives and Policies;
Investment Restrictions
18. Management.................... Management of the Fund
19. Control Persons and Principal
Holders of Securities........ Management of the Fund;
Beneficial Owners
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.......... Financial Statements
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, DATED MARCH 17, 2003
PROSPECTUS [GABELLI LOGO]
The Gabelli
Global Multimedia Trust Inc.
Shares, Series B % Cumulative Preferred Stock
(Liquidation Preference $25 per Share)
Shares, Series C Auction Rate Cumulative Preferred Stock
(Liquidation Preference $25,000 per Share)
The Gabelli Global Multimedia Trust Inc., or the Fund, is a
closed-end non-diversified management investment company that has a primary
investment objective of long-term growth of capital and a secondary investment
objective of income. The Fund's investments are selected by its Investment
Adviser, Gabelli Funds, LLC. The Fund invests primarily in common stock and in
other debt or equity securities of foreign and domestic companies involved in
the telecommunications, media, publishing and entertainment industries.
This prospectus describes shares of the Fund's Series B % Cumulative
Preferred Stock (the "Series B Preferred"), liquidation preference $25 per
share. Dividends on shares of Series B Preferred issued within 30 days of the
original Series B Preferred issue date are cumulative from such original issue
date at the annual rate of % of the liquidation preference of $25 per share
and are payable on March 26, June 26, September 26 and December 26 in each
year, commencing on , 2003.
This prospectus also describes shares of the Fund's Series C Auction
Rate Cumulative Preferred Stock (the "Series C Auction Rate Preferred"),
liquidation preference $25,000 per share. The dividend rate for the Series C
Auction Rate Preferred will vary from dividend period to dividend period. The
annual dividend rate for the initial dividend period for the Series C Auction
Rate Preferred will be % of the liquidation preference of $25,000 per share.
The initial dividend period is from the date of issuance through , 2003. For
subsequent dividend periods, the Series C Auction Rate Preferred will pay
dividends based on a rate set at auction, usually held weekly.
The Fund offers by this prospectus, in the aggregate, $ million of
preferred stock of either Series B Preferred, or Series C Auction Rate
Preferred, or a combination of both series.
Investing in our Series B Preferred or Series C Auction Rate
Preferred involves risks. See "Risk Factors and Special Considerations"
beginning on page .
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.
Per Share of
Per Share of Series C
Series B Auction Rate
Preferred Total Preferred Total
Public Offering Price(1) $ $ $ $
Underwriting Discount(2) $ $ $ $
Proceeds to the Fund
(before expenses)(3) $ $ $ $
(1) Plus accumulated dividends, if any, from .
(2) The Fund and the Investment Adviser have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
(3) Offering expenses payable by the Fund are estimated at $ .
_________________
The shares of Series B Preferred and/or Series C Auction Rate
Preferred being offered by this prospectus are being offered by the
underwriters listed in this prospectus, subject to prior sale, when, as and if
accepted by them and subject to certain conditions. The Fund expects that
delivery of any shares of Series B Preferred or Series C Auction
Rate Preferred will be made in book-entry form through the facilities of The
Depository Trust Company ("DTC") on or about , 2003.
Salomon Smith Barney
Gabelli & Company, Inc.
March , 2003
(Continued from previous page)
Application has been made to list the Series B Preferred on the New
York Stock Exchange. If offered, trading of the Series B Preferred on the New
York Stock Exchange is expected to commence within 30 days of the date of this
prospectus. Prior to this offering, there has been no public market for the
Series B Preferred. See "Underwriting."
The Series C Auction Rate Preferred will not be listed on an
exchange. Investors may only buy or sell Series C Auction Rate Preferred
through an order placed at an auction with or through a broker-dealer in
accordance with the procedures specified in this prospectus or in a secondary
market maintained by certain broker-dealers should those broker-dealers decide
to maintain a secondary market. Broker-dealers are not required to maintain a
secondary market in the Series C Auction Rate Preferred and a secondary market
may not provide you with liquidity.
The net proceeds of the offering, which are expected to be , will be
invested in accordance with the Fund's investment objectives and policies. A
portion of the net proceeds will be used to redeem all of the Fund's
outstanding 7.92% Cumulative Preferred Stock, liquidation preference $25 per
share (the "Series A Preferred"). See "Investment Objectives and Policies"
beginning on page .
The Fund expects that dividends paid on the Series B Preferred and
Series C Auction Rate Preferred will consist of long-term capital gains
(consisting of 20% federal tax rate capital gains from the sale of assets held
longer than 12 months), ordinary income (including net investment income and
short-term capital gains), and, in certain circumstances, a return of capital.
Over the past one, three and five fiscal years ending December 31, 2002, the
distributions of taxable income by the Fund consisted of %, % and %
long-termcapital gains. No assurance can be given, however, as to what
percentage of the dividends paid on the Series B Preferred or Series C Auction
Rate Preferred will consist of long-term capital gains, which are taxed at lower
rates for individuals than ordinary income.
Neither the Series B Preferred nor the Series C Auction Rate
Preferred may be issued unless it is rated Aaa by Moody's Investors Service,
Inc. ("Moody's"). In addition, the Series C Auction Rate Preferred may not be
issued unless it is also rated AAA by Fitch, Inc. ("Fitch"). In order to keep
these ratings, the Fund will be required to maintain a minimum discounted
asset coverage with respect to its outstanding Series B Preferred and Series C
Auction Rate Preferred under guidelines established by each of Moody's and
Fitch. See "Description of the Series B Preferred and Series C Auction Rate
Preferred -- Rating Agency Guidelines." The Fund is also required to maintain
a minimum asset coverage by the Investment Company Act of 1940, as amended
(the "1940 Act"). If the Fund fails to maintain any of these minimum asset
coverage requirements, the Fund can at its option (and in certain
circumstances must) require, in accordance with its Charter and the
requirements of the 1940 Act, that some or all of its outstanding preferred
stock, including the Series B Preferred and/or Series C Auction Rate
Preferred, be sold back to it (redeemed). Otherwise, prior to , 2008 the
Series B Preferred will be redeemable at the option of the Fund only to the
extent necessary for the Fund to continue to qualify for tax treatment as a
regulated investment company. Subject to certain notice and other requirements
(including those set forth in Section 23(c) of the 1940 Act), the Fund at its
option may redeem (i) the Series B Preferred beginning on , 2008 and (ii) the
Series C Auction Rate Preferred following the initial dividend period (so long
as the Fund has not designated a non-call period). In the event the Fund
redeems Series B Preferred such redemption will be for cash at a redemption
price equal to $25 per share plus accumulated but unpaid dividends (whether or
not earned or declared). In the event the Fund redeems Series C Auction Rate
Preferred, such redemptions will be for cash, generally at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends (whether or
not earned or declared), though in limited circumstances the Fund's Board of
Directors may also declare a redemption premium.
This prospectus concisely sets forth important information about the
Fund that you should know before deciding whether to invest in Series B
Preferred or Series C Auction Rate Preferred. You should read this prospectus
and retain it for future reference.
The Fund has also filed with the Securities Exchange Commission a
Statement of Additional Information, dated March , 2003 (the "SAI"), which
contains additional information about the Fund. The SAI is incorporated by
reference in its entirety into this prospectus. You can review the table of
contents of the SAI on page of this prospectus. You may request a free copy
of the SAI by writing to the Fund at its address at One Corporate Center, Rye,
New York 10580-1422 or calling the Fund toll-free at (800) 422-3554. You may
also obtain the SAI on the Securities and Exchange Commission's web site
(http://www.sec.gov).
Certain persons participating in the offering of Series B Preferred,
in the event they are offered, may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Series B Preferred,
including the entry of stabilizing bids, syndicate covering transactions or
the imposition of penalty bids. For a description of these activities, see
"Underwriting."
You should rely only on the information contained in or incorporated by
reference into this prospectus. Neither the Fund nor the underwriters have
authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. Neither the Fund nor the underwriters are making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
TABLE OF CONTENTS
Page
----
Summary........................................................................
Tax Attributes of Preferred Stock Dividends....................................
Financial Highlights...........................................................
Use of Proceeds................................................................
The Fund.......................................................................
Capitalization.................................................................
Investment Objectives and Policies.............................................
Risk Factors and Special
Considerations............................................................
How the Fund Manages Risk......................................................
Management of the Fund.........................................................
Portfolio Transactions.........................................................
Dividends and Distributions....................................................
Description of Series B Preferred and Series C Auction Rate Preferred..........
The Auction of Series C Auction Rate Preferred ................................
Description of Capital Stock and Other Securities .............................
Taxation.......................................................................
Anti-takeover Provisions of the Charter and By-Laws............................
Custodian, Transfer Agent, Auction Agent and
Dividend-Disbursing Agent.................................................
Underwriting...................................................................
Legal Matters..................................................................
Experts........................................................................
Additional Information.........................................................
Special Note Regarding Forward-Looking Statements..............................
Table of Contents of SAI.......................................................
Appendix A..................................................................A-1
SUMMARY
This is only a summary. You should review the more detailed information contained in this prospectus
and the SAI.
The Fund The Fund is a closed-end, non-diversified, management investment
company that has been in operation since November 15, 1994. The
Fund was incorporated in Maryland on May 31, 1994. The Fund's
outstanding shares of common stock, par value $.001 per share, are
listed and traded on the New York Stock Exchange ("NYSE"). As of
December 31, 2002, the sum of the net assets of the Fund plus the
liquidation value of the Fund's outstanding preferred stock ($
million) was approximately $ million. As of December 31, 2002,
the Fund had outstanding 14,284,953 shares of common stock and
926,025 shares of the Series A Preferred. The Fund expects to redeem
all of its outstanding Series A Preferred on March 28, 2003, or as soon
thereafter as is practicable following the issuance of the preferred stock
offered by this prospectus.
The Offering The Fund offers by this prospectus, in the aggregate, $ million of
preferred stock of either Series B Preferred or Series C Auction Rate
Preferred, or a combination of both such series. The Series B Preferred
and/or Series C Auction Rate Preferred are being offered by Salomon
Smith Barney Inc. and Gabelli & Company, Inc. as underwriters. Upon
issuance, the Series B Preferred and the Series C Auction Rate
Preferred will have equal seniority with respect to dividends and
liquidation preference. See "Description of the Series B Preferred and
Series C Auction Rate Preferred."
Series B Preferred. The Fund is offering shares of % Series B
Cumulative Preferred, par value $.001 per share, liquidation preference
$25 per share, at a purchase price of $25 per share. Dividends on the
shares of Series B Preferred will accumulate from the date on which
such shares are issued; provided, however, that any shares of Series B
Preferred issued within 30 days of the original issue date of the series
will accumulate dividends from the series' original date of issue.
Application has been made to list the Series B Preferred on the New
York Stock Exchange.
Series C Auction Rate Preferred. The Fund is offering shares of
Series C Auction Rate Preferred, par value $.001 per share, liquidation
preference $25,000 per share at a purchase price of $25,000 per share,
plus dividends, if any, that have accumulated from the commencement
date of the dividend period during which such Series C Auction Rate
Preferred is issued.
The Series C Auction Rate Preferred will not be listed on an exchange.
Instead, investors may buy or sell Series C Auction Rate Preferred in
an auction by submitting orders to broker-dealers that have entered into
an agreement with the auction agent and the Fund.
Generally, investors in Series B Preferred or Series C Auction Rate
Preferred will not receive certificates representing ownership of their
shares. The securities depository (DTC or any successor) or its
nominee for the account of the investor's broker-dealer will maintain
record ownership of the preferred stock shares in book-entry form. An
investor's broker-dealer, in turn, will maintain records of that investor's
beneficial ownership of preferred stock.
Investment Objectives The Fund's primary investment objective is long-term growth of
capital, primarily through investment in a portfolio of common stock
and other securities of foreign and domestic companies involved in the
telecommunications, media, publishing and entertainment industries.
Income is a secondary objective of the Fund. No assurance can be
given that the Fund will achieve its investment objectives. See
"Investment Objectives and Policies."
Dividends
and Distributions Series B Preferred. Dividends on the Series B Preferred, at the annual
rate of % of its $25 per share liquidation preference, are cumulative
from the Series B Preferred's original issue date for any shares issued
within 30 days of such original issue date and are payable, when, as
and if declared by the Board of Directors of the Fund, out of funds
legally available therefor, quarterly on March 26, June 26, September
26 and December 26 in each year, commencing on , 2003. Any
Series B Preferred issued later than 30 days following the original issue
date will accumulate dividends from the date such shares are issued.
Series C Auction Rate Preferred. The holders of Series C Auction
Rate Preferred are entitled to receive cash dividends stated at annual
rates of its $25,000 per share liquidation preference, that will vary from
dividend period to dividend period. The table below shows the
dividend rate, the dividend payment date and the number of days for
the initial dividend period on the Series C Auction Rate Preferred.
Dividend
Initial Payment Date Number of
Dividend for Initial Days of Initial
Rate Dividend Period Dividend Period
---- --------------- ---------------
Series C
Auction Rate
Preferred......... % , 2003
For subsequent dividend periods, the Series C Auction Rate Preferred
will pay dividends based on a rate set at auctions, normally held
weekly. In most instances, dividends are payable weekly, on the first
business day following the end of the dividend period. If the day on
which dividends otherwise would be paid is not a business day, then
dividends will be paid on the first business day that falls after the end
of the dividend period. The Fund may, subject to certain conditions,
designate special dividend periods of more (or less) than seven days.
The dividend payment date for any such special dividend period will
be set out in the notice designating the special dividend period.
Dividends on shares of Series C Auction Rate Preferred will be
cumulative from the date such shares are issued and will be paid out of
legally available funds.
In no event will the dividend rate set at auction for the Series C
Auction Rate Preferred exceed the then-maximum rate. The maximum
rate means (i) in the case of a dividend period of 184 days or less, the
applicable percentage of the "AA" Financial Composite Commercial
Paper Rate on the date of such auction determined as set forth in the
following chart based on the lower of the credit ratings assigned to the
Series C Auction Rate Preferred by Moody's and Fitch or (ii) in the
case of a dividend period of longer than 184 days, the applicable
percentage of the Treasury Index Rate.
Applicable
Moody's Credit Rating Fitch Credit Rating Percentage
--------------------- ------------------- ----------
Aa3 or higher AA- or higher 150%
A3 to A1 A- to A+ 175%
Baa3 to Baa1 BBB- to BBB+ 250%
Below Baa3 Below BBB- 275%
See "Description of the Series B Preferred and Series C Auction Rate
Preferred -- Dividends on the Series C Auction Rate Preferred --
Maximum Rate." For example, calculated as of September 30, 2002
and December 31, 2002, respectively, the maximum rate for the Series
C Auction Rate Preferred (assuming a rating of Aa3 or above by
Moody's and AA- or above by Fitch) would have been approximately
2.57% and 1.92%, for dividend periods of 90 days, and approximately
2.90% and 2.57% for dividend periods of two years.* There is no
minimum applicable rate with respect to any dividend period.
--------------
* Dividend periods presented for illustrative purposes only.
Actual dividend periods may be of greater or lesser duration.
Any designation of a special dividend period will be effective only if,
among other things, proper notice has been given, the auction immedi-
ately preceding the special dividend period was not a failed auction and
the Fund has confirmed that it has assets with an aggregate discounted
value at least equal to the Basic Maintenance Amount (as defined in the
applicable rating agency guidelines). See "Description of the Series B
Preferred and Series C Auction Rate Preferred -- Dividends on the
Series C Auction Rate Preferred" and "The Auction of Series C
Auction Rate Preferred."
Preferred Stock Dividends. Under current law, all preferred stock of
the Fund must have the same seniority as to the payment of dividends.
Accordingly, no full dividend will be declared or paid on any series of
preferred stock of the Fund for any dividend period, or part thereof,
unless full cumulative dividends due through the most recent dividend
payment dates therefor for all series of outstanding preferred stock of
the Fund are declared and paid. If full cumulative dividends due have
not been declared and paid on all outstanding shares of preferred stock
of the Fund ranking on a parity with the Series B Preferred and/or
Series C Auction Rate Preferred as to the payment of dividends, any
dividends being paid on the shares of such preferred stock (including
any outstanding Series B Preferred and Series C Auction Rate
Preferred) will be paid as nearly pro rata as possible in proportion to
the respective amounts of dividends accumulated but unpaid on each
such series of preferred stock on the relevant dividend payment date.
In the event that for any calendar year the total distributions on shares
of the Fund's preferred stock exceed the Fund's net investment income
and net capital gain allocable to those shares, the excess distributions
will generally be treated as a tax-free return of capital (to the extent of
the stockholder's tax basis in his or her shares). The amount treated as
a tax-free return of capital will reduce a stockholder's adjusted basis in
his or her shares of preferred stock, thereby increasing the stockholder's
potential gain or reducing his or her potential loss on the sale of the
shares.
Common Stock. For the fiscal year ending December 31, 2002, the
Fund did not pay distributions on its common stock. [The Fund had
not previously failed to make an annual distribution with respect to its
common shares since .]
Auction Procedures You may buy, sell or hold Series C Auction Rate Preferred in the
auction. The following is a brief summary of the auction procedures,
which are described in more detail elsewhere in this prospectus and in
the SAI. These auction procedures are complicated, and there are
exceptions to these procedures. Many of the terms in this section have
a special meaning as set forth in this prospectus or the SAI.
The auctions determine the dividend rate for the Series C Auction Rate
Preferred, but each dividend rate will not be higher than the then-
maximum rate. See "Description of the Series B Preferred and Series
C Auction Rate Preferred -- Dividends on the Series C Auction Rate
Preferred."
If you own shares of Series C Auction Rate Preferred, you may instruct
your broker-dealer to enter one of three kinds of order in the auction
with respect to your shares: sell, bid and hold.
If you enter a sell order, you indicate that you want to sell Series C
Auction Rate Preferred at $25,000 per share, no matter what the next
dividend period's rate will be.
If you enter a bid (or "hold at a rate") order, which must specify a
dividend rate, you indicate that you want to sell Series C Auction Rate
Preferred only if the next dividend period's rate is less than the rate you
specify.
If you enter a hold order you indicate that you want to continue to own
Series C Auction Rate Preferred, no matter what the next dividend
period's rate will be.
You may enter different types of orders for different portions of your
Series C Auction Rate Preferred. You may also enter an order to buy
additional Series C Auction Rate Preferred. All orders must be for
whole shares. All orders you submit are irrevocable. There is a fixed
number of Series C Auction Rate Preferred shares, and the dividend
rate likely will vary from auction to auction depending on the number
of bidders, the number of shares the bidders seek to buy, the rating of
the Series C Auction Rate Preferred and general economic conditions
including current interest rates. If you own Series C Auction Rate
Preferred and submit a bid for them higher than the then-maximum
rate, your bid will be treated as a sell order. If you do not enter an
order, the broker-dealer will assume that you want to continue to hold
Series C Auction Rate Preferred, but if you fail to submit an order and
the dividend period is longer than 28 days, the broker-dealer will treat
your failure to submit a bid as a sell order.
If you do not then own Series C Auction Rate Preferred, or want to buy
more shares, you may instruct a broker-dealer to enter a bid order to
buy shares in an auction at $25,000 per share at or above the dividend
rate you specify. If you bid for shares you do not already own at a rate
higher than the then-maximum rate, your bid will not be considered.
Broker-dealers will submit orders from existing and potential holders
of Series C Auction Rate Preferred to the auction agent. Neither the
Fund nor the auction agent will be responsible for a broker-dealer's
failure to submit orders from existing or potential holders of Series C
Auction Rate Preferred. A broker-dealer's failure to submit orders for
Series C Auction Rate Preferred held by it or its customers will be
treated in the same manner as a holder's failure to submit an order to
the broker-dealer. A broker-dealer may submit orders to the auction
agent for its own account. The Fund may not submit an order in any
auction.
The auction agent after each auction for the Series C Auction Rate
Preferred will pay to each broker-dealer, from funds provided by the
Fund, a service charge equal to, in the case of any auction immediately
preceding a dividend period of less than one year, the product of (i) a
fraction, the numerator of which is the number of days in such dividend
period and the denominator of which is 365, times (ii) 1/4 of 1%, times
(iii) $25,000, times (iv) the aggregate number of Series C Auction Rate
Preferred shares placed by such broker-dealer at such auction or, in the
case of any auction immediately preceding a dividend period of one
year or longer, a percentage of the purchase price of the Series C
Auction Rate Preferred placed by the broker-dealers at the auction
agreed to by the Fund and the broker-dealers.
If the number of Series C Auction Rate Preferred shares subject to bid
orders by potential holders with a dividend rate equal to or lower than
the then-maximum rate is at least equal to the number of Series C
Auction Rate Preferred shares subject to sell orders, then the dividend
rate for the next dividend period will be the lowest rate submitted
which, taking into account that rate and all lower rates submitted in
order from existing and potential holders, would result in existing and
potential holders owning all the Series C Auction Rate Preferred
available for purchase in the auction.
If the number of Series C Auction Rate Preferred shares subject to bid
orders by potential holders with a dividend rate equal to or lower than
the then-maximum rate is less than the number of Series C Auction
Rate Preferred shares subject to sell orders, then the auction is
considered to be a failed auction, and the dividend rate will be the
maximum rate. In that event, existing holders that have submitted sell
orders (or are treated as having submitted sell orders) may not be able
to sell any or all of the Series C Auction Rate Preferred for which they
submitted sell orders.
The auction agent will not consider a bid above the then-maximum
rate. The purpose of the maximum rate is to place an upper limit on
dividends with respect to the Series C Auction Rate Preferred and in so
doing to help protect the earnings available to pay dividends on
common shares, and to serve as the dividend rate in the event of a
failed auction (that is, an auction where there are more shares of Series
C Auction Rate Preferred offered for sale than there are buyers for
those shares).
If broker-dealers submit or are deemed to submit hold orders for all
outstanding Series C Auction Rate Preferred, the auction is considered
an "all hold" auction and the dividend rate for the next dividend period
will be the "all hold rate," which is 80% of the then-current "AA"
Financial Composite Commercial Paper Rate.
The auction procedures include a pro rata allocation of Series C
Auction Rate Preferred shares for purchase and sale. This allocation
process may result in an existing holder selling, or a potential holder
buying, fewer shares than the number of Series C Auction Rate
Preferred shares in its order. If this happens, broker-dealers that have
designated themselves as existing holders or potential holders in
respect of customer orders will be required to make appropriate pro
rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next business
day (which also is a dividend payment date) after the auction date
through DTC. Purchasers will pay for their Series C Auction Rate
Preferred through broker-dealers in same-day funds to DTC against
delivery to the broker-dealers. DTC will make payment to the sellers'
broker-dealers in accordance with its normal procedures, which require
broker-dealers to make payment against delivery in same-day funds.
As used in this prospectus, a business day is a day on which the NYSE
is open for trading, and which is not a Saturday, Sunday or any other
day on which banks in New York City are authorized or obligated by
law to close.
The first auction for Series C Auction Rate Preferred will be held on
, 2003, the business day preceding the dividend payment date for the
initial dividend period. Thereafter, except during special dividend
periods, auctions for Series C Auction Rate Preferred normally will be
held every Tuesday (or the next preceding business day if Tuesday is
a holiday), and each subsequent dividend period for the Series C
Auction Rate Preferred normally will begin on the following Wednes
day.
If an auction is not held because an unforeseen event or unforeseen
events cause a day that otherwise would have been an auction date not
to be a business day, then the length of the then-current dividend period
will be extended by seven days (or a multiple thereof if necessary
because of such unforeseen event or events), the applicable rate for
such period will be the applicable rate for the then-current dividend
period so extended and the dividend payment date for such dividend
period will be the first business day immediately succeeding the end of
such period. See "The Auction of Series C Auction Rate Preferred."
Potential Tax Benefit
to Certain Investors Most individuals pay federal income tax at a lower rate on long term
capital gains than on ordinary income and short-term capital gains. For
individuals in the highest tax brackets this differential currently can be
as great as 18.6%, the difference between 38.6% on ordinary income
and short-term capital gains and 20.0% on long-term capital gains. In
accordance with the current view of the Internal Revenue Service, the
Fund intends to allocate its net long-term capital gain and ordinary
income (including net short-term capital gain and investment income)
proportionately between its common stock and preferred stock. Over
the past one, three and five fiscal years ending December 31, 2002, the
distributions of taxable income by the Fund consisted of %, %,
and % long-term capital gains. If the Fund is able in future years
to continue to pay a portion of its distributions in the form of long-term
capital gain distributions, most individual investors will accordingly
realize a tax benefit and pay a lower rate of federal income tax on their
Series B Preferred and/or Series C Auction Rate Preferred dividends
than if the Fund did not distribute long-term capital gains. No
assurance can be given as to what, if any, portion of the Fund's
dividends in future years will consist of long-term capital gains. See
"Tax Attributes of Preferred Stock Dividends."
Rating and Asset
Coverage Requirements Series B Preferred. Before it can be issued, the Series B Preferred
must receive a rating of Aaa from Moody's. The Fund's Articles
Supplementary setting forth the rights and preferences of the Series B
Preferred contain certain tests that the Fund must satisfy to obtain and
maintain a rating of Aaa from Moody's on the Series B Preferred. See
"Description of the Series B Preferred and Series C Auction Rate
Preferred-- Rating Agency Guidelines."
Series C Auction Rate Preferred. Before it can be issued, the Series C
Auction Rate Preferred must receive both a rating of Aaa from Moody's
and a rating of AAA from Fitch. As with the Series B Preferred, the
Articles Supplementary of the Fund setting forth the rights and
preferences of the Series C Auction Rate Preferred contain certain tests
that the Fund must satisfy to obtain and maintain a rating of Aaa from
Moody's and AAA from Fitch. See "Description of the Series B
Preferred and Series C Auction Rate Preferred -- Rating Agency
Guidelines."
Asset Coverage Requirements. Under the asset coverage tests to which
each of the Series B Preferred and/or Series C Auction Rate Preferred
is subject, the Fund is required to maintain (i) assets having in the
aggregate a discounted value greater than or equal to a Basic Mainte
nance Amount (as defined under "Description of the Series B Preferred
and Series C Auction Rate Preferred -- Rating Agency Guidelines")
for each such series calculated pursuant to the applicable rating agency
guidelines and (ii) an asset coverage of at least 200% (or such higher
or lower percentage as may be required at the time under the 1940 Act)
with respect to all outstanding preferred stock of the Fund, including
the Series B Preferred and the Series C Auction Rate Preferred. See
"Description of the Series B Preferred and Series C Auction Rate
Preferred -- Asset Maintenance Requirements."
The Fund estimates that if the shares offered hereby had been issued
and sold as of March 1, 2003, the asset coverage under the 1940 Act
would have been approximately % immediately following such
issuance and sale (after giving effect to the deduction of the underwrit
ing discounts and estimated offering expenses for such shares of $
and assuming the redemption of the Funds outstanding Series A
Preferred.) The asset coverage would have been computed as follows:
value of Fund assets less liabilities not constituting senior
securities ($ ) / senior securities representing indebtedness
plus liquidation preference of each class of preferred stock
($ ), expressed as a percentage = %.
The Articles Supplementary for each of the Series B Preferred and the
Series C Auction Rate Preferred, which contain the technical provi
sions of the various components of the asset coverage tests, have been
filed as exhibits to this registration statement and may be obtained
through the web site of the SEC (http://www.sec.gov).
Mandatory
Redemption The Series B Preferred and the Series C Auction Rate Preferred may be
subject to mandatory redemption by the Fund to the extent the Fund
fails to maintain the asset coverage requirements in accordance with
the rating agency guidelines or the 1940 Act described above and does
not cure such failure by the applicable cure date. If the Fund redeems
preferred stock mandatorily, it may, but is not required to, redeem a
sufficient number of shares of preferred stock so that after the
redemption the Fund exceeds the asset coverage required by each of the
applicable rating agency guidelines and the 1940 Act by 10%.
With respect to the Series B Preferred, any such redemption will be
made for cash at a redemption price equal to $25 per share plus
accumulated and unpaid dividends (whether or not earned or declared)
to the redemption date.
With respect to the Series C Auction Rate Preferred, any such
redemption will be made for cash at a redemption price equal to
$25,000 per share, plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) to the redemption date
fixed for redemption, plus, in the case of Series C Auction Rate
Preferred having a dividend period of more than one year, any
applicable redemption premium determined by the Board of Directors.
See "Description of the Series B Preferred and Series C Auction Rate
Preferred -- Mandatory Redemption."
In the event of a mandatory redemption, such redemption will be made
from the Series B Preferred, the Series C Auction Rate Preferred or
other preferred stock of the Fund in such proportions as the Fund may
determine, subject to the limitations of the 1940 Act and Maryland law.
Optional Redemption Subject to the limitations of the 1940 Act and Maryland law, the Fund
may, at its option, redeem the Series B Preferred and/or the Series C
Auction Rate Preferred as follows:
Series B Preferred. Commencing , 2008 and at any time thereafter,
the Fund at its option may redeem the Series B Preferred, in whole or
in part, for cash at a redemption price per share equal to $25 plus
accumulated and unpaid dividends (whether or not earned or declared)
to the redemption date. If fewer than all of the shares of the Series B
Preferred are to be redeemed, any such redemption of Series B
Preferred shares will be made pro rata in accordance with the number
of such shares held. Prior to , 2008 the Series B Preferred will be
subject to optional redemption by the Fund at the redemption price
only to the extent necessary for the Fund to continue to qualify for tax
treatment as a regulated investment company. See "Description of the
Series B Preferred and Series C Auction Rate Preferred -- Redemp
tion -- Optional Redemption of the Series B Preferred."
Series C Auction Rate Preferred. The Fund generally may redeem
Series C Auction Rate Preferred, in whole or in part, at any time other
than during a non-call period. The Fund may declare a non-call period
during a dividend period of more than seven days. If fewer than all of
the shares of the Series C Auction Rate Preferred are to be redeemed,
any such redemption of Series C Auction Rate Preferred shares will be
made pro rata in accordance with the number of such shares held. See
"Description of the Series B Preferred and Series C Auction Rate
Preferred -- Redemption -- Optional Redemption of the Series C
Auction Rate Preferred."
The redemption price per Series C Auction Rate Preferred share will
equal $25,000 plus an amount equal to any accumulated but unpaid
dividends thereon (whether or not earned or declared) to the redemp
tion date, plus, in the case of Series C Auction Rate Preferred having
a dividend period of more than one year, any redemption premium
applicable during such dividend period. See "Description of the Series
B Preferred and Series C Auction Rate Preferred -- Redemption --
Optional Redemption of the Series C Auction Rate Preferred."
The Fund's outstanding Series A Preferred is redeemable at any time
at the option of the Fund. Such redemptions are subject to the
limitations of the 1940 Act and Maryland law. See "Description of the
Series B Preferred and Series C Auction Rate Preferred -- Redemp
tion." The Fund expects to redeem all of its outstanding Series A
Preferred on March 28, 2003, or as soon thereafter as is practicable
following the issuance of the preferred stock offered by this prospectus.
Voting Rights At all times, holders of shares of the Fund's preferred stock outstanding
(including the Series B Preferred and/or Series C Auction Rate
Preferred), voting as a single class, will be entitled to elect two
members of the Fund's Board of Directors, and holders of the preferred
stock and common stock, voting as a single class, will elect the
remaining directors. However, upon a failure by the Fund to pay
dividends on any of its preferred stock in an amount equal to two full
years' dividends, holders of the preferred stock, voting as a single class,
will have the right to elect the smallest number of directors that would
then constitute a majority of the directors until all cumulative dividends
on all shares of preferred stock have been paid or provided for.
Holders of outstanding shares of Series B Preferred, Series C Auction
Rate Preferred and any other preferred stock will vote separately as a
class on certain other matters, as required under the applicable Articles
Supplementary, the 1940 Act and Maryland law. Except as otherwise
indicated in this prospectus and as otherwise required by applicable
law, holders of Series B Preferred and/or Series C Auction Rate
Preferred will be entitled to one vote per share on each matter
submitted to a vote of stockholders and will vote together with holders
of shares of common stock and any other preferred stock as a single
class. See "Description of the Series B Preferred and Series C Auction
Rate Preferred -- Voting Rights."
Liquidation
Preference The liquidation preference of each share of Series B Preferred is $25.
The liquidation preference of the Series C Auction Rate Preferred is
$25,000 per share. Upon liquidation, preferred stock shareholders will
be entitled to receive the liquidation preference with respect to their
shares of preferred stock plus an amount equal to accumulated but
unpaid dividends with respect to such shares (whether or not earned or
declared) to the date of distribution. See "Description of the Series B
Preferred and Series C Auction Rate Preferred-- Liquidation Rights."
Use of Proceeds The Fund will use the net proceeds from the offering to purchase
additional portfolio securities in accordance with its investment
objectives and policies. A portion of the net proceeds will also be used
to redeem all of the Fund's outstanding Series A Preferred. See "Use of
Proceeds."
Listing of the Series B
Preferred Prior to its being offered, there has been no public market for the Series
B Preferred. Following its issuance (if issued), the Series B Preferred
is expected to be listed on the New York Stock Exchange. However,
during an initial period which is not expected to exceed 30 days after
the date of its initial issuance, the Series B Preferred will not be listed
on any securities exchange.
Limitation on Secondary
Market Trading of the
Series C Auction Rate
Preferred The Series C Auction Rate Preferred will not be listed on an exchange.
Broker-dealers may, but are not obliged to, maintain a secondary
trading market in Series C Auction Rate Preferred outside of auctions.
There can be no assurance that a secondary market will provide owners
with liquidity. You may transfer Series C Auction Rate Preferred
outside of auctions only to or through a broker-dealer that has entered
into an agreement with the auction agent and the Fund, or other persons
as the Fund permits.
Special Characteristics
and Risks Risk is inherent in all investing. Therefore, before investing in Series
B Preferred or Series C Auction Rate Preferred you should consider the
risks carefully.
Series B Preferred. Primary risks associated with an investment in the
Series B Preferred include:
The market price for the Series B Preferred will be influenced by
changes in interest rates, the perceived credit quality of the Series B
Preferred and other factors.
During an initial period which is not expected to exceed 30 days after
the date of its issuance, the Series B Preferred will not be listed on any
securities exchange. During such period, the underwriters intend to
make a market in the Series B Preferred, however, they have no
obligation to do so. Consequently, the Series B Preferred may be
illiquid during such period. No assurances can be provided that listing
on any securities exchange or market making by the underwriters will
result in the market for Series B Preferred being liquid at any time.
Series C Auction Rate Preferred. Primary risks associated with an
investment in Series C Auction Rate Preferred include:
If an auction fails, you may not be able to sell some or all of your
Series C Auction Rate Preferred. The Fund is not obliged to redeem
your Series C Auction Rate Preferred if an auction fails. The under
writers are not required to make a market in the Series C Auction Rate
Preferred. No broker-dealer is obligated to maintain a secondary
market for the Series C Auction Rate Preferred apart from the auctions.
You may receive less than the price you paid for your Series C Auction
Rate Preferred if you sell them outside of the auction, especially when
market interest rates are rising.
In connection with the sale of the Series C Auction Rate Preferred, the
Fund may enter into interest rate swap or cap transactions in order to
reduce the impact of changes in the dividend rate of the Series C
Auction Rate Preferred or obtain the equivalent of a fixed rate for the
Series C Auction Rate Preferred that is lower than the Fund would have
to pay if it issued fixed rate preferred shares. The use of interest rate
swaps and caps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary
portfolio security transactions. See "How the Fund Manages Risk --
Interest Rate Transactions."
Both the Series B Preferred and Series C Auction Rate Preferred. An
investment in either the Series B Preferred or Series C Auction Rate
Preferred also includes the following primary risks:
A rating agency could downgrade or withdraw the rating assigned to
the Series B Preferred and/or Series C Auction Rate Preferred, which
would likely have an adverse effect on the liquidity and market value
of these preferred shares. The present credit rating does not eliminate
or mitigate the risks of investing in these preferred shares.
The Fund may mandatorily redeem your Series B Preferred and/or
Series C Auction Rate Preferred to meet regulatory or rating agency
requirements or may voluntarily redeem your Series B Preferred and/or
Series C Auction Rate Preferred. Subject to such redemptions, these
preferred shares are perpetual.
The Fund may not meet the asset coverage requirements or earn
sufficient income from its investments to pay dividends on the Series
B Preferred and/or Series C Auction Rate Preferred.
The Series B Preferred and/or Series C Auction Rate Preferred are not
obligations of the Fund. Although unlikely, precipitous declines in the
value of the Fund's assets could result in the Fund having insufficient
assets to redeem all of the Series B Preferred and/or Series C Auction
Rate Preferred for the full redemption price.
The value of the Fund's investment portfolio may decline, reducing the
asset coverage for the Series B Preferred and/or Series C Auction Rate
Preferred. Further, if an issuer of a common stock in which the Fund
invests experiences financial difficulties or if an issuer's preferred stock
or debt security is downgraded or defaults or if an issuer in which the
Fund invests is affected by other adverse market factors, there may be
a negative impact on the income and/or asset value of the Fund's
investment portfolio.
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."
The Fund invests a significant portion of its assets in companies in the
telecommunications, media, publishing and entertainment industries
and, as a result, the value of the Fund's shares will be more susceptible
to the factors affecting those particular types of companies, including
government regulation, greater price volatility for the overall market,
rapid obsolescence of products and services, intense competition and
strong market reactions to technological developments. See "Risk
Factors and Special Considerations -- Industry Risks." The Fund
invests in smaller companies which may benefit from the development
of new products and services. These smaller companies may involve
greater investment risk than large, established issuers. See "Risk
Factors and Special Considerations -- Smaller Companies."
There is no limitation on the amount of foreign securities in which the
Fund may invest. 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."
The Investment Adviser (as hereinafter defined) 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 replace
ment could be found for Mr. Gabelli in the event of his death, resigna
tion, retirement or inability to act on behalf of the Investment Adviser.
See "Risk Factors and Special Considerations -- Dependence on Key
Personnel."
Federal Income Tax
Considerations The Fund has qualified, and intends to remain qualified, for federal
income tax purposes as a regulated investment company. Qualification
requires, among other things, compliance by the Fund with certain
distribution requirements. Statutory limitations on distributions on the
common stock if the Fund fails to satisfy the 1940 Act's asset coverage
requirements could jeopardize the Fund's ability to meet the distribu
tion requirements. The Fund presently intends, however, to purchase
or redeem preferred stock to the extent necessary in order to maintain
compliance with such asset coverage requirements. See "Taxation" for
a more complete discussion of these and other federal income tax
considerations.
Management
and Fees Gabelli Funds, LLC serves as the Fund's investment adviser and is
compensated for its services and its related expenses at an annual rate
of 1.00% of the Fund's average weekly net assets. The Investment
Adviser is responsible for administration of the Fund and currently
utilizes and pays the fees of a third party sub-administrator. Notwith
standing the foregoing, the Investment Adviser will waive the portion
of its investment advisory fee attributable to an amount of assets of the
Fund equal to the aggregate stated value of the Fund's outstanding
Series B Preferred or Series C Auction Rate Preferred, as the case may
be, for any calendar year in which the net asset value total return of the
Fund allocable to the common stock, including distributions and the
advisory fee subject to potential waiver, is less than (i) in the case of
the Series B Preferred, the stated annual dividend rate of such series
and (ii) in the case of the Series C Auction Rate Preferred, the dividend
rate for the Series C Auction Rate Preferred at the beginning of such
year (including the anticipated cost of a swap or cap if the Fund hedges
its Series C Auction Rate Preferred dividend obligations), in every case
prorated during the year such series is issued and the final year such
series is outstanding. See "Management of the Fund."
Repurchase of Common
Stock and Anti-takeover
Provisions The Fund is authorized, subject to maintaining required asset coverage
on its preferred stock, to repurchase its common stock in the open
market when the common stock is trading at a discount of 10% or more
(or such other percentage as the Fund's Board of Directors may
determine from time to time) from net asset value. Such repurchases
are subject to certain notice and other requirements, including those set
forth in Rule 23c-1 under the 1940 Act. See "Description of Capital
Stock and Other Securities-- Common Stock." Through December
31, 2002, the Fund has repurchased in the open market shares of its
common stock under this authorization. See "Description of Capital
Stock and Other Securities -- Common Stock."
Certain provisions of the Fund's charter (the "Charter") and the Fund's
by-laws (the "By-Laws") may be regarded as "anti-takeover" provi
sions. Pursuant to these provisions, only one of three classes of
directors is elected each year, and the affirmative vote of the holders of
66 2/3% of the outstanding shares of the Fund and the vote of a
majority (as defined in the 1940 Act) of the holders of preferred shares,
voting as a single class, 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 stockholder. These provisions may have the effect of
depriving Fund stockholders of an opportunity to sell their stock at a
premium to the prevailing market price. See "Anti-takeover Provisions
of the Charter and By-Laws."
Custodian, Transfer Agent,
Auction Agent and
Dividend Disbursing Agent State Street Bank and Trust Company (the "Custodian"), located at 150
Royall Street, Canton, MA 02021, serves as the custodian of the Fund's
assets pursuant to a custody agreement. Under the custody agreement,
the Custodian holds the Fund's assets in compliance with the 1940 Act.
For its services, the Custodian will receive a monthly fee based upon
the average weekly value of the total assets of the Fund, plus certain
charges for securities transactions.
EquiServe Trust Company, N.A., located at P.O. Box 43025, Provi
dence, RI 02940-3025, serves as the Fund's dividend disbursing agent,
as agent under the Fund's automatic dividend reinvestment and
voluntary cash purchase plan, and as transfer agent and registrar with
respect to the common stock of the Fund.
Series B Preferred. EquiServe will also serve as the transfer agent,
registrar, dividend paying agent and redemption agent with respect to
the Series B Preferred.
Series C Auction Rate Preferred. The Bank of New York will serve as
the auction agent, transfer agent, registrar, dividend paying agent and
redemption agent with respect to the Series C Auction Rate Preferred.
Interest Rate Transactions In connection with the sale of the Series C Auction Rate Preferred, the
Fund may enter into interest rate swap or cap transactions in order to
reduce the impact of changes in the dividend rate of the Series C
Auction Rate Preferred or obtain the equivalent of a fixed rate for the
Series C Auction Rate Preferred that is lower than the Fund would have
to pay if it issued fixed rate preferred shares. The use of interest rate
swaps and caps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary
portfolio security transactions.
In an interest rate swap, the Fund would agree to pay to the other party
to the interest rate swap (which is known as the "counterparty")
periodically a fixed rate payment in exchange for the counterparty
agreeing to pay to the Fund periodically a variable rate payment that is
intended to approximate the Fund's variable rate payment obligation on
the Series C Auction Rate Preferred. 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 predeter
mined fixed rate, the Fund would receive from the counterparty
payments of the difference based on the notional amount of such cap.
Interest rate swap and cap transactions introduce additional risk
because the Fund would remain obligated to pay preferred stock
dividends when due in accordance with the Articles Supplementary
even if the counterparty defaulted. Depending on the general state of
short-term interest rates and the returns on the Fund's portfolio
securities at that point in time, such a default could negatively affect
the Fund's ability to make dividend payments on the Series C Auction
Rate Preferred. In addition, at the time an interest rate swap or cap
transaction reaches its scheduled termination date, there is a risk that
the Fund will not be able to obtain a replacement transaction or that the
terms of the replacement will not be as favorable as on the expiring
transaction. If this occurs, it could have a negative impact on the
Fund's ability to make dividend payments on the Series C Auction Rate
Preferred.
A sudden and dramatic decline in interest rates may result in a
significant decline in the asset coverage. If the Fund fails to maintain
the required asset coverage on its outstanding preferred stock or fails
to comply with other covenants, the Fund may, at its option (and in
certain circumstances mandatorily) consistent with its Charter and the
requirements of the 1940 Act redeem some or all of its preferred stock
(including the Series B Preferred or the Series C Auction Rate
Preferred). Such redemption likely would result in the Fund seeking
to terminate early all or a portion of any swap or cap transaction. Early
termination of a swap could require the Fund to make a termination
payment to the counterparty.
The Fund intends to maintain in a segregated account with its custodian
cash or liquid securities having a value at least equal to the value of the
Fund's net payment obligations under any swap transaction, marked to
market daily. The Fund does not presently intend to enter into interest
rate swap or cap transactions relating to the Series C Auction Rate
Preferred in a notional amount in excess of the outstanding amount of
the Series C Auction Rate Preferred. The Fund will monitor any such
swap with a view to ensuring that the Fund remains in compliance with
all applicable regulatory investment policy and tax requirements. See
"How the Fund Manages Risk -- Interest Rate Transactions" for
additional information.
TAX ATTRIBUTES OF PREFERRED STOCK DIVIDENDS
The Fund intends to distribute to its stockholders substantially all
of its net capital gains and net investment income (including short-term
capital gain). The Fund operates as a regulated investment company under the
Internal Revenue Code of 1986, as amended, (the "Code") and distributions by a
regulated investment company generally retain their character as capital gain
or ordinary income when received by individual investors who hold its preferred
or common stock. Thus, dividends paid by the Fund to holders of the Series B
Preferred or Series C Auction Rate Preferred may, for federal income tax
purposes, consist of varying proportions of long-term capital gain, ordinary
income and/or returns of capital.
Capital gain on assets held longer than 12 months generally is
currently taxable to individuals at a maximum rate of 20.0% (or 18.0% for
capital assets that have been held for more than five years, the holding period
of which began after December 31, 2000). Net investment income, which includes
short-term capital gain of the Fund, is currently taxable to individuals at a
maximum rate of 38.6%.
Although the Fund is not managed using a tax-focused investment
strategy and does not seek to achieve any particular distribution composition,
individual investors in the Series B Preferred or Series C Auction Rate
Preferred would, under current federal income tax law, realize a tax advantage
on their investment to the extent that distributions by the Fund to its
stockholders are composed of long-term capital gain which is taxed at a lower
rate than ordinary income. In contrast, preferred stock dividends distributed
by corporations that are not regulated investment companies are generally
taxed, for federal income tax purposes, as ordinary income.
Over the past one, three and five fiscal years ending December 31,
2002, the distributions of taxable income by the Fund consisted of %, %, and %
long-term capital gains. Given current market conditions, there is no assurance
that over the next several years the percentage of its taxable distributions
that consist of long-term capital gain will remain at historical levels. An
investment by an individual in the common stock or preferred stock of a
regulated investment company whose dividends consist of a larger percentage of
long-term capital gain than the Fund's would be expected to realize a
proportionately higher tax advantage as compared to dividends on the Series B
Preferred or Series C Auction Rate Preferred.
Corporate taxpayers are subject to a 35% tax on capital gain and
ordinary income dividends. In addition, corporate taxpayers that are eligible
for the dividends received deduction on dividends that constitute ordinary
income will not be able to utilize that deduction with respect to Fund
dividends that constitute long-term capital gain, and so may incur a tax
disadvantage by holding stock in the Fund.
The Bush Administration has announced a proposal to reduce or
eliminate the tax on dividends; however, many details of the proposal
(including how the proposal would apply to dividends paid by a regulated
investment company) have not been specified. Moreover, the prospects for this
proposal are unclear. Accordingly, it is not possible to evaluate how this
proposal might affect the taxation of the Fund's stockholders.
The federal income tax characteristics of the Fund and the taxation of
its stockholders are described more fully under "Taxation."
The following tables show examples of the pure ordinary income
equivalent yield that would be generated by the stated dividend rate on the
Series B Preferred and Series C Auction Rate Preferred, respectively, assuming
distributions for federal income tax purposes consisting of different
proportions of long-term capital gain and ordinary income (including short-term
capital gain) for an individual in the 38.6% and 30.0% federal marginal income
tax brackets. In reading these tables, you should understand that a number of
factors could affect the actual composition for federal income tax purposes of
the Fund's distributions each year. Such factors include (i) the Fund's
investment performance for any particular year, which may result in
distributions of varying proportions of long-term capital gain, ordinary income
and/or return of capital and (ii) revocation or revision of the Internal
Revenue Service revenue ruling requiring the proportionate allocation of types
of income among the holders of various classes of a regulated investment
company's capital stock.
These tables are for illustrative purposes only and cannot be taken as
an indication of the actual composition for federal income tax purposes of the
Fund's future distributions.
Series B Preferred
Series B Preferred Series B Preferred
Illustrative Annual Illustrative Annual
Dividend Rate Dividend Rate
5.75% 6.25% 5.75% 6.25%
Percentage of Series B Preferred Stated Tax Equivalent Yield for an Tax Equivalent Yield for an
Annual Dividend Comprised of Individual in the 38.6% Individual in the 30.0%
federal Income Tax Bracket1 federal Income Tax Bracket1
--------------------- -------------------
Long-Term Ordinary
Capital Gains Income
100.0% 0.0% % % % %
90.0% 10.0% % % % %
80.0% 20.0% % % % %
70.0% 30.0% % % % %
50.0% 50.0% % % % %
30.0% 70.0% % % % %
20.0% 80.0% % % % %
10.0% 90.0% % % % %
0.0% 100.0% % % % %
Series C Auction Rate Preferred
Series C Auction Rate Series C Auction Rate
Preferred Illustrative Annual Preferred Illustrative
Dividend Rate* Annual Dividend Rate*
----------------------------------------- ------------------------------
1.00% 1.50% 1.00% 1.50%
Percentage of Series C Auction Rate
Preferred Share Illustrative Annual
Dividend Comprised of
-----------------------------------------
Long-Term Ordinary Tax Equivalent Yield for an Tax Equivalent Yield for an
Capital Gains Income Individual in the 38.6% Individual in the 30.0%
federal Income Tax Bracket1 federal Income Tax Bracket1
----------------------------------------- ------------------------------
100.0% 0.0% % % %
90.0% 10.0% % % %
80.0% 20.0% % % %
70.0% 30.0% % % %
50.0% 50.0% % % %
30.0% 70.0% % % %
20.0% 80.0% % % %
10.0% 90.0% % % %
0.0% 100.0% % % %
* Actual dividend rates for the Series C Auction Rate Preferred will be determined based upon the
results of periodic auctions. See "Description of the Series B Preferred and Series C Auction
Rate Preferred - Dividends on the Series C Auction Rate Preferred."
(1) Annual taxable income levels for individuals corresponding to the 2003 federal marginal tax
brackets are as follows:
2003 Federal
Income Tax
Bracket(+) Single Joint
38.6% over $311,950 over $311,950
35.0% over $143,500 - $311,950 over $174,700 - $311,950
30.0% over $68,800 - $143,500 over $114,650 - $174,700
27.0% over $28,400 - $68,800 over $47,450 - $114,650
15.0% over $6,000 - $28,400 over $12,000 - $47,450
10.0% up to and including $6,000 up to and including $6,000
Your federal marginal income tax rates may exceed the rates shown in
the above tables due to the reduction, or possible elimination, of
the personal exemption deduction for high-income taxpayers and an
overall limit on itemized deductions. Income may be subject to
certain state, local and foreign taxes. If you pay alternative
minimum tax, or AMT, equivalent yields may be lower than those shown
above. The tax rates shown above do not apply to corporate taxpayers.
(+) The Economic Growth and Tax Relief Reconciliation Act of 2001
creates a new 10 percent income tax bracket and reduces the tax
rates applicable to ordinary income over a six year phase-in
period. Beginning in the taxable year 2006, ordinary income will
be subject to a 35% maximum rate, with approximately
proportionate reductions in the other ordinary rates.
FINANCIAL HIGHLIGHTS
The selected data below sets forth the per share operating performance
and ratios for the periods presented. The financial information was derived
from and should be read in conjunction with the Financial Statements of the
Fund and Notes thereto, which are incorporated by reference into this
prospectus and the SAI. The financial information for each of the five years
ended December 31, 2002, has been audited by PricewaterhouseCoopers LLP, the
Fund's independent accountants, whose unqualified report on such Financial
Statements is incorporated by reference into the SAI.
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
FINANCIAL HIGHLIGHTS
Selected data for a Fund common share outstanding throughout each period:
new
Year Ended December 31,
-------------------------------------------------------------------------------
Operating performance 2002 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ----
Net asset value, beginning of period $ 10.52 $ 12.21 $ 19.90 $ 12.20 $ 9.91 $ 8.10
--------- ------------- ------------ ------------ ------------- ------------
Net investment income.............................. (0.00)(a) (0.02) $0.21 ($0.05) ($0.03) 0.01
Net realized and unrealized gain (loss) on
investments............................... ($2.68) ($1.46) ($4.53) $11.54 $3.33 $2.85
--------- ------------- ------------ ------------ ------------- ------------
Total from investment operations............... ($2.68) ($1.46) ($4.53) $11.49 $3.30 $2.86
--------- ------------- ------------ ------------ ------------- ------------
Distributions to preferred stock shareholders:
Net investment income.......................... ----- ----- ($0.02) ----- ----- (0.00)(a)
Net realized gain on investments............... ($0.17) ($0.17) ($0.18) ($0.23) ($0.23) ($0.13)
--------- ------------- ------------ ------------ ------------- ------------
Total distributions to preferred stock
shareholders ............................. ($0.17) ($0.17) ($0.20) ($0.23) ($0.23) ($0.13)
--------- ------------- ------------ ------------ ------------- ------------
Net increase (decrease) in net assets attributable
to common stock shareholders
resulting from operations................. (2.85) (1.63) (4.73) 11.26 3.07 2.73
--------- ------------- ------------ ------------ ------------- ------------
Distributions to common stock shareholders:
Net investment income.......................... ----- (0.00)(a) ($0.16) ----- ----- ($0.01)
Net realized gain on investments............... ----- ($0.06) ($1.41) ($3.62) ($0.80) ($0.84)
In excess of net investment income and/or net
realized gain on investments................... ----- ----- ----- ----- ----- (0.00)(a)
Total distributions to common stock
shareholders ............................. ----- ($0.06) ($1.57) ($3.62) ($0.80) ($0.85)
--------- ------------- ------------ ------------ ------------- ------------
Capital Share Transactions:
Increase (decrease) in net asset value
from common stock share transactions........... 0.00(a) ----- (1.35) 0.06 0.02 0.06
Offering expenses charged to capital
surplus...................................... ----- ----- (0.04) ----- ----- (0.13)
--------- ------------- ------------ ------------ ------------- ------------
Total capital share transactions........... 0.00(a) 0.00 (1.39) 0.06 0.02 (0.07)
--------- ------------- ------------ ------------ ------------- ------------
Net asset value attributable to common stock
shareholders, end of period..................... $ 7.67 $ 10.52 $ 12.21 $ 19.90 $ 12.20 $ 9.91
========= ============= ============ ============ ============= ============
Net asset value total return+................... (27.1)% (13.3)% (24.9)% 96.6% 33.0% 34.4%
========= ============= ============ ============ ============= ============
Market value, end of period..................... $ 6.40 $ 9.01 $ 10.31 $ 18.75 $ 10.94 $ 8.75
========= ============= ============ ============ ============= ============
Total investment return++....................... (29.0)% (12.1)% (35.0)% 106.6% 35.1% 39.6%
========= ============= ============ ============ ============= ============
Ratios and supplemental data:
Net assets including liquidation value of pre-
ferred shares, end of period (in 000's)...... $132,683 $ 181,539 $ 205,893 $ 246,488 $ 163,742 $ 140,416
Net assets attributable to common shares, end
of period (in 000's)......................... $109,533 $ 150,672 $ 175,026 $ 215,238 $ 132,492 $ 109,166
Ratio of net investment income to average
net assets attributable to common shares..... (0.04)% (0.18)% 1.36% (0.30)% (0.32)% 0.07%
Ratio of operating expenses to average net
assets attributable to common shares......... 1.46% 1.34% 1.46% 1.56% 2.53% 2.09%
Ratio of operating expenses to average total
net assets including liquidation value
of preferred shares ......................... 1.18% 1.13% 1.27% 1.32% 2.01% 1.77%
Portfolio turnover rate......................... 16.6% 25.4% 29.9% 43.1% 44.6% 96.1%
Cumulative Preferred Stock:
Liquidation value, end of period (in 000's)..... $ 23,151 $ 30,868 $ 30,868 $ 31,250 $ 31,250 $ 31,250
Total shares outstanding (in 000's)............. 926 1,235 1,235 1,250 1,250 1,250
Liquidation preference per share................ $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (b)........................ $ 25.75 $ 25.50 $ 23.54 $ 25.13 $ 25.96 $ 25.59
Asset coverage.................................. 573% 558% 667% 789% 524% 443%
Asset coverage per share........................ $ 143.28 $ 147.03 $ 166.76 $ 197.19 $ 112.97 $ 112.33
Year Ended December 31,
---------------------------------------------------
Operating performance 1996 1995 1994*
---- ---- ----
Net asset value, beginning of period $ 7.81 $ 7.51 $ 7.50
--------------------------------- ---------------
Net investment income............................ 0.01 0.08 0.03
Net realized and unrealized gain on investments.. 0.63 0.98 0.03
--------------------------------- ---------------
Total from investment operations................. 0.64 1.06 0.06
--------------------------------- ---------------
Increase (decrease) in net asset value from
Multimedia Trust share transactions.............. 0.02 (0.46) -----
Offering expenses charged to additional
paid-in capital.................................. ----- (0.05) -----
Distribution to common stock shareholders from:
Net investment income............................ -0.01 (0.08) (0.03)
Net realized gains............................... -0.36 (0.17) -----
Distributions in excess of net investment
income and/or net realized gains................. (0.00)(a) (0.00)(a) (0.01)
Paid-in capital.................................. ----- ----- -----
Total distributions.............................. -0.37 (0.25) (0.05)
------------------ -------------- ---------------
Net asset value, end of year.......................... $ 8.10 $ 7.81 $ 7.51
================== ============== ===============
Market value, end of year............................. $ 6.88 $ 6.75 $ 7.38
================== ============== ===============
Net Asset Value Total Return**........................ 9.4% 14.1 0.8%
================== ============== ===============
Total investment return***............................ 7.4% 0.4% (7.9)%
================== ============== ===============
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)............. 91462 $89,580 $64,606
Ratio of net investment income to average net
assets attributable to common stock.......... 0.13% 1.24% 3.15%
Ratio of operating expenses to average net
assets attributable to common stock (b)...... 1.87% 2.04% 1.74%+
Portfolio turnover rate.......................... 32.1% 86.0% 0%
_________________________
+ Based on net asset value per share, adjusted for reinvestment of distributions, including the effect of
shares issued pursuant to rights offering, assuming full subscription by shareholders.
++ Based on market value per share, adjusted for reinvestment of distributions, including the effect of
shares issued pursuant to rights offering, assuming full subscription by shareholders.
* The Gabelli Global Multimedia Trust Inc. commenced operations on November 15, 1994.
** Based on net asset value per share, adjusted for reinvestment of all distributions and rights offering
in 1995.
*** Based on market value per share, adjusted for reinvestment of all distributions and rights offering in
1995.
+ Annualized
(a) Amount represents less than $0.005 per share.
See accompanying notes to financial statements.
The following table provides information about the Fund's outstanding Series A
Preferred Stock since its issuance in April 1997. The information has been
audited by PricewaterhouseCoopers LLP, independent accountants.
Involuntary
Liquidation Average
Year ended Shares Asset Coverage Preference Market
December 31, Outstanding Per Share Per Share Value Per Share
------------ ----------- --------- --------- ---------------
2002
2001
2000
1999
1998
1997
For purposes of the foregoing table, the Asset Coverage Per Share is
calculated by dividing the total value of the Fund's assets on December 31 of
the relevant year by the number of shares of Series A Preferred outstanding on
that date. Involuntary Liquidation Preference Per Share refers to the amount
holders of Series A Preferred are entitled to receive per share in the event
of liquidation of the Fund prior to the holders of common stock being entitled
to receive any amounts in respect of the assets of the Fund. The Average
Market Value Per Share is the average of the weekly closing prices of the
Series A Preferred on the NYSE each week during the relevant year.
USE OF PROCEEDS
The net proceeds of the offering are estimated at $ , 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. A portion of the net proceeds (approximately $23 million) will be
used to redeem all of the Fund's outstanding Series A Preferred. The
Investment Adviser anticipates that the investment of the remainder of the
proceeds will be made in accordance with the Fund's investment objectives and
policies as appropriate investment opportunities are identified. Investments of
the proceeds will not take more than six months.
THE FUND
The Fund, incorporated in Maryland on May 31, 1994, is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund's common stock is traded on the New York Stock Exchange
under the symbol "GGT." In November 2002 the Fund completed a redemption of
25% of its outstanding Series A Preferred. The Fund's Series A Preferred is
traded on the New York Stock Exchange under the symbol "GGT Pr." The remainder
of the Fund's outstanding Series A Preferred is expected to be redeemed on
March 28, 2003, or as soon thereafter as is practicable following the issuance
of the preferred stock offered by this prospectus.
The Fund had no operations prior to November 15, 1994, other than the
sale of 10,000 shares of common stock for $100,000 to the Gabelli Equity Trust
Inc. On November 15, 1994, The Gabelli Equity Trust Inc. contributed
$64,382,764 in exchange for 8,587,702 shares of the Fund and immediately
thereafter distributed to its shareholders all the shares it held of the Fund.
The Fund's investment operations commenced on November 15, 1994.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the
Fund as of March 1, 2003, and its adjusted capitalization assuming the Series
B Preferred and/or Series C Auction Rate Preferred offered in this prospectus
had been issued and the Fund's outstanding Series A Preferred had been
redeemed as of that date.
As of March 1, 2003
Actual As Adjusted
------ -----------
(Unaudited)
Preferred stock, $0.001 par value, shares authorized.
(The "Actual" column reflects Fund's outstanding
capitalization as of March 1, 2003; the "As Adjusted"
column assumes the issuance of an additional
shares of Series B Preferred and Series C
Auction Rate Preferred, $25 and $25,000 liquidation
preference, respectively)................................
Shareholders' Equity Applicable to Common Shares..................
Common stock, $.001 par value per share; shares
authorized, shares outstanding.......................
Paid-in surplus*..................................................
Undistributed net investment income...............................
Accumulated net realized loss from investment
transactions.............................................
Net unrealized appreciation.......................................
Net assets applicable to common shareholders......................
Net assets, plus liquidation preference of preferred stock........
* As adjusted paid in surplus reflects a reduction for the sales load
and estimated offering cost of the Series B Preferred and/or Series C
Auction Rate Preferred issuance of $________.
As used in this prospectus, unless otherwise noted, the Fund's
"managed assets" include the aggregate net asset value of the common shares
plus assets attributable to outstanding shares of its preferred stock, with no
deduction for the liquidation preference of such shares of preferred stock.
For financial reporting purposes, however, the Fund is required to deduct the
liquidation preference of its outstanding preferred stock from "managed
assets," so long as the preferred stock has redemption features that are not
solely within the control of the Fund. For all regulatory purposes, the Fund's
preferred stock will be treated as stock (rather than as indebtedness).
INVESTMENT OBJECTIVES AND POLICIES
The Fund's primary investment objective is to achieve long-term
growth of capital by investing primarily in the common stock and other
securities of foreign and domestic companies involved in the
telecommunications, media, publishing and entertainment industries. Income is
the secondary investment objective. The investment objectives of long-term
growth of capital and income are fundamental policies of the Fund. The Fund's
policy of concentration in companies in the communications industries is also
a fundamental policy of the Fund. These fundamental policies and the
investment limitations described in the SAI under the caption "Investment
Restrictions" cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. As used herein, a
"majority of the Fund's outstanding voting securities" (or like phrase) means
the lesser of (i) 67% of the shares of the Fund's common stock and preferred
stock, voting as a single class, represented at a meeting at which more than
50% of the outstanding shares of the Fund's common stock and preferred stock
are represented, whether in person or by proxy, or (ii) more than 50% of the
outstanding shares of common stock and preferred stock, voting as a single
class. No assurance can be given that the Fund's investment objectives will be
achieved.
Under normal market conditions, the Fund will invest at least 80%
of the value of its total assets in common stock and other securities of
companies in the telecommunications, media, publishing and entertainment
industries.
The telecommunications companies in which the Fund may invest are
engaged in the development, manufacture or sale of communications services or
equipment throughout the world, including the following products or services:
regular telephone service; wireless communications services and equipment,
including cellular telephone, microwave and satellite communications, paging,
and other emerging wireless technologies; equipment and services for both data
and voice transmission, including computer hardware and software; electronic
components and communications equipment; video conferencing; electronic mail;
local and wide area networking, and linkage of data and word processing
systems; publishing and information systems; video text and teletext; emerging
technologies combining television, telephone and computer systems;
broadcasting, including television and radio via VHF, UHF, satellite and
microwave transmission and cable television.
The entertainment, media and publishing companies in which the
Fund may invest are engaged in providing the following products or services:
the creation, packaging, distribution, and ownership of entertainment
programming throughout the world, including prerecorded music, feature-length
motion pictures, made-for-TV movies, television series, documentaries,
animation, game shows, sports programming and news programs; live events such
as professional sporting events or concerts, theatrical exhibitions,
television and radio broadcasting via VHF, UHF, satellite and microwave
transmission, cable television systems and programming broadcast and cable
networks, wireless cable television and other emerging distribution
technologies; home video, interactive and multimedia programming, including
home shopping and multiplayer games; publishing, including newspapers,
magazines and books, advertising agencies and niche advertising mediums such
as in-store or direct mail; emerging technologies combining television,
telephone and computer systems, computer hardware and software; and equipment
used in the creation and distribution of entertainment programming such as
that required in the provision of broadcast, cable or telecommunications
services.
Under normal circumstances, the Fund will invest in securities of
issuers located in at least three countries, which may include the United
States. Investing in securities of foreign issuers, which generally are
denominated in foreign currencies, may involve certain risk and opportunity
considerations 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 revaluations of currencies. For a further
discussion of the risks associated with investing in foreign securities and a
description of other risks inherent in the Fund's investment objectives and
policies, see "Risk Factors and Special Considerations."
The Investment Adviser believes that at the present time
investment by the Fund in the securities of companies located throughout the
world presents great potential for accomplishing the Fund's investment
objectives. While the Investment Adviser expects that a substantial portion of
the Fund's portfolio may be invested in the securities of domestic companies,
a significant portion of the Fund's portfolio may also be comprised of the
securities of issuers headquartered outside the United States.
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, cash flow, earnings per share
and other fundamental aspects of the underlying
assets and business of the company;
o the potential for capital appreciation of the securities;
o the interest or dividend income generated by 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;
o the existence of any anti-dilution protections or guarantees
of the security; and
o the diversification of the portfolio of the Fund as to issuers.
The Investment Adviser's investment philosophy with respect to equity
securities seeks 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 the issuers' 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
Foreign Securities. There is no limitation on the amount of
foreign securities in which the Fund may invest. Among the foreign securities
in which the Fund may invest are those issued by companies located in
developing countries, which are countries in the initial stages of their
industrialization cycles. Investing in the equity and debt markets of
developing countries involves exposure to economic structures that are
generally less diverse and less mature, and to political systems that can be
expected to have less stability, than those of developed countries. The
markets of developing countries historically have been more volatile than the
markets of the more mature economies of developed countries, but often have
provided higher rates of return to investors.
The Fund may also invest in the debt securities of foreign
governments. Although such investments are not a principal strategy of the
Fund, there is no independent limit on the Fund's ability to invest in the debt
securities of foreign governments. However, the Fund maintains limited
positions in such securities for purposes such as mitigating, currency risk in
anticipation of investing in securities that are denominated in the currencies
of such foreign debt.
Corporate Reorganizations. 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 similar reorganization proposal has been announced if, in the
judgment of the Investment Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover expenses
inherent in the short term nature of such transactions. The principal risk is
that such offers or proposals may not be consummated within the time and under
the terms contemplated at the time of the investment, in which case, unless
such offers or proposals are replaced by equivalent or increased offers or
proposals that are consummated, the Fund may sustain a loss.
Temporary Defensive Investments. During temporary defensive
periods and during periods when the Fund's normal asset allocation is not
optimal, the Fund may invest more heavily in securities of U.S. government
sponsored instrumentalities and in money market mutual funds that invest in
those securities, which, in the absence of an exemptive order, are not
affiliated with the Investment Adviser. Obligations of certain agencies and
instrumentalities of the U.S. government, such as the Government National
Mortgage Association, are supported by the "full faith and credit" of the U.S.
government; others, such as those of the Export-Import Bank of the U.S., are
supported by the right of the issuer to borrow from the U.S. Treasury; others,
such as those of the Federal National Mortgage Association, are supported by
the discretionary authority of the U.S. government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumental ity. No
assurance can be given that the U.S. government would provide financial
support to U.S. government sponsored instrumentalities if it is not obligated
to do so by law. During temporary defensive periods, the Fund may be less
likely to achieve its investment objective.
Further information on the investment objective and policies of
the Fund are set forth in the SAI.
Special Investment Methods.
Options. On behalf of the Fund, the Investment Adviser may,
subject to guidelines of the Board of Directors, 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 U.S. over-the-counter
("OTC") markets as a means of achieving additional return or of hedging the
value of the Fund's portfolio. The Fund may write covered call options on
common stocks that it owns or has an immediate right to acquire through
conversion or exchange of other securities in an amount not to exceed 25% of
total assets or invest up to 10% of its total assets in the purchase of put
options on common stocks that the Fund owns or may acquire through the
conversion or exchange of other securities that it owns. The Fund may not
write covered call options in an amount exceeding 25% of the value of its
total assets.
A call option is a contract that gives the holder of the option
the right to buy from the writer (seller) of the call option, in return for a
premium paid, the security 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 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 to sell to the writer (seller), in return for
the premium, the underlying security at a specified price during the term of
the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security upon exercise, at the exercise price
during the option period.
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.
There can be no assurance that a closing purchase transaction can be effected
when the Fund so desires.
An exchange traded option may be closed out only on an exchange
which provides a secondary market for an option of the same series. 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.
The Fund will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Fund's total assets. See
"Investment Practices -- Options" in the SAI. In addition, investments in
options may be limited or prohibited by the applicable Rating Agency
Guidelines.
Futures Contracts and Options Thereon.On behalf of the Fund, the
Investment Adviser may, subject to guidelines of the Board of Directors,
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, in accordance with regulations of
the Commodity Futures Trading Commission ("CFTC"). These futures contracts and
related options may be on debt securities, financial indices, securities
indices, U.S. government securities and foreign currencies. 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.
Under the CFTC regulations, the Investment Adviser on behalf of the
Fund (i) may purchase and sell futures contracts and options thereon for bona
fide hedging purposes, as defined under CFTC regulations, without regard to
the percentage of the Fund's assets committed to margin and option premiums,
and (ii) may enter into nonhedging transactions, provided that, immediately
thereafter, the sum of the amount of the initial margin deposits on the Fund's
existing futures positions and option premiums does not exceed 5% of the
market value of the Fund's total assets. In addition, investments in futures
contracts and related options may be limited or prohibited by the applicable
Rating Agency Guidelines. The Fund does not have an independent limitation on
its investments in foreign futures contracts and options on foreign currency
futures contracts. However, it typically will make any such investments only
in the context of a hedge or anticipatory hedge.
Forward Currency Exchange Contracts. Subject to guidelines of the
Board of Directors, the Fund may enter into forward foreign currency exchange
contracts to protect the value of its portfolio against future changes in the
level of 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's dealings in forward
contracts will be limited to hedging involving either specific transactions or
portfolio positions. The Fund does not have an independent limitation on its
investments in foreign currency futures contracts, though the fund typically
will make such investments only in the context of a hedge or anticipatory
hedge.
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 are inaccurate, the consequences to the Fund may leave the Fund
in a worse position than if such strategies were not used. 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; and
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.
Short Sales Against the Box. The Fund may from time to time make
short sales of securities it owns or has the right to acquire through
conversion or exchange of other securities it owns. A short sale is "against
the box" to the extent that the Fund contemporaneously owns or has the right
to obtain at no added cost securities identical to those sold short. In a
short sale, the Fund does not immediately deliver the securities sold or
receive the proceeds from the sale. The Fund may not make short sales or
maintain a short position if it would cause more than 25% of the Fund's total
assets, taken at market value, to be held as collateral for such sales.
To secure its obligations to deliver the securities sold short,
the Fund will deposit in escrow in a separate account with its custodian an
equal amount to the securities sold short or securities convertible into, or
exchangeable for such securities. The Fund may close out a short position by
purchasing and delivering an equal amount of the securities sold short, rather
than by delivering securities already held by the Fund, because the Fund may
want to continue to receive interest and dividend payments on securities in
its portfolio that are convertible into the securities sold short.
The Fund may make a short sale in order to hedge against market
risks when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security convertible
into, or exchangeable for, such security, or when the Fund does not want to
sell the security it owns, because, among other reasons, it wishes to defer
recognition of gain or loss for U.S. Federal income tax purposes.
Additionally, the Fund may use short sales in conjunction with the purchase of
a Convertible Security when it is determined that a Convertible Security can
be bought at a small conversion premium and has a yield advantage relative to
the underlying common stock sold short.
Repurchase Agreements. The Fund may enter into repurchase
agreements with primary government securities dealers recognized by the
Federal Reserve Bank of New York and member banks of the Federal Reserve
System which furnish collateral at least equal in value or market price to the
amount of their repurchase obligation. In a repurchase agreement, the Fund
purchases a debt security from a seller which undertakes to repurchase the
security at a specified resale price on an agreed future date. Repurchase
agreements are generally for one business day but may have longer durations.
The SEC has taken the position that, in economic reality, a repurchase
agreement is a loan by the Fund to the other party to the transaction secured
by securities transferred to the Fund. The resale price generally exceeds the
purchase price by an amount which reflects an agreed upon market interest rate
for the term of the repurchase agreement. The principal risk is that, if the
seller defaults, the Fund might suffer a loss to the extent that the proceeds
from the sale of the underlying securities and other collateral held by the
Fund are less than the repurchase price. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the
collateral. The Board of Directors will monitor the creditworthiness of the
contra party to the repurchase agreements.
If the financial institution which is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the United States
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under these circumstances, there may be a restriction on the Fund's
ability to sell the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities. To increase income, the Fund may
lend its portfolio securities to securities broker-dealers or financial
institutions if (i) the loan is collateralized in accordance with applicable
regulatory requirements and (ii) no loan will cause the value of all loaned
securities to exceed 33% of the value of the Fund's total assets.
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. While these loans of portfolio securities will be made in
accordance with guidelines approved by the Board of Directors, 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 contra 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 these circumstances, there may be a restriction
on the Fund's ability to sell the collateral and the Fund would suffer a loss.
See "Investment Practices -- Loans of Portfolio Securities" in the SAI.
Borrowing. As provided in the 1940 Act, the Fund may issue debt or
preferred stock so long as the Fund's net assets exceed 300% of the amount of
the debt outstanding and exceed 200% of the amount of preferred stock
outstanding. Such debt or preferred stock may be convertible in accordance
with SEC staff guidelines which may permit the Fund to obtain leverage at
attractive rates. Leverage entails two primary risks. The first risk is that
the use of leverage magnifies the impact on the common shareholders of changes
in net asset value. For example, a fund that uses 33% leverage will show a
1.5% increase or decline in net asset value for each 1% increase or decline in
the value of its total assets. 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 common
shareholders. These two risks would generally make the Fund's total return to
common shareholders more volatile.
A decline in net asset value could affect the ability of the Fund
to make common stock dividend payments and such a failure to pay dividends or
make distributions could result in the Fund ceasing to qualify as a regulated
investment company under the Code. See "Taxation". Finally, if the asset
coverage for preferred stock 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 when it may be
disadvantageous to do so.
Further information on the investment objective and policies of
the Fund are set forth in the SAI.
Investment Restrictions. The Fund has adopted certain investment
restrictions as fundamental policies of the Fund. Under the 1940 Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act. The
Fund's investment restrictions are more fully discussed under "Investment
Restrictions" 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. The portfolio turnover may be
higher than that of other investment companies.
Portfolio turnover generally involves some expense to the Fund,
including brokerage commis sions 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). To the extent the Fund experiences high
portfolio turnover, such turnover is likely to decrease tax advantages 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.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special
considerations associated with investing in the Fund.
Preferred Stock
General. There are a number of risks associated with an investment in
the Series B Preferred or Series C Auction Rate Preferred. The market value
for the Series B Preferred and/or Series C Auction Rate Preferred will be
influenced by changes in interest rates, the perceived credit quality of the
Series B Preferred or Series C Auction Rate Preferred and other factors. The
Series B Preferred and/or Series C Auction Rate Preferred are subject to
redemption under specified circumstances and investors may not be able to
reinvest the proceeds of any such redemption in an investment providing the
same or a better rate than that of the Series B Preferred or Series C Auction
Rate Preferred. Subject to such circumstances, the Series B Preferred and/or
Series C Auction Rate Preferred are perpetual.
The credit rating on the Series B Preferred or Series C Auction
Rate Preferred could be reduced or withdrawn while an investor holds shares,
and the credit rating does not eliminate or mitigate the risks of investing in
the Series B Preferred or Series C Auction Rate Preferred. A reduction or
withdrawal of the credit rating would likely have an adverse effect on the
market value of the Series B Preferred or Series C Auction Rate Preferred.
The Series B Preferred and the Series C Auction Rate Preferred are
not obligations of the Fund. The Series B Preferred and/or Series C Auction
Rate Preferred would be junior in respect of dividends and liquidation
preference to any indebtedness incurred by the Fund. Although unlikely,
precipitous declines in the value of the Fund's assets could result in the
Fund having insufficient assets to redeem all of the Series B Preferred and/or
Series C Auction Rate Preferred for the full redemption price. For the year
ending December 31, 2002, the Fund did not pay distributions on its common
stock. The Fund had not previously failed to make an annual distribution with
respect to its common shares since .
Leverage Risk. The Fund uses financial leverage for investment
purposes by issuing preferred stock. It is currently anticipated that, taking
into account the Series B Preferred and/or Series C Auction Rate Preferred
being offered in this prospectus and assuming the redemption of the Fund's
outstanding Series A Preferred, the amount of leverage will represent
approximately % of the Fund's managed assets (as defined below). For a brief
period of time both series offered pursuant to this prospectus will be
outstanding, but the Series A Preferred will not yet have been redeemed.
During this period of time, which is not expected to be in excess of days, the
amount of leverage will represent approximately % of the Fund's managed assets
(as defined below). [The Fund has obtained consent from each of the relevant
ratings agencies to maintain this amount of leverage for the period of time in
between this offering and the anticipated redemption of the Series A
Preferred.] The Fund's leveraged capital structure creates special risks not
associated with unleveraged funds having similar investment objectives and
policies. These include the possibility of greater loss and the likelihood of
higher volatility of the net asset value of the Fund and the Series B
Preferred and/or Series C Auction Rate Preferred's asset coverage.
Because the fee paid to the Investment Adviser will be calculated
on the basis of the Fund's managed assets (which equal the aggregate net asset
value of the common shares plus assets attributable to outstanding shares of
its preferred stock, with no deduction for the liquidation preference of such
shares of preferred stock), when the Fund's total return at least equals the
dividend rate on the preferred stock (rather than only on the basis of net
assets attributable to the common stock) the fee may be higher when leverage
is utilized, giving the Investment Adviser an incentive to utilize leverage.
Restrictions on Dividends and Other Distributions. Restrictions
imposed on the declaration and payment of dividends or other distributions to
the holders of the Fund's common stock and preferred stock, both by the 1940
Act and by requirements imposed by rating agencies, might impair the Fund's
ability to maintain its qualification as a regulated investment company for
federal income tax purposes. While the Fund intends to redeem its preferred
stock (including the Series B Preferred and/or Series C Auction Rate
Preferred) to the extent necessary to enable the Fund to distribute its income
as required to maintain its qualification as a regulated investment company
under the Code, there can be no assurance that such actions can be effected in
time to meet the Code requirements. See "Taxation" in the SAI.
Ratings and Asset Coverage Risk. While it is a condition to the
closing of the offering that Moody's assigns a rating of Aaa to the Series B
Preferred and/or Series C Auction Rate Preferred and that Fitch assigns a
rating of AAA to the Series C Auction Rate Preferred, the ratings do not
eliminate or necessarily mitigate the risks of investing in Series B Preferred
or Series C Auction Rate Preferred. The credit rating on the Series B
Preferred or Series C Auction Rate Preferred could be reduced or withdrawn
while an investor holds shares, which would likely have an adverse effect on
the market value of the Series B Preferred or Series C Auction Rate Preferred.
A reduction or withdrawal of the credit ratings on the Series C Auction Rate
Preferred may also make your Series C Auction Rate Preferred shares less
liquid at an auction or in the secondary market.
In addition, if a rating agency rating the Series C Auction Rate
Preferred at the Fund's request downgrades the Series C Auction Rate
Preferred, the maximum rate on the Series C Auction Rate Preferred will
increase. See "Description of the Series B Preferred and Series C Auction Rate
Preferred -- Rating Agency Guidelines" for a description of the asset
maintenance tests the Fund must meet. In addition, should the rating on the
Fund's preferred stock be lowered or withdrawn by the relevant rating agency,
the Fund may also be required to redeem all or part of its outstanding
preferred stock.
Special Risks of the Series B Preferred
Illiquidity Prior to Exchange Listing. Prior to the offering,
there has been no public market for the Series B Preferred. In the event the
Series B Preferred are issued, prior application will have been made to list
the Series B Preferred on the New York Stock Exchange. However, during an
initial period, which is not expected to exceed 30 days after the date of its
initial issuance, the Series B Preferred will not be listed on any securities
exchange. During such period, the underwriters intend to make a market in the
Series B Preferred, though, they have no obligation to do so. Consequently, an
investment in the Series B Preferred may be illiquid during such period.
Special Risks of the Series C Auction Rate Preferred
Interest Rate Risk. In connection with the sale of the Series C
Auction Rate Preferred, the Fund may enter into interest rate swap or cap
transactions in order to reduce the impact of changes in the dividend rate of
the Series C Auction Rate Preferred or obtain the equivalent of a fixed rate
for the Series C Auction Rate Preferred that is lower than the Fund would have
to pay if it issued fixed rate preferred shares. The use of interest rate
swaps and caps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. See "How the Fund Manages Risk -- Interest Rate
Transactions."
Auction Risk. You may not be able to sell your Series C Auction
Rate Preferred at an auction if the auction fails, i.e., if there is more
Series C Auction Rate Preferred offered for sale than there are buyers for
those shares. Also, if you place orders (place a hold order) at an auction to
retain Series C Auction Rate Preferred only at a specified rate that exceeds
the rate set at the auction, you will not retain your Series C Auction Rate
Preferred. Additionally, if you place a hold order without specifying a rate
below which you would not wish to continue to hold your shares and the auction
sets a below-market rate, you will receive a lower rate of return on your
shares than the market rate. Finally, the dividend period may be changed,
subject to certain conditions and with notice to the holders of the Series C
Auction Rate Preferred, which could also affect the liquidity of your
investment. See "Description of the Series B Preferred and Series C Auction
Rate Preferred" and "The Auction of Series C Auction Rate Preferred."
Secondary Market Risk. If you try to sell your Series C Auction
Rate Preferred between auctions, you may not be able to sell them for $25,000
per share or $25,000 per share plus accumulated dividends. If the Fund has
designated a special dividend period of more than seven days, changes in
interest rates could affect the price you would receive if you sold your
shares in the secondary market. Broker-dealers that maintain a secondary
trading market for the Series C Auction Rate Preferred are not required to
maintain this market, and the Fund is not required to redeem Series C Auction
Rate Preferred if either an auction or an attempted secondary market sale
fails because of a lack of buyers. The Series C Auction Rate Preferred is not
registered on a stock exchange or the NASDAQ stock market. If you sell your
Series C Auction Rate Preferred to a broker-dealer between auctions, you may
receive less than the price you paid for them, especially when market interest
rates have risen since the last auction or during a special dividend period.
Industry Risks
The Fund invests a significant portion of its assets of companies
in the telecommunications, media, publishing and entertainment industries and,
as a result, the value of the Fund's shares is more susceptible to factors
affecting those particular types of companies and those industries, including
governmental regulation, a greater price volatility than the overall market,
rapid obsolescence of products and services, intense competition and strong
market reactions to technological developments.
Various types of ownership restrictions are imposed by the Federal
Communications Commis sion, or FCC, on investments both in mass media
companies, such as broadcasters and cable operators, and in common carrier
companies, such as the providers of local telephone service and cellular
radio.
For example, the FCC's broadcast multiple ownership rules, which
apply to the radio and television industries, provide that investment advisers
are deemed to have an "attributable" interest whenever the adviser has the
right to determine how much more than five percent of the issued and
outstanding voting stock of a broadcast company may be voted. These same
broadcast rules prohibit the holding of an attributable interest in more than
AM and FM radio broadcast stations nationally or more than twelve television
stations nationally. Similar types of restrictions apply in the mass media and
common carrier industries.
The attributable interest that results from the role of the
Investment Adviser and its principals in connection with other funds, managed
accounts and companies may limit the Fund's ability to invest in mass media
and common carrier companies.
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.
Long-term Objective
The Fund is intended for investors seeking long-term capital
growth. 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 objectives as well as the
shareholder's other investments when considering an investment in the Fund.
Non-diversified Status
The Fund is classified as a "non-diversified" investment company
under the 1940 Act, which means the Fund is not limited by the 1940 Act in the
proportion of its assets that may be invested in the securities of a single
issuer. However, the Fund has in the past conducted and intends to conduct its
operations so as to qualify as a "regulated investment company," or RIC, for
purposes of the Code, which will relieve it of any liability for federal
income tax to the extent its earnings are distributed to sharehold ers. To
qualify as a "regulated investment company," among other requirements, the
Fund will limit its investments so that, with certain exceptions, at the close
of each quarter of the taxable year:
o not more than 25% of the market value of its total assets
will be invested in the securities (other than U.S.
government securities or the securities of other RICs) of a
single issuer or any two or more issuers that the Fund
controls and which are determined to be engaged in the same,
similar or related trades or businesses, and
o at least 50% of the market value of the Fund's assets will
be represented by cash, securities of other regulated
investment companies, U.S. government securities and other
securities, with such other securities limited in respect of
any one issuer to an amount not greater than 5% of the value
of the Fund's assets and not more than 10% of the
outstanding voting securities of such issuer.
As a non-diversified investment company, the Fund may invest in
the securities of individual issuers to a greater degree than a diversified
investment company. As a result, the Fund may be more vulnerable to events
affecting a single issuer and therefore, subject to greater volatility than a
fund that is more broadly diversified. Accordingly, an investment in the Fund
may present greater risk to an investor than an investment in a diversified
company.
Market Value and Net Asset Value
The Fund is a non-diversified, closed-end management investment
company. Shares of closed- end funds are bought and sold in the securities
markets and may trade at either a premium or discount from net asset value.
Listed shares of closed-end investment companies frequently trade at a
discount from net asset value. This characteristic of stock of a closed-end
fund is a risk separate and distinct from the risk that the Fund's net asset
value will decrease. The Fund cannot predict whether its listed stock will
trade at, below or above net asset value. Stockholders desiring liquidity may,
subject to applicable securities laws, trade their common stock in the Fund on
the New York Stock Exchange or other markets on which such stock may trade at
the then current market value, which may differ from the then current net
asset value. Stockholders will incur brokerage or other transaction costs to
sell stock.
Lower Rated Securities
The Fund may invest up to 10% of its total assets in fixed-income
securities rated in the lower rating categories of recognized statistical
rating agencies. 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
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
The market value of lower-rated securities may be more volatile
than the market value of higher- rated 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 more highly rated
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.
The Fund may invest up to 10% of its total assets 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 appreciate.
For a further description of lower rated securities and the risks
associated therewith, see "Investment Objectives 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.
Foreign Securities
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 may invest up to 25% of its total assets in
securities of foreign issuers.
The Fund may purchase sponsored American Depository Receipts
("ADRs") or U.S. denomi nated securities of foreign issuers, which will not be
included in the 25% 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. 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.
Futures Transactions
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 favor able prices;
o possible reduction of the yield 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.
For a further description of the Fund's investments in futures, see
"Investment Objectives and Policies - Investment Practices" in the SAI.
Forward Currency Exchange Contracts
The use of forward currency contracts may involve certain risks,
including the failure of the counter party 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. For a
further description of such investments, see "Investment Objectives and
Policies -- Investment Practices" in the SAI.
Dependence on Key Personnel
The Investment Adviser is dependent upon the expertise of Mr. Mario
J. Gabelli in providing advisory services with respect to the Fund's
investments. If the Investment Adviser were to lose the services of Mr.
Gabelli, its ability to service the Fund could be adversely affected. There
can be no assurance that a suitable replacement could be found for Mr. Gabelli
in the event of his death, resigna tion, retirement or inability to act on
behalf of the Investment Adviser.
Current Market Uncertainties
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 and related events have
led to increased short-term market volatility and may have long-term effects
on U.S. and world markets. A similar disruption of financial markets could
affect interest rates, securities exchanges, auctions, secondary trading,
ratings, credit risk, inflation and other factors relating to the Series B
Preferred and/or Series C Auction Rate Preferred. A similar disruption of
financial markets, including war in Iraq or threats or rumors of war or other
armed conflict in Iraq or elsewhere, could affect interest rates, securities
exchanges, auctions, secondary trading, rating, credit risk, inflation and
other factors relating to the Series B Preferred and/or Series C Auction Rate
Preferred.
HOW THE FUND MANAGES RISK
Investment Limitations
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 shares of common
stock and preferred stock voting together as a single class. The Fund may
become subject to guidelines that are more limiting than the investment
restrictions set forth above in order to obtain and maintain ratings from
Moody's or Fitch on its preferred stock. See "Investment Restrictions" in the
SAI for a complete list of the fundamental and non-fundamental investment
policies of the Fund.
Interest Rate Transactions
In order to reduce the impact of changes in the dividend rate of the
Series C Auction Rate Preferred or obtain the equivalent of a fixed rate for
the Series C Auction Rate Preferred that is lower than the Fund would have to
pay if it issued fixed rate preferred shares, the Fund may enter into interest
rate swap or cap transactions.
The use of interest rate swaps and caps is a highly specialized
activity that involves investment techniques and risks different from those
associated with ordinary portfolio security transactions. In an interest rate
swap, the Fund would agree to pay to the other party to the interest rate swap
(which is known as the "counterparty") periodically a fixed rate payment in
exchange for the counterparty agreeing to pay to the Fund periodically a
variable rate payment that is intended to approximate the Fund's variable rate
payment obligation on the Series C Auction Rate Preferred. In an interest rate
cap, the Fund would pay a premium to the counterparty to the interest rate cap
and, to the extent that a specified variable rate index exceeds a
predetermined fixed rate, would receive from the counterparty payments of the
difference based on the notional amount of such cap. Interest rate swap and
cap transactions introduce additional risk because the Fund would remain
obligated to pay preferred stock dividends when due in accordance with the
Articles Supplementary even if the counterparty defaulted. Depending on the
general state of short-term interest rates and the returns on the Fund's
portfolio securities at that point in time, such a default could negatively
affect the Fund's ability to make dividend payments on the Series C Auction
Rate Preferred. In addition, at the time an interest rate swap or cap
transaction reaches its scheduled termination date, there is a risk that the
Fund will not be able to obtain a replacement transaction or that the terms of
the replacement will not be as favorable as on the expiring transaction. If
this occurs, it could have a negative impact on the Fund's ability to make
dividend payments on the Series C Auction Rate Preferred. To the extent there
is a decline in interest rates, the value of the interest rate swap or cap
could decline, resulting in a decline in the asset coverage for the Series C
Auction Rate Preferred. A sudden and dramatic decline in interest rates may
result in a significant decline in the asset coverage. Under the Articles
Supplementary, if the Fund fails to maintain the required asset coverage on
the outstanding preferred stock (including the Series C Auction Rate
Preferred) or fails to comply with other covenants, the Fund may be required
to redeem some or all of these shares. The Fund may also choose to redeem some
or all of the Series C Auction Rate Preferred at any time. Such redemption
would likely result in the Fund seeking to terminate early all or a portion of
any swap or cap transaction. Early termination of a swap could result in a
termination payment by the Fund to the counterparty, while early termination
of a cap could result in a termination payment to the Fund.
The Fund will usually enter into swaps or caps on a net basis; that
is, the two payment streams will be netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. The Fund
intends to maintain in a segregated account with its custodian cash or liquid
securities having a value at least equal to the value of the Fund's net
payment obligations under any swap transaction, marked to market daily. The
Fund does not presently intend to enter into interest rate swap or cap
transactions relating to Series C Auction Rate Preferred in a notional amount
in excess of the outstanding amount of the Series C Auction Rate Preferred.
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 Directors (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 10580-1434, 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 Directors, 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
directors 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. However, the
Investment Adviser will waive the portion of its investment advisory fee
attributable to an amount of assets of the Fund equal to the aggregate stated
value of its outstanding preferred stock for any calendar year in which the
net asset value total return of the Fund allocable to the common stock,
including distributions and the advisory fee subject to potential waiver, is
less than the stated annual dividend rate of such preferred stock, prorated
during the year such preferred stock is issued and the final year it is
outstanding. For purposes of the calculation of the fees payable to the
Investment Adviser by the Fund, average weekly net assets of the Fund are
determined at the end of each month on the basis of its average net assets for
each week during the month. The assets for each weekly period are determined
by averaging the net assets at the end of a week with the net assets at the
end of the prior week.
The Investment 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 December 31, 2002,
the Invest ment Adviser acted as registered investment adviser to 18
management investment companies with aggregate net assets of $8.7 billion. The
Investment Adviser, together with other affiliated investment advisers noted
below had assets under management totaling $20.3 billion as of December 31,
2002. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as
investment adviser for individu als, pension trusts, profit sharing trusts and
endowments, and as a sub-adviser to management investment companies having
aggregate assets of $10.0 billion under management as of December 31, 2002.
Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as
investment adviser for The Treasurer's Fund and separate accounts having
aggregate assets of $1.6 billion under management as of December 31, 2002.
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 the 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 administra tion of the Fund, as well as the fees of all
directors of the Fund who are affiliated with the Investment Adviser. The Fund
pays all other expenses incurred in its operation including, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, stock certificates and stockholder reports, charges of the
custodian, any subcustodian and transfer and dividend paying agent, expenses
in connection with its respective automatic dividend reinvestment and
voluntary cash purchase plan, SEC fees, fees and expenses of unaffiliated
directors, accounting and pricing costs, including costs of calculating the
net asset value of the Fund, membership fees in trade associations, fidelity
bond coverage for its officers and employees, directors' and officers' errors
and omission insurance coverage, interest, brokerage costs, taxes, stock
exchange listing fees and expenses, expenses of qualifying its stock for sale
in various states, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable by the Fund.
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 stock, rating agency fees, costs of
printing proxies, stock certificates and stockholder reports, charges of State
Street Bank and Trust Company ("State Street" or the "Custodian"), charges of
EquiServe and The Bank of New York, SEC fees, fees and expenses of
unaffiliated directors, 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, interest, brokerage costs,
taxes, expenses of qualifying the Fund for sale in various states, expenses of
personnel performing stockholder servicing functions, litigation and other
extraordinary or non-recurring expenses and other expenses properly payable by
the Fund.
Selection of Securities Brokers
The Investment Advisory Contract 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
Investment Advisory Contract 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 is 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.; and Vice Chairman of the Board of Lynch Corporation,
a diversified manufacturing company, and Chairman of the Board and Chief
Executive Officer of Lynch Interactive Corporation, a multimedia and
communications services company.
Non-resident Director
Karl Otto Pohl, a director of the Fund, resides outside the United
States and all or a significant portion of his assets are located outside the
United States. Mr. Pohl does not have an authorized agent in the United States
to receive service of process. As a result, it may not be possible for
investors to effect service of process within the United States or to enforce
against Mr. Pohl in United States courts judgments predicated upon civil
liability provisions of United States securities laws. It may also not be
possible to enforce against Mr. Pohl in foreign courts judgments of United
States courts or liabilities in original actions predicated upon civil
liability provisions of the United States securities laws.
Sub-Administrator
The Investment Adviser has entered into 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 advisory 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,
Pennsylva nia 19406.
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 reserves the
authority to distribute its net capital gain in any year. If, for any calendar
year, the total distributions exceed net investment income and net capital
gain, the excess will generally be treated as a tax-free return of capital up
to the amount of a stockholder's tax basis in the stock. The amount treated as
a tax-free return of capital will reduce a stockholder's tax basis in the
stock, thereby increasing such stockholder's potential gain or reducing his or
her potential loss on the sale of the stock. Any amounts distributed to a
stockholder in excess of the basis in the stock will be taxable to the
stockholder as capital gain. See "Taxation" below.
In the event the Fund distributes amounts in excess of its net
investment 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. In addition, 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 might not dictate such action.
The Fund, along with other 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 stock 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 share of
common stock at or about the time of distribution or pay-out of a fixed dollar
amount. The exemption also permits the Fund to make distributions with respect
to its preferred stock in accordance with such stock's terms. If the total
distributions required by a periodic pay-out policy exceed the Fund's net
investment income and net capital gain, the excess will be treated as a return
of capital. If the Fund's net investment income (including net short-term
capital gains and net long-term capital gains) for any year exceed the amount
required to be distributed under a periodic pay-out policy, the Fund generally
intends to pay such excess once a year, but may, in its discretion, retain and
not distribute net long-term capital gains to the extent of such excess. The
Fund reserves the right, but does not currently intend, to retain for
reinvestment and pay the resulting U.S. federal income taxes on the excess of
its net realized long-term capital gains over its net short-term capital
losses, if any. The Fund did not distribute dividends to builders of its
common stock for the fiscal years ending December 31, 2002.
DESCRIPTION OF THE SERIES B PREFERRED AND
SERIES C AUCTION RATE PREFERRED
The Fund offers by this prospectus, in the aggregate, $ million of
preferred stock of either Series B Preferred or Series C Auction Rate
Preferred, or a combination of both such series. The following is a brief
description of the terms of each of the Series B Preferred and the Series C
Auction Rate Preferred. This description does not purport to be complete and
is qualified by reference to the Fund's Charter, including the provisions of
the Articles Supplementary establishing each of the Series B Preferred and the
Series C Auction Rate Preferred. For complete terms of the Series B Preferred
or the Series C Auction Rate Preferred, including definitions of terms used in
this prospectus, please refer to the actual terms of such series, which are
set forth in the applicable Articles Supplementary.
General
Under its Charter, the Fund is authorized to issue up to [__] shares
of preferred stock as Series B Preferred and up to [__] shares of preferred
stock as Series C Auction Rate Preferred. No fractional shares of either
series will be issued. The Board of Directors reserves the right to issue
additional shares of preferred stock, including Series B Preferred or Series C
Auction Rate Preferred, from time to time, subject to the restrictions in the
Fund's Charter and the 1940 Act.
If and when issued, the Series B Preferred will have a liquidation
preference of $25 per share and the Series C Auction Rate Preferred will have
a liquidation preference of $25,000 per share. Upon a liquidation, each holder
of Series B Preferred or Series C Auction Rate Preferred will be entitled to
receive out of the assets of the Fund available for distribution to
stockholders (after payment of claims of the Fund's creditors but before any
distributions with respect to the Fund's common stock or any other stock of
the Fund ranking junior to the Series B Preferred and Series C Auction Rate
Preferred as to liquidation payments) an amount per share equal to such
share's liquidation preference plus any accumulated but unpaid dividends
(whether or not earned or declared) to the date of distribution. The Series B
Preferred and the Series C Auction Rate Preferred will rank on a parity with
shares of any other series of preferred stock of the Fund as to the payment of
dividends and the distribution of assets upon liquidation. Series B Preferred
and Series C Auction Rate Preferred shares each carry one vote per share on
all matters on which such shares are entitled to vote. The Series B Preferred
and the Series C Auction Rate Preferred will, upon issuance, be fully paid and
nonassessable and will have no preemptive, exchange or conversion rights. Any
Series B Preferred or Series C Auction Rate Preferred repurchased or redeemed
by the Fund will be classified as authorized but unissued preferred stock. The
Board of Directors may by resolution classify or reclassify any authorized but
unissued capital stock of the Fund from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or terms or conditions of redemption. The Fund
will not issue any class of stock senior to the Series B Preferred and/or
Series C Auction Rate Preferred.
Rating Agency Guidelines
Upon issuance, both the Series B Preferred and the Series C Auction
Rate Preferred will be rated Aaa by Moody's Investors Service, Inc. In
addition, the Series C Auction Rate Preferred will also be rated AAA by Fitch.
The Fund is required under Moody's and Fitch guidelines to maintain assets
having in the aggregate a discounted value at least equal to the Basic
Maintenance Amount (as defined below) for its outstanding preferred stock,
including any outstanding Series B Preferred or Series C Auction Rate
Preferred, with respect to the separate guidelines Moody's and Fitch has each
established for determining discounted value. To the extent any particular
portfolio holding does not satisfy the applicable rating agency's guidelines,
all or a portion of such holding's value will not be included in the
calculation of discounted value (as defined by such rating agency). The
Moody's and Fitch guidelines also impose certain diversification requirements
and industry concentration limitations on the Fund's overall portfolio, and
apply specified discounts to securities held by the Fund (except certain money
market securities). The "Basic Maintenance Amount" is equal to (i) the sum of
(a) the aggregate liquidation preference of the preferred stock then
outstanding plus (to the extent not included in the liquidation preference of
such preferred stock) an amount equal to the aggregate accumulated but unpaid
dividends (whether or not earned or declared) in respect of such preferred
stock, (b) the total principal of any debt (plus accrued and projected
interest), (c) certain Fund expenses and (d) certain other current liabilities
(excluding any unpaid dividends on the Fund's common stock) less (ii) the
Fund's (a) cash and (b) assets consisting of indebtedness which (x) is to
mature prior to or on the date of redemption or repurchase of the preferred
stock, (y) are U.S. Government Obligations or evidences of indebtedness rated
at least Aaa, P-1, VMIG-1 or MIG-1 by Moody's or AAA, SP-1+ or A-1+ by
Standard and Poor's, and (z) is held by the Fund for the payment of dividends
or distributions, the amounts needed to redeem or repurchase preferred stock,
or the Fund's liabilities.
If the Fund does not timely cure a failure to maintain a discounted
value of its portfolio equal to the Basic Maintenance Amount in accordance
with the requirements of the applicable rating agency or agencies then rating
the Series B Preferred or the Series C Auction Rate Preferred at the request
of the Fund, the Fund may, and in certain circumstances will be required to,
mandatorily redeem preferred stock, including the Series B Preferred or the
Series C Auction Rate Preferred, as described below under " -- Redemption."
The Fund may, but is not required to, adopt any modifications to the
rating agency guidelines that may hereafter be established by Moody's or
Fitch. Failure to adopt any such modifications, however, may result in a
change in the relevant rating agency's ratings or a withdrawal of such ratings
altogether. In addition, any rating agency providing a rating for the Series B
Preferred or the Series C Auction Rate Preferred at the request of the Fund
may, at any time, change or withdraw any such rating. The Board of Directors,
without further action by the stockholders, may amend, alter, add to or repeal
certain of the definitions and related provisions that have been adopted by
the Fund pursuant to the rating agency guidelines if the Board of Directors
determines that such modification is necessary to prevent a reduction in
rating of the shares of preferred stock by Moody's and/or Fitch, as the case
may be, or is in the best interests of the holders of shares of common stock
and is not adverse to the holders of preferred stock in view of advice to the
Fund by Moody's and Fitch (or such other rating agency then rating the Series
B Preferred or Series C Auction Rate Preferred at the request of the Fund)
that such modification would not adversely affect its then-current rating of
the Series B Preferred or Series C Auction Rate Preferred, as the case may be.
In addition, with respect to the Series C Auction Rate Preferred, the
Board of Directors may amend the Articles Supplementary definition of "Maximum
Rate" (the "maximum rate" as defined below under " -- Dividends on the Series
C Auction Rate Preferred -- Maximum Rate") to increase the percentage amount
by which the "AA" Financial Composite Commercial Paper Rate or the Treasury
Index Rate, whichever is applicable, is multiplied to determine the maximum
rate without the vote or consent of the holders of Series C Auction Rate
Preferred or any other stockholder of the Fund, but only after consultation
with the broker-dealers for the Series C Auction Rate Preferred, and with
confirmation from each applicable rating agency that the Fund could meet the
Basic Maintenance Amount Test applicable to the Series C Auction Rate
Preferred immediately following any such increase. See "-- Dividends on the
Series C Auction Rate Preferred-- Maximum Rate"
As described by Moody's and Fitch, the ratings assigned to the Series
B Preferred and the Series C Auction Rate Preferred are assessments of the
capacity and willingness of the Fund to pay the obligations of each of the
Series B Preferred and the Series C Auction Rate Preferred. The ratings on the
Series B Preferred and the Series C Auction Rate Preferred are not
recommendations to purchase, hold or sell shares of either series, inasmuch as
the ratings do not comment as to market price or suitability for a particular
investor. The rating agency guidelines also do not address the likelihood that
an owner of Series B Preferred or Series C Auction Rate Preferred will be able
to sell such shares on an exchange, in an auction or otherwise. The ratings
are based on current information furnished to Moody's and Fitch by the Fund
and the Investment Adviser and information obtained from other sources. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
the unavailability of, such information.
The rating agency guidelines will apply to the Series B Preferred or
Series C Auction Rate Preferred, as the case may be, only so long as such
rating agency is rating such shares at the request of the Fund. The Fund will
pay fees to Moody's and Fitch for rating the Series B Preferred and the Series
C Auction Rate Preferred.
Asset Maintenance Requirements
In addition to the requirements summarized under " -- Rating Agency
Guidelines" above, the Fund must also satisfy asset maintenance requirements
under the 1940 Act with respect to its preferred stock. The 1940 Act
requirements are summarized below.
The Fund will be required under the Articles Supplementary for each
of the Series B Preferred and/or Series C Auction Rate Preferred to determine
whether it has as of the last business day of each March, June, September and
December of each year, an "asset coverage" (as defined in the 1940 Act) of at
least 200% (or such higher or lower percentage as may be required at the time
under the 1940 Act) with respect to all outstanding senior securities of the
Fund that are stock, including any outstanding Series B Preferred and the
Series C Auction Rate Preferred. If the Fund fails to maintain the asset
coverage required under the 1940 Act on such dates and such failure is not
cured within 60 days, in the case of the Series B Preferred, or 10 days, in
the case of the Series C Auction Rate Preferred, (including the Series B
Preferred or Series C Auction Rate Preferred) the Fund may, and in certain
circumstances will be required to, mandatorily redeem shares of preferred
stock sufficient to satisfy such asset coverage. See " -- Redemption" below.
If the shares of Series B Preferred and/or Series C Auction Rate
Preferred offered hereby had been issued and sold as of March 1, 2003 , the
asset coverage required under the 1940 Act immediately following such issuance
and sale and assuming the redemption of all Series A Preferred (after giving
effect to the deduction of the underwriting discounts and estimated offering
expenses for such shares of $ ), would have been computed as follows:
value of Fund assets less liabilities not constituting
senior securities ($ ) / senior securities representing
indebtedness plus liquidation prefer ence of each class of
preferred stock ($ ), expressed as a percentage =
%.
Dividends on the Series B Preferred
Upon issuance of the Series B Preferred (if issued), holders of
shares of Series B Preferred will be entitled to receive, when, as and if
declared by the Board of Directors of the Fund out of funds legally available
therefor, cumulative cash dividends, at the annual rate of % (computed on the
basis of a 360- day year consisting of twelve 30-day months) of the
liquidation preference of $25 per share, payable quarterly on March 26, June
26, September 26 and December 26 in each year or, if any such day is not a
business day, the immediately succeeding business day. Such dividends will
commence on , 2003, and will be payable to the persons in whose names the
shares of Series B Preferred are registered at the close of business on the
fifth preceding business day.
Dividends on the shares of Series B Preferred will accumulate from
the date on which such shares are issued; provided, however, that any shares
of Series B Preferred issued within 30 days of the original issue date of the
series will accumulate dividends from the series' original date of issue.
Dividends on the Series C Auction Rate Preferred
General. Upon issuance of the Series C Auction Rate Preferred (if
issued), the holders of Series C Auction Rate Preferred will be entitled to
receive cash dividends stated at annual rates as a percentage of its $25,000
per share liquidation preference, that will vary from dividend period to
dividend period. The dividend rate for the initial dividend period for any
Series C Auction Rate Preferred offered in this prospectus will be the rate
set out on the cover of this prospectus. For subsequent dividend periods, the
Series C Auction Rate Preferred will pay dividends based on a rate set at the
auction, normally held weekly, but the rates set at the auction will not
exceed the maximum rate. Dividend periods generally will be seven days, and
the dividend periods generally will begin on the first business day after an
auction. In most instances, dividends are also paid weekly, on the business
day following the end of the dividend period. The Fund, subject to some
limitations, may change the length of the dividend periods, designating them
as "special dividend periods," as described below.
Dividend Payments. Except as described below, the dividend payment
date will be the first business day after the dividend period ends. The
dividend payment dates for special dividend periods of more (or less) than
seven days will be set out in the notice designating a special dividend
period. See " -- Designation of Special Dividend Periods" for a discussion of
payment dates for a special dividend period.
Dividends on Series C Auction Rate Preferred will be paid on the
dividend payment date to holders of record as their names appear on the Fund's
stock ledger or stock records on the business day next preceding the dividend
payment date. If dividends are in arrears, they may be declared and paid at
any time to holders of record as their names appear on the Fund's stock ledger
or stock records on a date not more than 15 days before the payment date, as
the Fund's Board of Directors may fix.
The dividend paying agent, in accordance with its current procedures,
is expected to credit in same-day funds on each dividend payment date
dividends received from the Fund to the accounts of broker-dealers who act on
behalf of holders of the Series C Auction Rate Preferred. Such broker-dealers,
in turn, are expected to distribute dividend payments to the person for whom
they are acting as agents. If a broker-dealer does not make dividends
available to Series C Auction Rate Preferred holders in same- day funds, these
stockholders will not have funds available until the next business day.
Dividend Rate Set at Auction. The Series C Auction Rate Preferred
pays dividends based on a rate set at auction at which Series C Auction Rate
Preferred may be bought and sold. The auction usually is held weekly, but may
be held more or less frequently. The Bank of New York, the auction agent,
reviews orders from broker-dealers on behalf of existing holders who wish to
sell, hold at the auction rate, or hold only at a specified dividend rate ,
and on behalf of potential holders who wish to buy Series C Auction Rate
Preferred. The auction agent then determines the lowest dividend rate that
will result in all of the Series C Auction Rate Preferred continuing to be
held. See "The Auction of Series C Auction Rate Preferred."
If an auction is not held because an unforeseen event, or unforeseen
events cause a day that otherwise would have been an auction date not to be a
business day, then the length of the then current dividend period will be
extended by seven days (or a multiple thereof if necessary because of such
unforeseen event or events), the applicable rate for such period will be the
applicable rate for the then- current dividend period so extended and the
dividend payment date for such dividend period will be the first business day
immediately succeeding the end of such period.
Determination of Dividend Rates. The Fund computes the dividends per
share by multiplying the applicable rate determined at the auction by a
fraction, the numerator of which normally is the number of days in such
dividend period and the denominator of which is 360. This applicable rate is
then multiplied by $25,000 to arrive at the dividend per share.
Maximum Rate. The dividend rate that results from an auction for the
Series C Auction Rate Preferred will not be greater than the applicable
"maximum rate." The maximum rate means (i) in the case of a dividend period of
184 days or less, the applicable percentage of the "AA" Financial Composite
Commercial Paper Rate on the date of such auction determined as set forth in
the following chart based on the lower of the credit ratings assigned to the
Series C Auction Rate Preferred by Moody's and Fitch or (ii) in the case of a
dividend period of longer than 184 days, the applicable percentage of the
Treasury Index Rate.
Moody's Credit Rating Fitch Credit Rating Applicable Percentage
--------------------- ------------------- ---------------------
Aa3 or higher AA- or higher 150%
A3 to A1 A- to A+ 175%
Baa3 to Baa1 BBB- to BBB+ 250%
Below Baa3 Below BBB- 275%
The "Treasury Index Rate" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities having
the same number of 30-day periods to maturity as the length of the applicable
dividend period, determined, to the extent necessary, by linear interpolation
based upon the yield for such securities having the next shorter and next
longer number of 30-day periods to maturity treating all dividend periods with
a length greater than the longest maturity for such securities as having a
length equal to such longest maturity, in all cases based upon data set forth
in the most recent weekly statistical release published by the Board of
Governors of the Federal Reserve System (currently in H.15 (519)); provided,
however, that if the most recent such statistical release will not have been
published during the 15 days preceding the date of computation, the foregoing
computations will be based upon the average of comparable data as quoted to
the Fund by at least three recognized dealers in U.S. government securities
selected by the Fund.
There is no minimum dividend rate in respect of any dividend period.
Effect of Failure to Pay Dividends in a Timely Manner. If the Fund
fails to pay the paying agent the full amount of any dividend for the Series C
Auction Rate Preferred in a timely manner, but the Fund cures the failure and
pays any late charge before 12:00 noon, New York City time on the third
business day following the date the failure occurred, no default will be
deemed to have occurred and the dividend rate for the dividend period
immediately following the dividend with respect to which the dividend payment
default would otherwise have occurred will be the applicable rate set at the
auction for such dividend period.
However, if the Fund does not effect a timely cure, the dividend rate
for the Series C Auction Rate Preferred for such default period, and any
subsequent dividend period for which such default is continuing, will be the
default rate. In the event the Fund fully pays all default amounts due during
a dividend period, the dividend rate for the remainder of that dividend period
will be, as the case may be, the applicable rate (for the first dividend
period following a dividend default) or the then-maximum rate (for any
subsequent dividend period for which such default is continuing).
The default rate means 300% of the applicable "AA" Financial
Composite Commercial Paper Rate for a dividend period of 184 days or fewer and
300% of the applicable Treasury Index Rate for a dividend period of longer
than 184 days. Late charges are also calculated at the applicable default
rate.
Designation of Special Dividend Periods. The Fund may instruct the
auction agent to hold auctions and pay dividends more or less frequently than
weekly. The Fund may do this if, for example, the Fund expects that short-term
rates might increase or market conditions otherwise change, in an effort to
optimize the effect of the Fund's leverage on holders of its common shares.
The Fund does not currently expect to hold auctions and pay dividends less
frequently than weekly in the near future. If the Fund designates a special
dividend period, changes in interest rates could affect the price received if
shares of Series C Auction Rate Preferred are sold in the secondary market.
Any designation of a special dividend period will be effective only
if (i) notice thereof will have been given as provided for in the Charter,
(ii) any failure to pay in a timely matter to the auction agent the full
amount of any dividend on, or the redemption price of, the Series C Auction
Rate Preferred will have been cured as provided for in the Charter, (iii) the
auction immediately preceding the special dividend period was not a failed
auction, (iv) if the Fund will have mailed a notice of redemption with respect
to Series C Auction Rate Preferred, the Fund will have deposited with the
paying agent all funds necessary for such redemption, and (v) the Fund has
confirmed that as of the auction date next preceding the first day of such
special dividend period, it has assets with an aggregate discounted value at
least equal to the Basic Maintenance Amount (as defined below), and the Fund
has consulted with the broker-dealers for the Series C Auction Rate Preferred
and has provided notice of such designation and a Basic Mainte nance Report to
each rating agency then rating the Series C Auction Rate Preferred at the
request of the Fund.
The dividend payment date for any special dividend period will be the
first business day after the end of the special dividend period. In addition,
for special dividend periods of (x) at least 91 days but not more than one
year, dividend payment dates will occur on the 91st, 181st and 271st days
within such dividend period, if applicable, and (y) more than one year,
dividend payment dates will occur on each March 26, June 26, September 26 and
December 26 during the special dividend period.
Before the Fund designates a special dividend period: (1) at least
seven business days (or two business days in the event the duration of the
dividend period prior to such special dividend period is less than eight days)
and not more than 30 business days before the first day of the proposed
special dividend period, the Fund will issue a press release stating its
intention to designate a special dividend period and inform the auction agent
of the proposed special dividend period by telephonic or other means and
confirm it in writing promptly thereafter and (2) the Fund must inform the
auction agent of the proposed special dividend period by 3:00 p.m., New York
City time on the second business day before the first day of the proposed
special dividend period.
See the SAI for more information.
Restrictions on Dividends and Other Distributions for the Series B Preferred
and the Series C Auction Rate Preferred
So long as any Series B Preferred or Series C Auction Rate Preferred
is outstanding, the Fund may not pay any dividend or distribution (other than
a dividend or distribution paid in common stock or in options, warrants or
rights to subscribe for or purchase common shares) in respect of the common
stock or call for redemption, redeem, purchase or otherwise acquire for
consideration any common stock (except by conversion into or exchange for
shares of the Fund ranking junior to the Series B Preferred and/or Series C
Auction Rate Preferred as to the payment of dividends and the distribution of
assets upon liquidation), unless:
o the Fund has declared and paid (or provided to the relevant
dividend paying agent) all cumulative dividends on the
Fund's preferred stock, including the Series B Preferred
and/or Series C Auction Rate Preferred, due on or prior to
the date of such common stock dividend or distribution;
o the Fund has redeemed the full number of shares of Series B
Preferred and/or Series C Auction Rate Preferred to be
redeemed pursuant to any mandatory redemption provision in
the Fund's Charter; and
o after paying the dividend, the Fund meets applicable asset
coverage requirements described under " -- Rating Agency
Guidelines" and " -- Asset Maintenance Require
ments."
No full dividend will be declared or paid on the Series B Preferred
or Series C Auction Rate Preferred for any dividend period, or part thereof,
unless full cumulative dividends due through the most recent dividend payment
dates therefor for all outstanding series of preferred stock of the Fund
ranking on a parity with the Series B Preferred and Series C Auction Rate
Preferred as to the payment of dividends have been or contemporaneously are
declared and paid. If full cumulative dividends due have not been paid on all
outstanding shares of preferred stock of the Fund ranking on a parity with the
Series B Preferred and/or Series C Auction Rate Preferred as to the payment of
dividends, any dividends being paid on the shares of such preferred stock
(including the Series B Preferred and/or Series C Auction Rate Preferred) will
be paid as nearly pro rata as possible in proportion to the respective amounts
of dividends accumulated but unpaid on each such series of preferred stock on
the relevant dividend payment date.
Redemption
Mandatory Redemption Relating to Asset Coverage Requirements. The
Fund may, at its option, consistent with its Charter and the 1940 Act, and in
certain circumstances will be required to, mandatorily redeem preferred stock
(including, at its discretion, the Series B Preferred or Series C Auction Rate
Preferred) in the event that:
o the Fund fails to maintain the asset coverage requirements
specified under the 1940 Act and such failure is not cured
on or before 60 days, in the case of the Series B Preferred,
or 10 business days in the case of the Series C Auction Rate
Preferred following such failure; or
o the Fund fails to maintain the asset coverage requirements
as calculated in accordance with the applicable rating
agency guidelines as of any monthly valuation date, and such
failure is not cured on or before 10 business days after
such valuation date.
The redemption price for shares of each of the Series B Preferred and
Series C Auction Rate Preferred subject to mandatory redemption will be,
respectively, $25 per share and $25,000 per share, in each case plus an amount
equal to any accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption, plus (in the case of Series C
Auction Rate Preferred having a dividend period of more than one year) any
applicable redemption premium determined by the Board of Directors.
The number of shares of preferred stock that will be redeemed in the
case of a mandatory redemption will equal the minimum number of outstanding
shares of preferred stock the redemption of which, if such redemption had
occurred immediately prior to the opening of business on the applicable cure
date, would have resulted in the relevant asset coverage requirement having
been met or, if the required asset coverage cannot be so restored, all of the
shares of preferred stock. In the event that shares of preferred stock are
redeemed due to a failure to satisfy the 1940 Act asset coverage requirements,
the Fund may, but is not required to, redeem a sufficient number of shares of
preferred stock so that the Fund's assets exceed the asset coverage
requirements under the 1940 Act after the redemption by 10% (that is, 220%
asset coverage). In the event that shares of preferred stock are redeemed due
to a failure to satisfy applicable rating agency guidelines, the Fund may, but
is not required to, redeem a sufficient number of shares of preferred stock so
that the Fund's discounted portfolio value (as determined in accordance with
the applicable rating agency guidelines) after redemption exceeds the rating
agency guidelines asset coverage requirements by up to 10% (that is, 110%
rating agency asset coverage). In addition, as discussed under " -- Optional
Redemption" below, the Fund generally may exercise its optional redemption
rights with respect to the Series C Auction Rate Preferred at any time.
If the Fund does not have funds legally available for the redemption
of, or is otherwise unable to redeem, all the shares of preferred stock to be
redeemed on any redemption date, the Fund will redeem on such redemption date
that number of shares for which it has legally available funds, or is
otherwise able to redeem, from the holders whose shares are to be redeemed
ratably on the basis of the redemption price of such shares, and the remainder
of those shares to be redeemed will be redeemed on the earliest practicable
date on which the Fund will have funds legally available for the redemption
of, or is otherwise able to redeem, such shares upon written notice of
redemption.
If fewer than all shares of the Fund's outstanding preferred stock
are to be redeemed, the Fund, at its discretion and subject to the limitations
of the 1940 Act and Maryland law, will select the one or more series of
preferred stock from which shares will be redeemed and the amount of preferred
stock to be redeemed from each such series. If fewer than all of the shares of
a series of preferred stock are to be redeemed, such redemption will be made
as among the holders of that series pro rata in accordance with the respective
number of shares of such series held by each such holder on the record date
for such redemption (or by such other equitable method as the Fund may
determine). If fewer than all shares of the preferred stock held by any holder
are to be redeemed, the notice of redemption mailed to such holder will
specify the number of shares to be redeemed from such holder, which may be
expressed as a percentage of shares held on the applicable record date.
Optional Redemption of the Series B Preferred. Prior to , 2008, the
shares of Series B Preferred are not subject to optional redemption by the
Fund unless such redemption is necessary, in the judgment of the Fund, to
maintain the Fund's status as a regulated investment company under the Code.
Commencing on , 2008 and thereafter, the Fund may at any time redeem shares of
Series B Preferred in whole or in part for cash at a redemption price per
share equal to $25 per share plus accumulated and unpaid dividends (whether or
not earned or declared) to the redemption date. Such redemptions are subject
to the notice requirements set forth under " -- Redemption Procedures" and the
limitations of the 1940 Act and Maryland law.
Optional Redemption of the Series C Auction Rate Preferred. The Fund
may, at its option, redeem the Series C Auction Rate Preferred, in whole or in
part, at any time following the initial dividend period so long as the Fund
has not designated a non-call period. The Fund may designate a non- call
period during a dividend period of more than seven days. In the case of Series
C Auction Rate Preferred having a dividend period of one year or less, the
redemption price per share will equal $25,000 plus an amount equal to any
accumulated but unpaid dividends thereon (whether or not earned or declared)
to the redemption date, and in the case of Series C Auction Rate Preferred
having a dividend period of more than one year, for the redemption price plus
any redemption premium applicable during such dividend period. Such
redemptions are subject to the notice requirements set forth under " --
Redemption Procedures" and the limitations of the 1940 Act and Maryland law.
Redemption Procedures. A notice of redemption with respect to an
optional redemption will be given to the holders of record of preferred stock
selected for redemption not less than 15 days, in the case of the Series B
Preferred, and not less than 7 days in the case of the Series C Auction Rate
Preferred, nor, in both cases, more than 40 days prior to the date fixed for
redemption. Preferred stockholders may receive shorter notice in the event of
a mandatory redemption. Each notice of redemption will state (i) the
redemption date, (ii) the number or percentage of shares of preferred stock to
be redeemed (which may be expressed as a percentage of such shares
outstanding), (iii) the CUSIP number(s) of such shares, (iv) the redemption
price (specifying the amount of accumulated dividends to be included therein),
(v) the place or places where such shares are to be redeemed, (vi) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date, (vii) the provision of the Articles Supplementary under which the
redemption is being made and (viii) any conditions precedent to such
redemption. No defect in the notice of redemption or in the mailing thereof
will affect the validity of the redemption proceedings, except as required by
applicable law.
The holders of Series B Preferred or Series C Auction Rate Preferred
will not have the right to redeem their shares of the Fund at their option.
Liquidation Rights
Upon a liquidation, dissolution or winding up of the affairs of the
Fund (whether voluntary or involuntary), holders of Series B Preferred or
Series C Auction Rate Preferred then outstanding will be entitled to receive
out of the assets of the Fund available for distribution to stockholders,
after satisfying claims of creditors but before any distribution or payment of
assets is made to holders of the common stock or any other class of stock of
the Fund ranking junior to the Series B Preferred or Series C Auction Rate
Preferred as to liquidation payments, a liquidation distribution in the amount
of $25 per share, in the case of the Series B Preferred, or $25,000 per share,
in the case of the Series C Auction Rate Preferred, in either case plus an
amount equal to all unpaid dividends accrued to and including the date fixed
for such distribution or payment (whether or not earned or declared by the
Fund but excluding interest thereon), and such holders will be entitled to no
further participation in any distribution or payment in connection with any
such liquidation, dissolution or winding up. If, upon any liquidation,
dissolution or winding up of the affairs of the Fund, whether voluntary or
involuntary, the assets of the Fund available for distribution among the
holders of all outstanding shares of preferred stock of the Fund ranking on a
parity with the Series B Preferred and/or Series C Auction Rate Preferred as
to payment upon liquidation will be insufficient to permit the payment in full
to such holders of the Series B Preferred and/or Series C Auction Rate
Preferred and other parity preferred stock of the amounts due upon liquidation
with respect to such shares, then such available assets will be distributed
among the holders of the Series B Preferred, the Series C Auction Rate
Preferred and such other parity preferred stock ratably in proportion to the
respective preferential amounts to which they are entitled. Unless and until
the liquidation payments due to holders of the Series B Preferred and/or
Series C Auction Rate Preferred and such other parity preferred stock have
been paid in full, no dividends or distributions will be made to holders of
the common stock or any other stock of the Fund ranking junior to the Series B
Preferred and/or Series C Auction Rate Preferred and other parity preferred
stock as to liquidation.
Voting Rights
Except as otherwise stated in this prospectus, specified in the
Fund's Charter or as otherwise required by applicable law, holders of the
Series B Preferred and/or Series C Auction Rate Preferred along with holders
of other outstanding shares of series of preferred stock, will be entitled to
one vote per share held on each matter submitted to a vote of stockholders and
will vote together with holders of shares of common stock and of any other
preferred stock then outstanding as a single class.
In connection with the election of the Fund's directors, holders of
the outstanding shares of Series B Preferred, Series C Auction Rate Preferred
and the other series of preferred stock, voting together as a single class,
will be entitled at all times to elect two of the Fund's directors, and the
remaining directors will be elected by holders of shares of common stock and
holders of the Series B Preferred, Series C Auction Rate Preferred and other
series of preferred stock, voting together as a single class. In addition, if
(i) at any time dividends on outstanding shares of the Series B Preferred,
Series C Auction Rate Preferred and/or any other preferred stock are unpaid in
an amount equal to at least two full years' dividends thereon and sufficient
cash or specified securities have not been deposited with the applicable
paying agent for the payment of such accumulated dividends or (ii) at any time
holders of any other series of preferred stock are entitled to elect a
majority of the directors of the Fund under the 1940 Act or the Articles
Supplementary creating such shares, then the number of directors constituting
the Board of Directors automatically will be increased by the smallest number
that, when added to the two directors elected exclusively by the holders of
the Series B Preferred, Series C Auction Rate Preferred and other series of
preferred stock as described above, would then constitute a majority of the
Board of Directors as so increased by such smallest number. Such additional
directors will be elected by the holders of the Series B Preferred, Series C
Auction Rate Preferred and the other series of preferred stock, voting
together as a single class, at a special meeting of stockholders which will be
called as soon as practicable and will be held not less than 10 or more than
20 days after the mailing date of the meeting notice. If the Fund fails to
send such meeting notice or to call such a special meeting, the meeting may be
called by any preferred stockholder on like notice. The terms of office of the
persons who are directors at the time of that election will continue. If the
Fund thereafter pays or declares and sets apart for payment in full, all
dividends payable on all outstanding shares of preferred stock for all past
dividend periods or the holders of other series of preferred stock are no
longer entitled to elect such additional directors, the additional voting
rights of the holders of the preferred stock as described above will cease,
and the terms of office of all of the additional or replacement directors
elected by the holders of the preferred stock (but not of the directors with
respect to whose election the holders of shares of common stock were entitled
to vote or the two directors the holders of shares of preferred stock have the
right to elect as a separate class in any event) will terminate at the
earliest time permitted by law.
So long as shares of Series B Preferred or Series C Auction Rate
Preferred are outstanding, the Fund will not, without the affirmative vote of
the holders of a majority (as defined in the 1940 Act) of the shares of
preferred stock outstanding at the time (including the Series B Preferred or
Series C Auction Rate Preferred, as applicable), voting separately as one
class, amend, alter or repeal the provisions of the Fund's Charter, whether by
merger, consolidation or otherwise, so as to materially adversely affect any
of the contract rights expressly set forth in the Charter with respect to such
shares of preferred stock. Also, to the extent permitted under the 1940 Act,
in the event shares of more than one series of preferred stock are
outstanding, the Fund will not approve any of the actions set forth in the
preceding sentence which materially adversely affects the contract rights
expressly set forth in the Charter with respect to such shares of a series of
preferred stock (such as the Series B Preferred or Series C Auction Rate
Preferred) differently than those of a holder of shares of any other series of
preferred stock without the affirmative vote of the holders of at least a
majority of the shares of preferred stock of each series materially adversely
affected and outstanding at such time (each such materially adversely affected
series voting separately as a class to the extent its rights are affected
differently). Unless a higher percentage is provided for under the Charter or
applicable provisions of Maryland law, the affirmative vote of a majority of
the votes entitled to be cast by holders of outstanding shares of the
preferred stock (including the Series B Preferred and/or Series C Auction Rate
Preferred), voting together as a single class, will be required to approve any
plan of reorganization adversely affecting the preferred stock or 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 investment objective or
changes in the investment restrictions described as fundamental policies under
"Investment Objective and Policies" and "Investment Restrictions" in this
prospectus and the SAI. For purposes of the preferred stock voting rights
described in this section, except as otherwise required under the 1940 Act,
the phrase "vote of the holders of a majority of the outstanding shares of
preferred stock" (or any like phrase) means, in accordance with Section
2(a)(42) of the 1940 Act, the vote, at the annual or a special meeting of the
stockholders of the Fund duly called (i) of 67% or more of the shares of
preferred stock present at such meeting, if the holders of more than 50% of
the outstanding shares of preferred stock are present or represented by proxy
or (ii) more than 50% of the outstanding shares of preferred stock, whichever
is less. The class vote of holders of shares of the preferred stock described
above in each case will be in addition to a separate vote of the requisite
percentage of shares of common stock, Series B Preferred, Series C Auction
Rate Preferred and any other preferred stock, voting together as a single
class, that may be necessary to authorize the action in question.
The calculation of the elements and definitions of certain terms of
the rating agency guidelines may be modified by action of the Board of
Directors without further action by the stockholders if the Board of Directors
determines that such modification is necessary to prevent a reduction in
rating of the shares of preferred stock by Moody's and/or Fitch (or any other
rating agency then rating the Series B Preferred or Series C Auction Rate
Preferred at the request of the Fund), as the case may be, or is in the best
interests of the holders of shares of common stock and is not adverse to the
holders of preferred stock in view of advice to the Fund by the relevant
rating agencies that such modification would not adversely affect its
then-current rating of the preferred stock.
The foregoing voting provisions will not apply to any Series B
Preferred or Series C Auction Rate Preferred if, at or prior to the time when
the act with respect to which such vote otherwise would be required will be
effected, such shares will have been redeemed or called for redemption and
sufficient cash or cash equivalents provided to the applicable paying agent to
effect such redemption. The holders of Series B Preferred and/or Series C
Auction Rate Preferred will have no preemptive rights or rights to cumulative
voting.
Limitation on Incurrence of Additional Indebtedness
and Issuance of Additional Preferred Stock
So long as any Series B Preferred or Series C Auction Rate Preferred
is outstanding and subject to compliance with the Fund's investment objective,
policies and restrictions, the Fund may issue and sell one or more series of a
class of senior securities of the Fund representing indebtedness under the
1940 Act and/or otherwise create or incur indebtedness, provided that the Fund
will, immediately after giving effect to the incurrence of such indebtedness
and to its receipt and application of the proceeds thereof (including the
retirement of any senior securities representing indebtedness to be retired
with such proceeds), have an "asset coverage" for all senior securities of the
Fund representing indebtedness, as defined in the 1940 Act, of at least 300%
of the amount of all indebtedness of the Fund then outstanding and no such
additional indebtedness will have any preference or priority over any other
indebtedness of the Fund upon the distribution of the assets of the Fund or in
respect of the payment of interest. Any possible liability resulting from
lending and/or borrowing portfolio securities, entering into reverse
repurchase agreements, entering into futures contracts and writing options, to
the extent such transactions are made in accordance with the investment
restrictions of the Fund then in effect, will not be considered to be
indebtedness limited by the Articles Supplementary.
So long as any Series B Preferred or Series C Auction Rate Preferred
is outstanding, subject to receipt of approval from Moody's and, in the case
of the Series C Auction Rate Preferred, Fitch, and subject to compliance with
the Fund's investment objective, policies and restrictions, the Fund may issue
and sell shares of one of more other series of preferred stock in addition to
the Series B Preferred or Series C Auction Rate Preferred, provided that the
Fund will, immediately after giving effect to the issuance of such additional
preferred stock and to its receipt and application of the proceeds thereof
(including, without limitation, to the redemption of preferred stock for which
notice of redemption has been given prior to such issuance) have an "asset
coverage" for all senior securities of the Fund which are stock, as defined in
the 1940 Act, of at least 200% of the sum of the liquidation preference of the
shares of preferred stock of the Fund then outstanding and all indebtedness of
the Fund constituting senior securities and no such additional preferred stock
will have any preference or priority over any other preferred stock of the
Fund upon the distribution of the assets of the Fund or in respect of the
payment of dividends.
The Fund does not currently intend to offer additional preferred
shares or senior securities representing indebtedness. However, the Fund will
consider from time to time whether to do so and may issue additional such
securities were the Board of Directors to conclude that such an offering would
be consistent with the Fund's Charter and applicable law, and in the best
interest of existing common stockholders.
Repurchase of Series B Preferred and Series C Auction Rate Preferred Shares
The Fund is a closed-end investment company and, as such, holders of
the Series B Preferred or Series C Auction Rate Preferred do not and will not
have the right to redeem their shares of the Fund. The Fund, however, may
repurchase Series B Preferred or, outside of an auction, Series C Auction Rate
Preferred when it is deemed advisable by the Board of Directors in compliance
with the requirements of the 1940 Act and regulations thereunder and other
applicable requirements.
Book-Entry
Shares of Series B Preferred will initially be held in the name of
Cede & Co. as nominee for DTC. The Fund will treat Cede & Co. as the holder of
record of the Series B Preferred for all purposes. In accordance with the
procedures of DTC, however, purchasers of Series B Preferred will be deemed
the beneficial owners of shares purchased for purposes of dividends, voting
and liquidation rights. Purchasers of Series B Preferred may obtain registered
certificates by contacting the Transfer Agent.
Shares of Series C Auction Rate Preferred will initially be held by
the auction agent as custodian for Cede & Co., in whose name the shares of the
Series C Auction Rate Preferred shall be registered. The Fund will treat Cede
& Co. as the holder of record of the Series C Auction Rate Preferred for all
purposes.
THE AUCTION OF SERIES C AUCTION RATE PREFERRED
Summary of Auction Procedures
The following is a brief summary of the auction procedures for the
Series C Auction Rate Preferred, which are described in more detail in the
SAI. These auction procedures are complicated, and there are exceptions to
these procedures. Many of the terms in this section have a special meaning.
Accordingly, this description does not purport to be complete and is
qualified, in its entirety, by reference to the Fund's Charter, including the
provisions of the Articles Supplementary establishing the Series C Auction
Rate Preferred.
The auctions determine the dividend rate for the Series C Auction
Rate Preferred, but each dividend rate will not be higher than the maximum
rate. See "Description of the Series B Preferred and Series C Auction Rate
Preferred -- Dividends on the Series C Auction Rate Preferred." If you own
shares of Series C Auction Rate Preferred, you may instruct your broker-dealer
to enter one of three kinds of order in the auction with respect to your
shares: sell, bid and hold.
o If you enter a sell order, you indicate that you want to
sell Series C Auction Rate Preferred at $25,000 per share,
no matter what the next dividend period's rate will be.
o If you enter a bid (or "hold at a rate") order, which must
specify a dividends rate, you indicate that you want to sell
Series C Auction Rate Preferred only if the next dividend
period's rate is less than the rate you specify.
o If you enter a hold order you indicate that you want to
continue to own Series C Auction Rate Preferred, no matter
what the next dividend period's rate will be.
You may enter different types of orders for different portions of
your Series C Auction Rate Preferred. You may also enter an order to buy
additional Series C Auction Rate Preferred. All orders must be for whole
shares. All orders you submit are irrevocable. There is a fixed number of
Series C Auction Rate Preferred shares, and the dividend rate likely will vary
from auction to auction depending on the number of bidders, the number of
shares the bidders seek to buy, the rating of the Series C Auction Rate
Preferred and general economic conditions including current interest rates. If
you own Series C Auction Rate Preferred and submit a bid for them higher than
the then-maximum rate, your bid will be treated as a sell order. If you do not
enter an order, the broker-dealer will assume that you want to continue to
hold Series C Auction Rate Preferred, but if you fail to submit an order and
the dividend period is longer than 28 days, the broker-dealer will treat your
failure to submit a bid as a sell order.
If you do not then own Series C Auction Rate Preferred, or want to
buy more shares, you may instruct a broker-dealer to enter a bid order to buy
shares in an auction at $25,000 per share at or above the dividend rate you
specify. If your bid for shares you do not own specifies a rate higher than
the then- maximum rate, your bid will not be considered.
Broker-dealers will submit orders from existing and potential holders
of Series C Auction Rate Preferred to the auction agent. Neither the Fund nor
the auction agent will be responsible for a broker- dealer's failure to submit
orders from existing or potential holders of Series C Auction Rate Preferred.
A broker-dealer's failure to submit orders for Series C Auction Rate Preferred
held by it or its customers will be treated in the same manner as a holder's
failure to submit an order to the broker-dealer. A broker- dealer may submit
orders to the auction agent for its own account. The Fund may not submit an
order in any auction.
The auction agent after each auction for the Series C Auction Rate
Preferred will pay to each broker-dealer, from funds provided by the Fund, a
service charge equal to, in the case of any auction immediately preceding a
dividend period of less than 365 days, the product of (i) a fraction, the
numerator of which is the number of days in such dividend period and the
denominator of which is 365, times (ii) 1/4 of 1%, times (iii) $25,000, times
(iv) the aggregate number of Series C Auction Rate Preferred shares placed by
such broker-dealer at such auction or, in the case of any auction immediately
preceding a dividend period of one year or longer, a percentage of the
purchase price of the Series C Auction Rate Preferred placed by the
broker-dealers at the auction agreed to by the Fund and the broker- dealers.
If the number of Series C Auction Rate Preferred shares subject to
bid orders by potential holders with a dividend rate equal to or lower than
the then-maximum rate is at least equal to the number of Series C Auction Rate
Preferred shares subject to sell orders, then the dividend rate for the next
dividend period will be the lowest rate submitted which, taking into account
that rate and all lower rates submitted in order from existing and potential
holders, would result in existing and potential holders owning all the Series
C Auction Rate Preferred available for purchase in the auction.
If the number of Series C Auction Rate Preferred shares subject to
bid orders by potential holders with a dividend rate equal to or lower than
the then-maximum rate is less than the number of Series C Auction Rate
Preferred shares subject to sell orders, then the auction is considered to be
a failed auction, and the dividend rate will be the maximum rate. In that
event, existing holders that have submitted sell orders (or are treated as
having submitted sell orders) may not be able to sell any or all of the Series
C Auction Rate Preferred for which they submitted sell orders.
The auction agent will not consider a bid above the then-maximum
rate. The purpose of the maximum rate is to place an upper limit on dividends
with respect to the Series C Auction Rate Preferred and in so doing to help
protect the earnings available to pay dividends on common shares, and to serve
as the dividend rate in the event of a failed auction (that is, an auction
where there are more Series C Auction Rate Preferred offered for sale than
there are buyers for those shares).
If broker-dealers submit or are deemed to submit hold orders for all
outstanding Series C Auction Rate Preferred, the auction is considered an "all
hold" auction and the dividend rate for the next dividend period will be the
"all hold rate," which is 80% of the "AA" Financial Composite Commercial Paper
Rate, as determined in accordance with procedures set forth in the Articles
Supplementary establishing the Series C Auction Rate Preferred.
The auction procedures include a pro rata allocation of Series C
Auction Rate Preferred shares for purchase and sale. This allocation process
may result in an existing holder continuing to hold or selling, or a potential
holder buying, fewer shares than the number of Series C Auction Rate Preferred
shares in its order. If this happens, broker-dealers will be required to make
appropriate pro rata allocations among their respective customers.
Settlement of purchases and sales will be made on the next business
day (which also is a dividend payment date) after the auction date through
DTC. Purchasers will pay for their Series C Auction Rate Preferred through
broker-dealers in same-day funds to DTC against delivery to the broker-
dealers. DTC will make payment to the sellers' broker-dealers in accordance
with its normal procedures, which require broker-dealers to make payment
against delivery in same-day funds. As used in this prospectus, a business day
is a day on which the New York Stock Exchange is open for trading, and which
is not a Saturday, Sunday or any other day on which banks in New York City are
authorized or obligated by law to close.
The first auction for Series C Auction Rate Preferred will be held on
, 2003, the business day preceding the dividend payment date for the initial
dividend period. Thereafter, except during special dividend periods, auctions
for Series C Auction Rate Preferred normally will be held every Tuesday (or
the next preceding business day if Tuesday is a holiday), and each subsequent
dividend period for the Series C Auction Rate Preferred normally will begin on
the following Wednesday.
If an auction is not held because an unforeseen event or unforeseen
events cause a day that otherwise would have been an auction date not to be a
business day, then the length of the then-current dividend period will be
extended by seven days (or a multiple thereof if necessary because of such
unforeseen event or events), the applicable rate for such period will be the
applicable rate for the then current dividend period so extended and the
dividend payment date for such dividend period will be the first business day
immediately succeeding the end of such period.
The following is a simplified example of how a typical auction works.
Assume that the Fund has 1,000 outstanding Series C Auction Rate Preferred
shares and three current holders. The three current holders and three
potential holders submit orders through broker-dealers at the auction:
Current Holder A Owns 500 shares, wants to sell all Bid order at 1.6% rate for
500 shares if auction rate is less than all 500 shares
1.6%
Current Holder B Owns 300 shares, wants to hold Hold order - will take the
auction rate
Current Holder C Owns 200 shares, wants to sell all Bid order at 1.4% rate for
200 shares if auction rate is less than all 200 shares
1.4%
Potential Holder D Wants to buy 200 shares Places order to buy at or
above 1.5%
Potential Holder E Wants to buy 300 shares Places order to buy at or
above 1.4%
Potential Holder F Wants to buy 200 shares Places order to buy at or
above 1.6%
The lowest dividend rate that will result in all 1,000 Series C
Auction Rate Preferred shares continuing to be held is 1.5% (the offer by D).
Therefore, the dividend rate will be 1.5%. Current holders B and C will
continue to own their shares. Current holder A will sell its shares because
A's dividend rate bid was higher than the dividend rate. Potential holder D
will buy 200 shares and potential holder E will buy 300 shares because their
bid rates were at or below the dividend rate. Potential holder F will not buy
any shares because its bid rate was above the dividend rate.
Secondary Market Trading and Transfer of Series C Auction Rate Preferred
The underwriters are not required to make a market in the Series C
Auction Rate Preferred. The broker-dealers (including the underwriters) may
maintain a secondary trading market for outside of auctions, but they are not
required to do so. There can be no assurance that a secondary trading market
for the Series C Auction Rate Preferred will develop or, if it does develop,
that it will provide owners with liquidity of investment. The Series C Auction
Rate Preferred will not be registered on any stock exchange or on the NASDAQ
market. Investors who purchase Series C Auction Rate Preferred in an auction
for a special dividend period should note that because the dividend rate on
such shares will be fixed for the length of that dividend period, the value of
such shares may fluctuate in response to the changes in interest rates, and
may be more or less than their original cost if sold on the open market in
advance of the next auction thereof, depending on market conditions.
You may sell, transfer, or otherwise dispose of the Series C Auction
Rate Preferred only in whole shares and only pursuant to a bid or sell order
placed with the auction agent in accordance with the auction procedures, to
the Fund or its affiliates or to or through a broker-dealer that has been
selected by the Fund or to such other persons as may be permitted by the Fund.
However, if you hold your Series C Auction Rate Preferred in the name of a
broker-dealer, a sale or transfer of your Series C Auction Rate Preferred to
that broker-dealer, or to another customer of that broker-dealer, will not be
considered a sale or transfer for purposes of the foregoing if the shares
remain in the name of the broker-dealer immedi ately after your transaction.
In addition, in the case of all transfers other than through an auction, the
broker-dealer (or other person, if the Fund permits) receiving the transfer
must advise the auction agent of the transfer.
Further description of the auction procedures can be found in the
SAI.
DESCRIPTION OF CAPITAL STOCK AND OTHER SECURITIES
Common Stock
The Fund is authorized to issue two hundred million (200,000,000),
all of which shares were initially designated common stock. The Board of
Directors has the authority to classify and reclassify any authorized but
unissued shares of capital stock from time to time. The Board of Directors has
authorized issuance of one hundred million (100,000,000) shares of the common
stock class and shares of the Series A Preferred. The common stock of the Fund
is listed on the NYSE under the symbol "GGT" and began trading . Each share
within a particular class or series thereof has equal voting, dividend,
distribution and liquidation rights. There are no conversion or preemptive
rights in connection with any outstanding stock of the Fund. All stock, when
issued in accordance with the terms of the offering, will be fully paid and
non-assessable. The common stock is not redeemable and has no preemptive,
conversion or cumulative voting rights.
The Fund is a closed-end, management investment company and, as such,
its stockholders do not, and will not, have the right to redeem their stock.
The Fund, however, may repurchase its common stock from time to time as and
when it deems such a repurchase advisable. The Fund's Board of Directors has
determined that such repurchase, up to shares of common stock, may be made
when the Fund's common stock is trading at a discount of 10% or more from net
asset value. Pursuant to this authoriza tion the Fund has repurchased in the
open market shares through , 2002, none of which stock was repurchased during
the year ended December 31, 2002. Pursuant to the 1940 Act, the Fund may
repurchase its stock on a securities exchange (provided that the Fund has
informed its stockholders within the preceding six months of its intention to
repurchase such stock) or as otherwise permitted in accordance with Rule 23c-1
under the 1940 Act. Under Rule 23c-1, certain conditions must be met for such
alternative purchases regarding, among other things, distribution of net
income for the preceding fiscal year, asset coverage with respect to the
Fund's senior debt and equity securities, identity of the sellers, price paid,
brokerage commissions, prior notice to stockholders of an intention to
purchase stock and purchasing in a manner and on a basis which does not
discriminate unfairly against the other stockholders through their interest in
the Fund. In addition, Rule 23c-1 requires the Fund to file notices of such
purchase with the SEC. Any repurchase of common stock by the Fund will also be
subject to Maryland corporate law, which requires that immediately following
such repurchase the total assets of the Fund must be equal to or greater than
the sum of the Fund's total liabilities plus the aggregate liquidation
preference of its outstanding preferred stock.
When the Fund repurchases its common stock for a price below its net
asset value, the net asset value of the common stock that remains outstanding
will be enhanced. This does not, however, necessarily mean that the market
price of the Fund's remaining outstanding common stock will be affected,
either positively or negatively. Further, interest on any borrowings made to
finance the repurchase of common stock will reduce the net income of the Fund.
From the commencement of the Fund's operations as a closed-end
investment company, the Fund's common stock has traded in the market for
extended periods at both a premium to and a discount from net asset value.
Preferred Stock
Currently, [__] shares of the Fund's capital stock have been
classified by the Board of Directors as preferred stock, par value $.001 per
share. The terms of such preferred stock may be fixed by the Board of
Directors and would materially limit and/or qualify the rights of the holders
of the Fund's common stock. As of December 31, 2002, the Fund had outstanding
shares of Series A Preferred, which, along with the Series B Preferred and/or
Series C Auction Rate Preferred being issued in connection with this
prospectus, are senior securities of the Fund. The Series A Preferred was
rated AAA by S&P and was the same class as the Series B Preferred and Series C
Auction Rate Preferred and is ranked on a parity with the Series B Preferred
and Series C Auction Rate Preferred as to dividend and liquidation preference.
Dividends on the Series A Preferred accrue at an annual rate of 7.92% of the
liquidation preference of $25 per share, are cumulative from the date of
original issuance thereof and are payable quarterly on March 26, June 26,
September 26 and December 26 in each year. The Series A Preferred is listed
and traded on the New York Stock Exchange under the symbol "GGT Pr."
The Series A Preferred is rated Aaa by Moody's Investor Service, Inc.
and the Fund is required to meet similar asset coverage requirements with
respect to the Series A Preferred as are described in this prospectus for the
Series B Preferred.
The Fund will redeem all of the outstanding shares of Series A
Preferred on March 28, 2003, or as soon thereafter as is practicable following
the issuance of the preferred stock offered by this prospec tus.
The following table shows the number of shares of (i) capital stock
authorized, (ii) its classifica tion and (iii) capital stock outstanding for
each class of authorized securities of the Fund as of 2002.
AMOUNT AMOUNT
CLASS OF STOCK AMOUNT AUTHORIZED CLASSIFIED OUTSTANDING
-------------- ----------------- ---------- ------------
Common Stock................. shares* shares
Preferred Stock.............. shares shares**
* The total number of shares of capital stock of all classes
authorized. The Board of Directors is authorized to classify or
reclassify these one billion shares.
** Does not include the Series B Preferred or Series C Auction Rate
Preferred being offered pursuant to this prospectus.
TAXATION
The following is a description of certain U.S. federal income tax
consequences to a stockholder of acquiring, holding and disposing of preferred
stock of the Fund. 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 prospec tively.
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
stockholders, and the discussion set forth herein does not constitute tax
advice. Investors are urged to consult their own tax advisers to determine the
tax consequences to them of investing in the Fund.
Taxation of the Fund
The Fund has elected to be treated and has qualified as, and intends
to continue to qualify as, a regulated investment company under Subchapter M
of the Code. Accordingly, the Fund must, among other things, (i) derive in
each taxable year at least 90% of its gross income (including tax-exempt
interest) from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including but not limited
to gain from options, futures and forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; and (ii)
diversify its holdings so that, at the end of each quarter of each taxable
year (a) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, U.S. government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater
than 5% of the value of the Fund's total assets and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
market value of the Fund's total assets is invested in the securities of any
issuer (other than U.S. government securities and the securities of other
regulated investment companies) or of any two or more issuers that the Fund
controls and that are determined to be engaged in the same business or similar
or related trades or businesses.
As a regulated investment company, the Fund generally is not subject
to U.S. federal income tax on income and gains that it distributes each
taxable year to stockholders, if it distributes at least 90% of the sum of the
Fund's (i) investment company taxable income (which includes, among other
items, dividends, interest and the excess of any net short-term capital gains
over net long-term capital losses and other taxable income other than any net
capital gain (as defined below) reduced by deductible expenses) determined
without regard to the deduction for dividends paid and (ii) its net tax-exempt
interest (the excess of its gross tax-exempt interest over certain disallowed
deductions). The Fund intends to distribute at least annually substantially
all of such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4%
excise tax at the Fund level. To avoid the tax, the Fund must distribute
during each calendar year an amount at least equal to the sum of (i) 98% of
its ordinary income (not taking into account any capital gains or losses) for
the calendar year, (ii) 98% of its capital gains in excess of its capital
losses (adjusted for certain ordinary losses) for a one-year period generally
ending on October 31 of the calendar year (unless an election is made to use
the Fund's fiscal year), and (iii) certain undistributed amounts from previous
years on which the Fund paid no U.S. federal income tax. While the Fund
intends to distribute any income and capital gains in the manner necessary to
minimize imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In that event, the
Fund will be liable for the tax only on the amount by which it does not meet
the foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to stockholders, and such distributions will be taxable to the
stockholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits.
Taxation of Stockholders
Distributions paid to you by the Fund from its ordinary income or
from an excess of net short- term capital gains over net long-term capital
losses (together referred to hereinafter as "ordinary income dividends") are
taxable to you as ordinary income to the extent of the Fund's earning and
profits. Distributions made to you from an excess of net long-term capital
gains over net short-term capital losses ("capital gain dividends"), including
capital gain dividends credited to you but retained by the Fund, are taxable
to you as long-term capital gains if they have been properly designated by the
Fund, regardless of the length of time you have owned Fund stock.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of your stock and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to you (assuming the stock is
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 designat ing
the amount of any ordinary income dividends or capital gain dividends and
other distributions.
The sale or other disposition of common stock of the Fund will
generally result in capital gain or loss to you, and will be long-term capital
gain or loss if the stock has been held for more than one year at the time of
sale. Any loss upon the sale or exchange of Fund stock held for six months or
less will be treated as long-term capital loss to the extent of any capital
gain dividends received (including amounts credited as an undistributed
capital gain dividend) by you. A loss realized on a sale or exchange of stock
of the Fund will be disallowed if other substantially identical Fund stock is
acquired (whether through the automatic reinvestment of dividends or
otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the date that the stock is disposed of. In such case, the basis of the
stock acquired will be adjusted to reflect the disallowed loss. Present law
taxes both long-term and short-term capital gains of corporations at the rates
applicable to ordinary income. For non-corporate taxpayers, however,
short-term capital gains and ordinary income will currently be taxed at a
maximum rate of 38.6% while long-term capital gains generally will be taxed at
a maximum rate of 20% and 10% for taxpayers in the 15% bracket. The 20%
capital gains rate and the 10% capital rate will be reduced to 18% and 8%
respectively, for capital assets held for more than five years if the holding
period begins after December 31, 2000.
Dividends and other taxable distributions are taxable to you even
though they are reinvested in additional stock of the Fund. If the Fund pays
you a dividend in January that was declared in the previous October, November
or December to stockholders of record on a specified date in one of such
months, then such dividend will be treated for tax purposes as being paid by
the Fund and received by you on December 31 of the year in which the dividend
was declared.
The Fund is required in certain circumstances to backup withhold on
taxable dividends and certain other payments paid to non-corporate holders of
the Fund's stock 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 Internal Revenue Service.
The Bush Administration has announced a proposal to reduce or
eliminate the tax on dividends; however, many of the details of the proposal
(including how the proposal would apply to dividends paid by a regulated
investment company) have not been specified. Moreover, the prospects for this
proposal are unclear. Accordingly, it is not possible to evaluate how this
proposal might affect the tax discussion above.
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 stockholders. 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 stockholders can be found in the Statement of Additional
Information that is incorporated by reference into this prospectus.
Stockholders are urged to consult their tax advisers regarding specific
questions as to U.S. federal, foreign, state, local income or other taxes.
ANTI-TAKEOVER PROVISIONS OF THE CHARTER AND BY-LAWS
The Fund presently has provisions in its Charter and Amended and
Restated By-Laws (together, its "Governing Documents") that could have the
effect of limiting:
o the ability of other entities or persons to acquire control of
the Fund's Board of Directors;
o the Fund's freedom to engage in certain transactions; or
o the ability of the Fund's directors or stockholders 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" provi sions. The Board of Directors of the Fund is divided
into three classes, each having a term of three years. Each year the term of
one class of directors will expire. Accordingly, only those directors in one
class may be changed in any one year, and it would require two years to change
a majority of the Board of Directors. Such system of electing directors may
have the effect of maintaining the continuity of management and, thus, make it
more difficult for the stockholders of the Fund to change the majority of
directors. See "Management of the Fund" in the SAI. A director of the Fund may
be removed with or without cause by a vote of a majority of the votes entitled
to be cast for the election of directors of the Fund. In addition, the
affirmative vote of the holders of 66 2/3% of the outstanding voting shares of
the Fund, and the vote of a majority (as defined in the 1940 Act) of the
holders of preferred shares, voting as a single class, is required to
authorize its conversion from a closed-end to an open-end investment company,
or generally to authorize any of the following transactions:
o merger or consolidation of the Fund with or into any other
corporation;
o issuance of any securities of the Fund to any person or
entity for cash;
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
$1,000,000); or
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 $1,000,000);
if such corporation, 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
circumstances, the Board of Directors approves the transaction or when each
class of voting securities of the corporation or entity that is the other
party to any of the above-listed transactions is (directly or indirectly)
majority owned by the Fund.
Further, unless a higher percentage is provided for under the
Charter, the affirmative vote of a majority (as defined in the 1940 Act) of
the votes entitled to be cast by holders of outstanding shares of the Fund's
preferred stock, voting as a separate class, will be required to approve any
plan of reorganiza tion adversely affecting such stock or any action requiring
a vote of security holders under Section 13(a) of the 1940 Act, including,
among other things, open-ending the Fund and changing the Fund's invest ment
objective or changing the investment restrictions described as fundamental
policies under "Investment Restrictions" in the SAI.
Maryland corporations that are subject to the Securities Exchange Act
of 1934 and have at least three outside directors, such as the Fund, may by
board resolution elect to become subject to certain corporate governance
provisions set forth in the Maryland corporate law, even if such provisions
are inconsistent with the corporation's charter and by-laws. Accordingly,
notwithstanding its Charter or By- Laws, under Maryland law the Fund's Board
of Directors may elect by resolution to, among other things:
o require that special meetings of stockholders be called only
at the request of stockholders entitled to cast at least a
majority of the votes entitled to be cast at such meeting;
o reserve for the Board the right to fix the number of Fund
directors;
o provide that directors are subject to removal only by the
vote of the holders of two-thirds of the stock entitled to
vote; and
o retain for the Board sole authority to fill vacancies
created by the death, removal or resignation of a director,
with any director so appointed to serve for the balance of
the unexpired term rather than only until the next annual
meeting of stockholders.
The Board may make any of the foregoing elections without amending
the Fund's Charter or By- Laws and without stockholder approval. Though a
corporation's charter or a resolution by its board may prohibit its directors
from making the elections set forth above, the Fund's Board currently is not
prohibited from making any such elections.
The provisions of the Governing Documents and Maryland law described
above could have the effect of depriving the owners of stock 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 stockholder.
The Governing Documents of the Fund are on file with the SEC. For the
full text of these provisions see "Further Information."
CUSTODIAN, TRANSFER AGENT,
AUCTION AGENT AND DIVIDEND-DISBURSING AGENT
State Street Bank and Trust Company (the "Custodian"), located at
150 Royall Street, Canton, MA 02021, serves as the custodian of the Fund's
assets pursuant to a custody agreement. Under the custody agreement, the
Custodian holds the Fund's assets in compliance with the 1940 Act. For its
services, the Custodian will receive a monthly fee based upon the average
weekly value of the total assets of the Fund, plus certain charges for
securities transactions.
EquiServe Trust Company, N.A., located at P.O. Box 43025, Providence,
RI 02940-3025, serves as the Fund's dividend disbursing agent, as agent under
the Fund's automatic dividend reinvestment and voluntary cash purchase plan
and as transfer agent and registrar for the common stock of the Fund.
Series B Preferred. EquiServe will also serve as the Fund's transfer
agent, registrar, dividend paying agent and redemption agent with respect to
the Series B Preferred.
Series C Auction Rate Preferred. The Bank of New York, located at 5
Penn Plaza, 13th Floor, New York, NY 10001, will serve as the Fund's auction
agent, transfer agent, registrar, dividend paying agent and redemption agent
with respect to the Series C Auction Rate Preferred.
UNDERWRITING
Salomon Smith Barney Inc. and Gabelli & Company, Inc are acting as
underwriters in this offering. Subject to the terms and conditions stated in
the underwriting agreement dated the date of this prospectus, each underwriter
named below has agreed to purchase, and the Fund has agreed to sell to that
underwriter, the number of shares of Series B Preferred and Series C Auction
Rate Preferred set forth opposite the underwriter's name.
Number of Series
Number of Series C Auction Rate Preferred
Underwriter B Preferred Shares Shares
----------- ------------------ ------------------------
Salomon Smith Barney Inc. ......................
Gabelli & Company, Inc..........................
_________ _________
Total..................................
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other condi tions. The
underwriters are obligated to purchase all the Series B Preferred or Series C
Auction Rate Preferred, as applicable, if they purchase any such shares. 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 to payments the
underwriters may be required to make for any of those liabilities.
Offering of Series B Preferred Shares
The Fund has been advised by the underwriters that they propose
initially to offer some of the Series B Preferred shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not to exceed $ per share. The sales load the Fund will pay of $
per Series B Preferred share is equal to
% of the initial offering price. After the initial public offering, the
underwriters may change the public offering price and the concession.
Investors must pay for any Series B Preferred purchased in the initial public
offering on or before , 2003.
Prior to the offering, there has been no public market for the Series
B Preferred. Application has been made to list the Series B Preferred on the
New York Stock Exchange. However, during an initial period which is not
expected to exceed 30 days after the date of this prospectus, the Series B
Preferred will not be listed on any securities exchange. During such period,
the underwriters intend to make a market in the Series B Preferred; however,
they have no obligation to do so. Consequently, an invest ment in the Series B
Preferred may be illiquid during such period.
In connection with the offering, the underwriters may purchase and
sell shares of Series B Preferred in the open market. These transactions may
include short sales and stabilizing transactions. Short sales involve
syndicate sales of shares in excess of the number of shares to be purchased by
the underwriters in the offering, which creates a syndicate short position.
Stabilizing transactions consist of bids for or purchases of shares in the
open market while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit
the underwriters to reclaim a selling concession from a syndicate member when
the underwriters repurchase shares originally sold by that syndicate member in
order to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or
retarding a decline in the market price of the stock. They may also cause the
price of the Series B Preferred to be higher than the price that would
otherwise exist in the open market in the absence of these transactions. The
underwriters may conduct these transactions on the New York Stock Exchange or
in the over-the-counter market, or otherwise. If the underwriters commence any
of these transactions, they may discontinue them at any time.
Offering of Series C Auction Rate Preferred Shares
The Fund has been advised by the underwriters that they propose
initially to offer some of the Series C Auction Rate Preferred shares directly
to the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not to exceed $ per share. The sales load the Fund will pay of $
per Series C Auction Rate Preferred share is equal to % of the initial
offering price. After the initial public offering, the underwriters may change
the public offering price and the concession. Investors must pay for any
Series C Auction Rate Preferred purchased in the initial public offering on or
before , 2003.
Provision of Other Services to the Fund
The underwriters have performed investment banking and advisory
services for the Fund from time to time for which they have received customary
fees and expenses. The underwriters and their affiliates may from time to time
engage in transactions with and perform services for the Fund in the ordinary
course of their business.
The underwriters have acted in the past and the Fund anticipates that
the underwriters may continue from time to time act as brokers or dealers in
executing the Fund's portfolio transactions and that the underwriters, or
their affiliates, may act as a counterparty in connection with the interest
rate transactions described under "How the Fund Manages Risk -- Interest Rate
Transactions" after they have ceased to be underwriters. The Fund anticipates
that the underwriters or their respective affiliates may, from time to time,
act in auctions as broker-dealers and receive fees as set forth under "The
Auction of Series C Auction Rate Preferred" and in the SAI. 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, and perform services for, the Fund.
The principal business address of Salomon Smith Barney Inc. is 388
Greenwich Street, New York, NY 10013. The principal business address of
Gabelli & Company, Inc. is One Corporate Center, Rye, New York 10580.
Gabelli & Company, Inc. is a wholly-owned subsidiary of Gabelli
Securities, Inc., which is a majority-owned subsidiary of the parent company
of the Investment Adviser which is, in turn, indirectly majority-owned by
Mario J. Gabelli. As a result of these relationships, Mr. Gabelli, the Fund's
President and Chief Investment Officer, may be deemed to be a "controlling
person" of Gabelli & Company, Inc.
LEGAL MATTERS
Certain matters concerning the legality under Maryland law of the
Series B Preferred and Series C Auction Rate Preferred will be passed on by
Miles & Stockbridge P.C., Baltimore, Maryland. 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 Series B
Preferred and/or Series C Auction Rate Preferred, and by Simpson Thacher &
Bartlett, New York, New York, counsel to the underwriters. Skadden, Arps,
Slate, Meagher & Flom LLP and Simpson Thacher & Bartlett will each rely as to
matters of Maryland law on the opinion of Miles & Stockbridge P.C.
EXPERTS
The audited financial statements of the Fund as of December 31, 2002
have been incorporated by reference into the SAI in reliance on the report of
PricewaterhouseCoopers LLP, independent accoun tants, given on the authority
of that firm as experts in accounting and auditing. The report of
PricewaterhouseCoopers LLP is included in the SAI. PricewaterhouseCoopers LLP
is located at 1177 Avenue of the Americas, New York, New York 10036.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy statements and other information filed by the Fund with the SEC
pursuant to the informational requirements of such Acts can be inspected and
copied at the public reference facilities maintained by the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC 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 SEC.
The Fund's common stock and Series A Preferred is listed on the New
York Stock Exchange, and reports, proxy statements and other information
concerning the Fund and filed with the SEC by the Fund can be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
This prospectus constitutes part of a Registration Statement filed by
the Fund with the SEC under the Securities Act of 1933, as amended, and the
1940 Act. This prospectus omits certain of the informa tion 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 Series B Preferred and Series C Auction Rate Preferred 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 SEC. Each such statement is qualified in
its entirety by such reference. The complete Registration Statement may be
obtained from the SEC upon payment of the fee prescribed by its rules and
regulations or free of charge through the SEC's web site (http://www.sec.gov).
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 state ments. 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 ............................................................
INVESTMENT OBJECTIVES AND POLICIES .................................. B-
INVESTMENT RESTRICTIONS.............................................. B-
MANAGEMENT OF THE FUND............................................... B-
PORTFOLIO TRANSACTIONS .............................................. B-
REPURCHASE OF COMMON STOCK........................................... B-
PORTFOLIO TURNOVER .................................................. B-
AUTOMATIC DIVIDEND REINVESTMENT AND
VOLUNTARY CASH PURCHASE PLAN....................................... B-
TAXATION ............................................................ B-
ADDITIONAL INFORMATION CONCERNING
AUCTIONS FOR SERIES C AUCTION RATE PREFERRED ..................... B-
ADDITIONAL INFORMATION CONCERNING THE SERIES
B PREFERRED AND SERIES C AUCTION RATE PREFERRED .................. B-
AND GUIDELINES .......................................... B-
NET ASSET VALUE...................................................... B-
BENEFICIAL OWNERS.................................................... B-
GENERAL INFORMATION.................................................. B-
FINANCIAL STATEMENTS................................................. B-
GLOSSARY............................................................. B-
APPENDIX A........................................................... B-
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this prospectus in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund, the Investment Adviser or the
underwriters. Neither the delivery of this prospectus nor any sale made
hereunder will, under any circumstances, create any implication that there has
been no change in the affairs of the Fund since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates.
This prospectus does not constitute an offer to sell or the solicitation of an
offer to buy such securities in any circumstance in which such an offer or
solicitation is unlawful.
APPENDIX A
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risk appear somewhat larger than in Aaa Securities.
A Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper- medium-grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium-grade
obligations i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small. Moody's applies numerical modifiers
(1, 2, and 3) with respect to the bonds rated Aa through B. The
modifier 1 indicates that the company ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the company ranks in
the lower end of its generic rating category.
Caa Bonds that are rated Caa are of poor standing. These issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds that are rated Ca represent obligations that are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
-------------------------------------------------------------------------------
FITCH, INC.
AAA This is the highest rating assigned by Fitch to a debt obligation
and indicates an extremely strong capacity to pay interest and
repay principal.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
Principal and interest payments on bonds in this category are
regarded as safe.
A Debt rated A has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
-------------------------------------------------------------------------------
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse
conditions. Debt rated C1 is reserved for income bonds on which no interest is
being paid and debt rated D is in payment default.
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 Fitch does not
rate a particular type of obligation as a matter of policy.
STANDARD & POOR'S RATINGS SERVICES
-------------------------------------------------------------------------------
AAA This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay interest and
repay principal.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
A Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
-------------------------------------------------------------------------------
Speculative Grade
Debt rated BB, CCC, CC and C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation, and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse
conditions. Debt rated C 1 is reserved for income bonds on which no interest
is being paid and debt rated D is in payment default.
In July 1994, S&P initiated an "r" symbol to its ratings. The "r"
symbol is attached to deriva tives, 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.
Subject to Completion, Dated [ ], 2003
THE GABELLI GLOBAL MULTIMEDIA TRUST INC.
__________________________
STATEMENT OF ADDITIONAL INFORMATION
The Gabelli Global Multimedia Trust Inc. (the "Fund") is a closed-end,
non- diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund's primary
investment objective is to achieve long-term growth of capital by investing
primarily in the common stock and other debt or equity securities of foreign
and domestic companies involved in the telecommuni cations, media, publishing
and entertainment industries. Income is the secondary investment objective.
The investment objectives of long-term growth of capital and income are
fundamental policies of the Fund. The Fund's policy of concentration in
companies in the communications industries is also a fundamental policy of the
Fund.
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 "Prospec tus"). Investors should obtain and read the Prospectus
prior to purchasing the Series B Preferred or the Series C Auction Rate
Preferred. A copy of the Prospectus may be obtained without charge by calling
the Fund at 1-800-GABELLI (1-800-422-3554) or (914) 921-5070. This SAI
incorporates by reference the entire Prospectus.
Each capitalized term used but not defined in this SAI has the meaning
ascribed to it, as the case may be, in the Prospectus or in the glossary of
this SAI.
TABLE OF CONTENTS
Page
The Fund ............................................................
Investment Objectives and Policies...................................
Investment Restrictions..............................................
Management of the Fund...............................................
Portfolio Transactions...............................................
Repurchase of Common Stock...........................................
Portfolio Turnover...................................................
Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan Taxation...............................................
Additional Information Concerning Auctions for the
eries C Auction Rate Preferred.......................................
Additional Information Concerning the Series B Preferred
and Series C Auction Rate Preferred..................................
Moody's and Fitch Guidelines.........................................
Net Asset Value......................................................
Beneficial Owners....................................................
General Information..................................................
Financial Statements.................................................
Glossary.............................................................
Appendix A...........................................................
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 upon payment of the fee prescribed, or
inspected at the Securities and Ex change Commission's office at no charge.
This Statement of Additional Information is dated March 12, 2003.
THE FUND
The Fund was incorporated in Maryland on May 31, 1994, and is a
non-diversified, closed-end management investment company registered under the
1940 Act. The Fund's investment operations commenced on November 15, 1994. The
Fund's common stock is traded on the New York Stock Exchange under the symbol
"GGT." The Fund's Series A Preferred is traded on the New York Stock Exchange
under the symbol "GGT Pr."
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund's primary investment objective is long-term growth of capital.
Income is a secondary objective. Under normal market conditions, the Fund will
invest at least 80% of its total assets in common stock and other securities
of companies in the telecommunica tions, media, publishing and entertainment
industries. See "Investment Objectives and Policies" in the Prospectus.
Investment Practices
Special Situations. Subject to the Fund's policy of investing at least
80% of the value of its total assets in companies involved in the
telecommunications, media, publishing and entertainment industries, the Fund
from time to time may invest in companies that are determined by Gabelli
Funds, LLC (the "Adviser") to possess "special situation" character istics. In
general, a special situation company is a company whose securities are
expected to increase in value solely by reason of a development particularly
or uniquely applicable to the company. Developments that may create special
situations include, among others, a liquidation, reorganization,
recapitalization or merger, material litigation, technological breakthrough or
new management or management policies. The principal risk associated with
investments in special situation companies is that the anticipated development
thought to create the special situation may not occur and the investment
therefore may not appreciate in value or may decline in value.
Temporary Defensive Investments. Although under normal market conditions
at least 80% of the Fund's assets will consist of common stock and other
securities of foreign and domestic companies involved in the
telecommunications, media, publishing and entertainment industries, when a
temporary defensive posture is believed by the Investment Adviser to be
warranted ("temporary defensive periods"), the Fund may hold without
limitation 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 U.S. Government Securities,
commercial paper rated A-1 or higher by Standard & Poor's Corporation ("S&P")
or Prime-1 by Moody's Investors Service, Inc. ("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. For a
description of such ratings, see Appendix A to the Prospectus. The Fund may
also invest up to 10% of the market value of its total assets during temporary
defensive periods in shares of money market mutual funds that invest primarily
in U.S. Government Securities and repurchase agreements in respect of those
securities. Money market mutual funds are investment companies and the
investments by the Fund in those companies are subject to certain other
limitations. See "Investment Restrictions." As a shareholder in a mutual fund,
the Fund will bear its ratable share of the fund's expenses, including
management fees, and will remain subject to payment of the fees to the
Investment Adviser with respect to assets so invested.
Lower Rated Securities. The Fund may invest up to 10% of its total
assets in fixed- income securities rated in the lower rating categories of
recognized statistical rating agencies, such as securities rated "CCC" or
lower by S&P or "Caa" or lower by Moody's, or non-rated securities of
comparable quality. These debt securities are predominantly speculative and
involve major risk exposure to adverse conditions and are often referred to in
the financial press as "junk bonds."
Generally, such lower rated 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 organiza tions, 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 develop ments and changes in
economic conditions than higher quality bonds. In addition, such lower rated
securities and comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is
significantly greater because such lower rated 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 market value to
respond to changes in the economy or the financial markets.
Lower rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption (often a
feature of fixed income securities), the Fund may have to replace the security
with a lower yielding security, resulting in a de creased return for
investors. Also, as the principal value of bonds moves inversely with
movements in interest rates, in the event of rising interest rates the value
of the securities held by the Fund may decline proportionately more than a
portfolio consisting of higher rated securities. Investments in zero coupon
bonds may be more speculative and subject to greater fluctuations in value due
to changes in interest rates than bonds that pay interest currently.
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 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 bank
ruptcy protection or that the value of the securities will not appreciate.
In addition to using recognized rating agencies and other sources, the
Investment Adviser also performs its own analysis in seeking investments that
it believes to be under rated (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, respon
siveness 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 not change their ratings of a particular
issue or 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 certain lower rated and comparable unrated securities has
in the past experienced a major economic recession. The recession 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. The
market for those securities could react in a similar fashion in the event of
any future economic recession.
Derivative Instruments.
Options. The Fund may, from time to time, subject to guidelines of the
Board of Directors and the limitations set forth in the Prospectus and
applicable rating agency guidelines, 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.
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 liquid securities 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. The Investment
Adviser, on behalf of the Fund, has no present intention to engage in
uncovered option transactions. 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 transac tion 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 underly ing 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. 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 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 Prospec tus. 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 denomi
nated, where the values of such different currencies (vis-a-vis the U.S.
dollar) historically have a high degree of positive correlation.
Futures Contracts. The Fund will enter into futures contracts only for
certain bona fide hedging, yield enhancement and risk management purposes. The
Fund may enter into futures contracts for the purchase or sale of debt
securities, financial indices, and U.S. government securities (collectively,
"interest rate futures contracts"). It may also enter into futures contracts
for the purchase or sale of foreign currencies in which securities held or to
be acquired by the Fund are denominated, or the value of which have a high
degree of positive correlation to the value of such currencies as to
constitute an appropriate vehicle for hedging. In addition, the Fund may enter
into futures contracts on stock and bond indices (collectively, "securities
indices"). The Fund may enter into such futures contracts both on U.S. and
foreign exchanges.
A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the assets 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 assets underlying the contract at a
specified price at a specified future time. Certain futures contracts are
settled on a net cash payment basis rather than by the sale and delivery of
the assets underlying the futures contracts. U.S. futures contracts have been
designed by exchanges that have been designated as "contract markets" by the
Commodity Futures Trading Commission (the "CFTC"), an agency of the U.S.
government, and must be executed through a futures commission merchant, i.e.,
a brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on these contract markets and their affiliated clearing
organizations guarantee performance of the contracts as between the clearing
members of the exchange.
At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from 0.5% to 4%
of the face value of the contract. Under certain circumstances, however, such
as during periods of high volatility, the Fund may be required by an exchange
to increase the level of its initial margin payment. Thereafter, the futures
contract is valued daily and the payment in cash of "variation margin" may be
required, a process known as "mark-to-the-market." Each day the Fund is
required to provide or is entitled to receive variation margin in an amount
equal to any change in the value of the contract since the preceding day.
Although futures contracts by their terms may call for the actual
delivery or acquisition of underlying assets, in most cases the contractual
obligation is extinguished by offset before the expiration of the contract.
The offsetting of a contractual obligation is accomplished by buying (to
offset an earlier sale) or selling (to offset an earlier purchase) an
identical futures contract calling for delivery in the same month. Such a
transaction cancels the obligation to make or take delivery of the underlying
commodity. When the Fund purchases or sells futures contracts, the Fund will
incur brokerage fees and related transactions costs.
In addition, futures contracts entail risks. The ordinary spreads
between values in the cash and futures markets, due to differences in the
characters of those markets, are subject to distortions. First, all
participants in the futures market are subject to initial and variation margin
requirements. Rather than meeting additional variation margin require ments,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing price distortions. Third, from the
point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Increased participation by speculators in the futures market may cause
temporary price distortions. Thus, a correct forecast of interest rate trends
by the Investment Adviser may still not result in a successful transaction.
If the Fund seeks to hedge against a decline in the value of its
portfolio securities and sells futures contracts on other securities that
historically have had a high degree of positive correlation to the value of
the portfolio securities, the value of its portfolio securities might decline
more rapidly than the value of a poorly correlated futures contract rises. In
that case, the hedge will be less effective than if the correlation had been
greater. In a similar but more extreme situation, the value of the futures
position might in fact decline while the value of the portfolio securities
holds steady or rises. This would result in a loss that would not have
occurred but for the attempt to hedge.
Options on Futures Contracts. The Fund may also enter into options on
futures contracts for certain bona fide hedging, yield enhancement and risk
management purposes. The Fund may purchase put and call options and write put
and call options on futures contracts that are traded on U.S. and foreign
exchanges. The Investment Adviser, on behalf of the Fund, has no present
intention to engage in uncovered option transactions. 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 (a long position if the option is a
call and a short position if the option is a put) at a specified exercise
price at any time during the option exercise period. The writer of the option
is required upon exercise to assume a short futures position (if the option is
a call) or a long futures position (if the option is a put). Upon exercise of
the option, the assumption of offsetting futures positions by the writer and
holder of the option will be accompanied by delivery of the accumulated cash
balance in the writer's futures margin account which represents the amount by
which the market price of the futures contract at exercise, exceeds, in the
case of a call, or is less than, in the case of a put, the exercise of the
option on the futures contract.
The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if the Fund owns the asset which is deliverable
under the futures contract or an option to purchase that futures contract
having a strike price equal to or less than the strike price of the "covered"
option and having an expiration date not earlier than the expiration date of
the "covered" option, or if it segregates and maintains with its custodian for
the term of the option, cash or liquid securities equal to the fluctuating
value of the optioned futures. The Fund will be considered "covered" with
respect to a put option it writes on a futures contract if it owns an option
to sell that futures contract having a strike price equal to or greater than
the strike price of the "covered" option and having an expira tion date not
earlier than the expiration date of the "covered" option, or if it segregates
and maintains with its custodian for the term of the option, cash or liquid
securities at all times equal in value to the exercise price of the put (less
any initial margin deposited by the Fund with its custodian with respect to
such put option). There is no limitation on the amount of the Fund's assets
which can be placed in the segregated account.
Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of debt securities the Fund intends to
acquire. If the futures price at expiration of the option is above the
exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any increase that may have occurred in
the price of the debt securities the Fund intends to acquire. If the market
price of the underlying futures contract is below the exercise price when the
option is exercised, the Fund will incur a loss, which may be wholly or
partially offset by the decrease in the value of the securities the Fund
intends to acquire.
Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written
call option is below the exercise price, the Fund will retain the full amount
of the option premium, thereby partially hedging against any decline that may
have occurred in the Fund's holding of debt securities. If the futures price
when the option is exercised is above the exercise price, however, the Fund
will incur a loss, which may be wholly or partially offset by the increase in
the value of the securities in the Fund's portfolio which were being hedged.
The Fund may purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund may also purchase call options on futures contracts as a hedge
against an increase in the value of securities the Fund intends to acquire as
a result of declining interest rates or fluctuating currency exchange rates.
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 consti tutes 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 depos ited 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.
Limitations on the Purchase and Sale of Futures Contracts and Options on
Futures Contracts. Subject to the guidelines of the Board of Directors, the
Fund may engage in transactions in futures contracts and options hereon only
for bona fide hedging, yield enhancement and risk management purposes, in each
case in accordance with the rules and regulations of the CFTC.
Regulations of the CFTC applicable to the Fund permit the Fund's futures
and options on futures transactions to include (i) bona fide hedging
transactions without regard to the percentage of the Fund's assets committed
to margin and option premiums and (ii) non-hedging transactions, provided that
the Fund not enter into such non-hedging transac tions if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums would exceed 5% of the market
value of the Fund's liquidating value, after taking into account unrealized
profits and unrealized losses on any such transactions.
In addition, investment in future contracts and related options
generally will be limited by the rating agency guidelines applicable to any of
the Fund's outstanding preferred stock.
Forward Currency Exchange Contracts. The Fund may engage in currency
transactions other than on futures exchanges to protect against future changes
in the level of future currency exchange rates. The Fund will conduct such
currency exchange transactions either 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 forward contracts to purchase or sell currency. A forward
contract on foreign currency involves 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 risk of shifting of a forward currency contract
will be substantially the same as a futures contract having similar terms. The
Fund's dealing in forward currency exchange will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward currency with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities and accruals of interest
receivable and Fund expenses. Position hedging is the forward sale of currency
with respect to portfolio security positions denominated or quoted in that
currency or in a currency bearing a high degree of positive correlation to the
value of that currency.
The Fund may not position hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time
of making any sale of forward currency) of the securities held in its
portfolio denominated or quoted in, or currently convertible into, such
currency. If the Fund enters into a position hedging transaction, the Fund's
custodian or subcustodian will place cash or other liquid securities in a
segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of the given forward contract. If
the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value
of the account will, at all times, equal the amount of the Fund's commitment
with respect to the forward contract.
At or before the maturity of a forward sale contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the
same maturity date, the same amount of the currency which it is obligated to
delivery. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase
of the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it
has agreed to sell. Should forward prices increase, the Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell. Closing out forward purchase
contracts involves similar offsetting transactions.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward transactions in
currency exchange are usually conducted on a principal basis, no fees or
commissions are involved. The use of foreign currency contracts does not
eliminate fluctuations in the underlying prices of the securities, but it does
establish a rate of exchange that can be achieved in the future. In addition,
although forward currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that
might result if the value of the currency increases.
If a decline in any currency is generally anticipated by the Investment
Adviser, the Fund may not be able to contract to sell the currency at a price
above the level to which the currency is anticipated to decline.
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 govern mental
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 govern mental
action can result in losses to the Fund if it is unable to deliver or receive
currency or monies in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure
as well as incurring transaction costs.
Repurchase Agreements. The Fund may engage in repurchase agreements as
set forth in the Prospectus. A repurchase agreement is an instrument under
which the pur chaser, i.e., the Fund, acquires a debt security and the seller
agrees, at the time of the sale, to repurchase the obligation at a mutually
agreed upon time and price, thereby determining the yield during the
purchaser's holding period. This results in a fixed rate of return insulated
from market fluctuations during such period. The underlying securities are
ordinarily U.S. Treasury or other government obligations or high quality money
market instruments. The Fund will require that the value of such underlying
securities, together with any other collateral held by the Fund, always equals
or exceeds the amount of the repurchase obliga tions of the counter party. The
Fund's risk is primarily that, if the seller defaults, the proceeds from the
disposition of the underlying securities and other collateral for the seller's
obligation are less than the repurchase price. If the seller becomes
insolvent, the Fund might be delayed in or prevented from selling the
collateral. In the event of a default or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. To the extent that the proceeds
from any sale of such collateral upon a default in the obligation to
repurchase are less than the repurchase price, the Fund will experience a
loss.
If the financial institution which is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the United States
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under extreme circumstances, there may be a restriction on the Fund's
ability to sell the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to securities
broker-dealers or financial institu tions, 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 stock is
qualified for sale. The Fund's loans of portfolio securities will be
collateralized in accordance with applicable regulatory requirements and no
loan will cause the value of all loaned securities to exceed 33% of the value
of the Fund's total assets. The Fund's ability to lend portfolio securities
will be limited by the rating agency guidelines applicable to any of the
Fund's outstanding preferred stock.
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 finan cially. 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 Directors will oversee the credit worthiness 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.
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
high-grade debt 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 5%
of the Fund's total assets or 5% of such issuer's voting securities. The Fund
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 or
the Fund's aggregate short sales of a particular class of securities exceeds
25% of the outstanding securities of that class. 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.
The Fund's obligation to replace the borrowed security will be secured
by collateral deposited with the broker-dealer, usually cash, U.S. Government
Securities or other highly liquid debt securities. The Fund will also be
required to deposit similar collateral with its custodian to the extent, if
any, necessary so that the value of both collateral deposits in the aggregate
is at all times equal to the greater of the price at which the security is
sold short or 100% of the current market value of the security sold short.
Depending on arrangements made with the broker-dealer from which it borrowed
the security regarding payment over of any payments received by the Fund on
such security, the Fund may not receive any pay ments (including interest) on
its collateral deposited with such broker-dealer. 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, any loss increased, by the transaction costs described above.
Although the Fund's gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited.
To secure its obligations to deliver the securities sold short, the Fund
will deposit in escrow in a separate account with its custodian, State Street
Bank and Trust Company ("State Street"), an amount at least equal to the
securities sold short or securities convertible into, or exchangeable for, the
securities. The Fund may close out a short position by purchasing and
delivering an equal amount of securities sold short, rather than by delivering
securities already held by the Fund, because the Fund may want to continue to
receive interest and dividend payments on securities in its portfolio that are
convertible into the securities sold short.
INVESTMENT RESTRICTIONS
The Fund operates under the following restrictions that constitute
fundamental policies that cannot be changed without the affirmative vote of
the holders of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act). Such a majority is defined as the lesser of (i) 67%
or more of the shares present at a meeting of stockholders, if the holders of
50% of the outstanding shares of the Fund are present or represented by proxy
or (ii) more than 50% of the outstanding shares of the Fund. All percentage
limita tions 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 elimination of any security from the
portfolio. The Fund may not:
o 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 other than the telecommunications, media,
publishing and entertainment indus tries. This restriction does not
apply to investments in U.S. Government Securities.
o Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or
reorganization, if more than 10% of the market value of the total
assets of the Fund would be invested in securities of other
investment companies, more than 5% of the market value of the total
assets of the Fund would be invested in the securities of any one
investment company or the Fund would own more than 3% of any other
investment company's securities; provided, however, this
restriction will 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.
o Purchase or sell commodities or commodity contracts except that the
Fund may purchase or sell futures contracts and related options
thereon if imme diately thereafter (i) no more than 5% of its total
assets are invested in margins and premiums and (ii) the aggregate
market value of its outstanding futures contracts and market value
of the currencies and futures contracts subject to outstanding
options written by the Fund do not exceed 50% of the market value
of its total assets. The Fund may not purchase or sell real estate,
provided that the Fund may invest in securities secured by real
estate or interests therein or issued by companies which invest in
real estate or interests therein.
o Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities.
o Make loans of money, except by the purchase of a portion of
publicly distributed debt obligations in which the Fund may invest,
and repurchase agreements with respect to those obligations,
consistent with its investment objectives and policies. The Fund
reserves the authority to make loans of its portfolio securities to
financial intermediaries in an aggregate amount not exceeding 20%
of its total assets. Any such loans will only be made upon approval
of, and subject to any conditions imposed by, the Board of
Directors of the Fund. Because these loans would at all times be
fully collateralized, the risk of loss in the event of default of
the borrower should be slight.
o Borrow money, except that the Fund may borrow from banks and other
financial institutions on an unsecured basis, in an amount not
exceeding 10% of its total assets, to finance the repurchase of its
shares. The Fund also may borrow money on a secured basis from
banks as a temporary measure for extraordinary or emergency
purposes. Temporary borrowings may not exceed 5% of the value of
the total assets of the Fund at the time the loan is made. The Fund
may pledge up to 10% of the lesser of the cost or value of its
total assets to secure temporary borrowings. The Fund will not
borrow for investment purposes. Immediately after any borrowing,
the Fund will maintain asset coverage of not less than 300% with
respect to all borrowings. While the borrowing of the Fund exceeds
5% of its respective total assets, the Fund will make no further
purchases of securities, although this limitation will not apply to
repurchase transactions as described above.
o Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as
amended, in selling portfolio securities; provided, however, this
restriction will 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.
o Invest more than 15% of its total assets in illiquid securities,
such as repur chase agreements with maturities in excess of seven
days, or securities that at the time of purchase have legal or
contractual restrictions on resale.
MANAGEMENT OF THE FUND
Directors and Officers
Overall responsibility for management and supervision of the Fund rests
with its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and the companies that furnish the Fund with
services, including agreements with the Investment Adviser, State Street Bank
and Trust Company, the Fund's custodian (the "Custodian"), EquiServe Trust
Company ("EquiServe"), the Fund's transfer agent and dividend disbursing agent
with respect to the Series A Preferred and Series B Preferred, and The Bank of
New York, the Fund's auction agent, paying agent and registrar with respect to
the Series C Auction Rate Preferred. The day-to-day operations of the Fund are
delegated to the Investment Adviser.
The names and business addresses of the directors and principal officers
of the Fund are set forth in the following table, together with their
positions and their principal occupa tions during the past five years and, in
the case of the directors, their positions with certain other organizations
and companies.
NUMBER OF
TERM OF PORTFOLIOS
OFFICE AND IN FUND PRINCIPAL
NAME, POSITION(S) LENGTH OF COMPLEX OCCUPATION(S) OTHER
ADDRESS1 TIME OVERSEEN BY DURING PAST DIRECTORSHIPS
AND AGE SERVED2 DIRECTOR FIVE YEARS HELD BY DIRECTOR
----------------- ---------- ------------ ------------- ----------------
INTERESTED DIRECTORS3:
MARIO J. GABELLI Since 1994** 21 Chairman of the Board and Chief Director of Morgan Group
Director, President and Executive Officer of Gabelli Holdings, Inc.
Chief Investment Officer Asset Management Inc. and Chief (transportation services);
Age: 60 Investment Officer of Gabelli Vice Chairman of Lynch
Funds, LLC and GAMCO Investors, Corporation (diversified
Inc; Chairman and Chief Executive manufacturing company).
Officer of Lynch Interactive
Corporation (multimedia and
services); Chairman and Director
of other registered investment
companies in the Gabelli fund
complex.
KARL OTTO PHL Since 1994* 30 Member of the Shareholder Director of Gabelli Asset
Director Committee of Sal. Oppenheim Jr. & Management Inc.; Chairman,
Age: 72 Cie (private investment bank); Incentive Capital and
Former President of the Deutsche Incentive Asset Management
Bundesbank and Chairman of its (Zurich); Director at Sal
Central Bank Council (1980-1991); Oppenheim Jr. & Cie,
Director of other registered Zurich.
investment companies in the
Gabelli fund complex.
NON-INTERESTED DIRECTORS:
THOMAS E. BRATTER Since 1994** 3 Director, President and Founder, --
Director The John Dewey Academy
Age: 62 (residential college preparatory
therapeutic high school);
Director of other registered
investment companies in the
Gabelli fund complex.
ANTHONY J. COLAVITA4 Since 2001** 32 President and Attorney at Law in
Director the law firm of Anthony J.
Age: 66 Colavita, P.C.; Director of other
registered investment companies
in the Gabelli fund complex.
JAMES P. CONN4 Since 1994* 11 Former Managing Director and Director of LaQuinta Corp.
Director Chief Investment Officer of (hotels) and First
Age: 64 Financial Security Assurance Republic Bank
Holdings Ltd. (1992-1998);
Director of First Republic Bank;
Director of other registered
investment companies in the
Gabelli fund complex.
FRANK J. FAHRENKOPF, JR. Since 1999*** 3 President and Chief Executive --
Director Officer of the American Gaming
Age: 62 Association since June 1995;
Partner of Hogan & Hartson (law
firm); Chairman of International
Trade Practice Group; Co-Chairman
of the Commission on Presidential
Debates; Former Chairman of the
Republican National Committee;
Director of other registered
investment companies in the
Gabelli fund complex.
ANTHONY R. PUSTORINO Since 1994* 16 Certified Public Accountant; --
Director Professor Emeritus, Pace
Age: 76 University; Director of other
registered investment companies
in the Gabelli fund complex.
WERNER J. ROEDER, MD Since 1999*** 26 Medical Director of Lawrence
Director Hospital and practicing private
Age: 61 physician
SALVATORE J. ZIZZA Since 1994*** 8 Chairman of Hallmark Electrical Director of Hollis Eden
Director Supplies Corp.; Former Executive Pharmaceuticals, Bion
Age: 56 Vice President of FMG Group (a Environmental Technologies
healthcare provider); Former Inc. and The Credit Store
President and Chief Executive Inc.
Officer of the Lehigh Group Inc.
(an interior construction
company) through 1997; Director
of other registered investment
companies in the Gabelli fund
complex.
OFFICERS:
BRUCE N. ALPERT Since 1994 -- Executive Vice President and
Vice President and Treasurer Chief Operating Officer of the
Age: 51 Gabelli Funds, LLC and an officer
of all mutual funds advised by
Gabelli Funds, LLC and its
affiliates. Director and
President of Gabelli Advisers,
Inc.
PETER W. LATARTARA Since 1998 -- Vice President at the Fund since
Vice President 1998. Vice President of Gabelli
Age: 34 & Company, Inc. since 1996.
BRANDON J. MCCUE Since 2000 -- Vice President of the Fund since
Title: 2000. Prior to 2000, Mr. McCue
Age: was with the executive search
firm of Robert Half International
from 1999 to 2000 and President
of Market Place Florists, Inc. (a
speciality retail enterprise)
from 1993 to 1999.
JAMES E. MCKEE Since 1995 -- Vice President General Counsel
Secretary and Secretary of Gabelli Asset
Age: 38 Management, Inc. since 1999 and
GAMCO Investors, Inc. since 1993;
Secretary of all mutual funds
advised by Gabelli Advisers, Inc.
and Gabelli Funds, LLC.
1 Address: One Corporate Center, Rye, NY 10580, unless otherwise noted.
2 The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for
a three year term. The three year term for each class expires as
follows:
* - Term expires at the Fund's 2003 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified.
** - 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.
3 "Interested person" of the Fund as defined in the Investment Company Act
of 1940. Messrs. Gabelli and Pohl are each considered an "interested
person" because of their affiliation with Gabelli Funds, LLC which acts
as the Fund's investment adviser.
4 Represents holders of the Fund's Series A Preferred.
The Board of Directors of the Fund is divided into three classes, with a
class having a term of three years. Each year the term of office of one class
of directors of the Fund will expire. The terms of Messrs. Conn, Pohl and
Pustorino as Directors of the Fund expire in 2003; the terms of Messrs.
Bratter, Colavita and Gabelli as Directors of the Fund expire in 2004; and the
terms of Messrs. Fahrenkopf, Roeder and Zizza as Directors of the Fund expire
in 2005. See "Anti-Takeover Provisions of the Charter and By-Laws" in the
Prospectus.
The following table reflects the beneficial ownership of Directors of
the Fund in securities of the Fund and in securities of other Gabelli Fund
complex registered investment companies overseen by such Director.
-------------------------------------------------------------------------------
Name of Director Dollar Range of Equity Aggregate Dollar Range
Securities in the Fund*(1) of Equity Securities in all
Registered Investment
Companies Overseen by
Directors in Family of
Investment Companies*
-------------------------------------------------------------------------------
INTERESTED DIRECTORS
-------------------------------------------------------------------------------
Mario J. Gabelli
-------------------------------------------------------------------------------
Karl Otto Pohl
-------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
-------------------------------------------------------------------------------
Dr. Thomas E. Bratter
-------------------------------------------------------------------------------
Anthony J. Colavita
-------------------------------------------------------------------------------
James P. Conn
-------------------------------------------------------------------------------
Frank J. Fahrenkopf, Jr.
-------------------------------------------------------------------------------
Anthony R. Pustorino
-------------------------------------------------------------------------------
Werner J. Roeder, MD
-------------------------------------------------------------------------------
Salvatore J. Zizza
-------------------------------------------------------------------------------
* Key to Dollar Ranges
A. None
B. $1-$10,000
C. $10,001-$50,000
D. $50,001-$100,000
E. Over $100,000
(1)This information has been furnished by each Director as of [December 31,
2002]. "Beneficial Ownership" is determined in accordance with Section
16a-1(a)(2) of the Securities Exchange Act of 1934, as amended.
The Directors serving on the Fund's Nominating Committee are Messrs.
[__] (Chairman) and [__]. 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 Nominating Committee met once
during the year ended [December 31, 2002]. The Fund does not have a standing
compensation committee.
Messrs. [__] (Chairman), [__] and [__] serve on the Fund's Audit
Committee and these Directors are not "interested persons" of the Fund as
defined in the 1940 Act. The Audit Committee is responsible for reviewing and
evaluating issues related to the account ing and financial reporting policies
and internal controls of the Fund and 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
Directors and the Fund's independent accountants. During the year ended
[December 31, 2002], the Audit Committee met twice.
The economic terms of the Advisory Agreement between the Fund and its
Invest ment Adviser were unanimously approved by the Fund's Board of Directors
at its [__] meeting. The Board's approval included a majority of the Directors
who are not parties to the Advisory Agreement or interested persons of any
such party (as such term is defined in the 1940 Act). In approving the
Advisory Agreement, the Board of Directors considered, among other things, the
nature and quality of services to be provided by the Investment Adviser, the
profitability to the Investment Adviser of its relationship with the Fund,
economies of scale and comparative fees and expense ratios.
The Fund and the Investment Adviser have adopted a code of ethics (the
"Code of Ethics") under Rule 17j-1 of the 1940 Act. The Code of Ethics permits
personnel, subject to the Code of Ethics and its restrictive provisions, to
invest in securities, including securities that may be purchased or held by
the Fund. The Code of Ethics can be reviewed and copied at the United States
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
Information on the operations of the 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. Copies of the Code of Ethics
may also 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 Room Section, Washington, D.C.
20549- 0102.
Remuneration of Directors and Officers
The Fund pays each director who is not affiliated with the Investment
Adviser or its affiliates a fee of $5,000 per year plus $750 per meeting
attended, together with each director's actual out-of-pocket expenses relating
to attendance at such meetings.
The following table shows certain compensation information for the
directors and officers of the Fund for the fiscal year ended December 31,
2002. Messrs. Latartara and McCue are employed by the Fund and their
compensation is evaluated and approved by the directors. Other officers who
are employed by the Investment Adviser receive no compen sation or expense
reimbursement from the Fund.
Compensation Table
For the Fiscal Year Ended December 31, 2002
TOTAL COMPENSATION
FROM THE FUND AND
NAME OF PERSON AND AGGREGATE COMPENSATION FUND COMPLEX PAID
POSITION* FROM THE FUND TO DIRECTORS/OFFICERS
MARIO J. GABELLI $0 $0
Chairman of the Board (22)
THOMAS E. BRATTER Director (3) $ $
ANTHONY J. COLAVITA Director (32) $ $
JAMES P. CONN Director (11) $ $
FRANK J. FAHRENKOPF JR. Director (3) $ $$
KARL OTTO POHL Director (30) $ $
ANTHONY R. PUSTORINO Director (16) $ $
WERNER J. ROEDER, MD Director (26) $ $
SALVATORE J. ZIZZA Director (8) $ $
* 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 consid ered part of the same fund complex
as the Fund because they have common or affiliated investment advisers.
The number in parenthesis represents the number of such investment
companies and portfolios.
For their services as Vice Presidents of the Fund, Mr. Latartara and Mr.
McCue, respectively, received compensation in [2002] of $85,000 and $[__].
Indemnification of Officers and Directors; Limitations on Liability
Subject to limitations imposed by the 1940 Act, the Fund's Charter
limits the liability of the Fund's directors and officers to the Fund and its
stockholders to the fullest extent permitted by Maryland law. Under Maryland
law, Maryland corporations may limit their directors' and officers' liability
for money damages to the corporation and stockholders except to the extent (i)
that it is proved that a director or officer actually received an improper
benefit or profit in money, property or services, in which case such director
or officer may be liable for the amount of the benefit or profit actually
received or (ii) that a judgment or other final adjudication adverse to a
director or officer is entered in a proceed ing based on a finding that such
director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated
in the proceeding.
The Charter also provides for the indemnification of, and expenses to be
advanced on behalf of, directors and officers, among others, to the fullest
extent permitted by Maryland law, subject to the limitations imposed by the
1940 Act. Under Maryland law, corporations may indemnify present and past
directors and officers, or officers of another corporation that serve at the
request of the indemnifying corporation, against judgments, penalties, fines,
settlements and reasonable expenses (including attorneys' fees) actually
incurred in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation in which such director or
officer is adjudicated liable to the corporation), in which they are made
parties by reason of being or having been directors or officers, unless it is
proved that (i) the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in bad faith or was
the result of active and deliberate dishonesty, (ii) the director or officer
actually received an improper personal benefit in money, property or services
or (iii) in the case of any criminal proceed ing, the director or officer had
reasonable cause to believe that the act or omission was unlawful. Maryland
law also provides that, unless limited by the corporation's charter, a
corporation will indemnify present and past directors and officers who are
successful, on the merits or otherwise, in the defense of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, against reasonable expenses (including
attorneys' fees) incurred in connection with such proceeding. The Fund's
Charter does not limit the extent of this indemnity.
Investment Advisory and Administrative Arrangements
Gabelli Funds, LLC acts as the Fund's 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. The Investment Adviser was organized in
1999 and is the successor to Gabelli Advisers, Inc., which was organized in
1980. As of December 31, 2002, the Investment Adviser acted as registered
investment advisers to 18 management investment companies with aggregate net
assets of $8.7 billion. The Investment Adviser, together with other affiliated
investment advisers, had assets under management totaling $9.7 billion, as of
December 31, 2002. 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 $10.0 billion under management as of
December 31, 2002. Gabelli Fixed Income LLC, an affiliate of the Investment
Adviser, acts as investment adviser for The Treasurer's Fund and separate
accounts having aggregate assets of $1.6 billion under management as of
December 31, 2002. The Investment Adviser is a wholly-owned subsidiary of
Gabelli Asset Manage ment 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 the
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 Directors. 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
stockholders and supervising the calculation of the net asset value of its
stock. 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 Invest ment 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. Notwithstanding the
foregoing, the Investment Adviser will waive the portion of its investment
advisory fee attributable to an amount of assets of the Fund equal to the
aggregate stated value of the applicable series of its preferred stock for any
calendar year in which the net asset value total return of the Fund allocable
to the common stock, including distributions and the advisory fee subject to
potential waiver, is less than the stated annual dividend rate of such series,
prorated during the year such series is issued and the final year such series
is outstanding.
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 stockholder approval of
such Agreement, and from year to year thereafter if approved annually (i) by
the Fund's Board of Directors or by the holders of a majority of its
outstanding voting securities and (ii) by a majority of the directors 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 initially approved by
the Board of Directors at a meeting held on [__] and was approved most
recently by the Board of Directors on [__], 2002. 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.
For each of the years ended [December 31, 2000, December 31, 2001 and
December 31, 2002], the Investment Adviser was paid $[__], $[__] and $[__],
respectively, for advisory and administrative services rendered to the Fund.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors 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
Directors 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. Informa tion so received will be in addition to and
not in lieu of the services required to be per formed 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 informa tion 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 securi ties 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.
For the fiscal years ended December 31, 2000, December 31, 2001 and
December 31, 2002, the Fund paid a total of $[__], $[__], and $[__],
respectively, in brokerage commissions, of which Gabelli & Company, Inc. and
its affiliates received $[__], $[__], and $[__], respectively. The amount
received by Gabelli & Company, Inc. and its affiliates from the Fund in
respect of brokerage commissions for the fiscal year ended December 31, 2002
represented approximately [__]% of the aggregate dollar amount of brokerage
commissions paid by the Fund for such period and approximately [__]% of the
aggregate dollar amount of transactions by the Fund for such period.
REPURCHASE OF COMMON STOCK
The Fund is a closed-end, non-diversified, management investment company
and as such its stockholders do not, and will not, have the right to redeem
their stock. The Fund, however, may repurchase its common stock from time to
time as and when it deems such a repurchase advisable. Such repurchases will
be made when the Fund's common stock is trading at a discount of 10% or more
(or such other percentage as the Board of Directors of the Fund may determine
from time to time) from net asset value. Pursuant to the 1940 Act, the Fund
may repurchase its common stock on a securities exchange (provided that the
Fund has informed its stockholders within the preceding six months of its
intention to repurchase such stock) or as otherwise permitted in accordance
with Rule 23c-1 under the 1940 Act. Under that Rule, certain conditions must
be met regarding, among other things, distribution of net income for the
preceding fiscal year, status of the seller, price paid, brokerage
commissions, prior notice to stockholders of an intention to purchase stock
and purchasing in a manner and on a basis that does not discriminate unfairly
against the other stockholders through their interest in the Fund.
When the Fund repurchases its common stock for a price below net asset
value, the net asset value of the common stock that remains outstanding will
be enhanced, but this does not necessarily mean that the market price of the
outstanding common stock will be affected, either positively or negatively.
PORTFOLIO TURNOVER
The portfolio turnover rates of the Fund for the fiscal years ending
December 31, 2002, December 31, 2001 and December 31, 2000 were [__]% and
[__]%, respectively. 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 its stockholders, as
applicable. A higher rate of portfolio turnover may also result in taxable
gains being passed to stockholders.
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
Under the Fund's Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan (the "Plan"), a stockholder whose shares of the Fund's common
stock is registered in his own name will have all distributions reinvested
automatically by EquiServe, which is agent under the Plan, unless the
stockholder 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 stockholder elects to receive distributions in cash. Investors
who own common stock registered in street name should consult their
broker-dealers for details regarding reinvestment. All distributions to
investors who do not participate in the Plan will be paid by check mailed
directly to the record holder by EquiServe as dividend disbursing agent.
Under the Plan, whenever the market price of the common stock is equal
to or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in the Plan are issued shares of common
stock, 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 stock.
The valuation date is the dividend or distribution payment date or, if that
date is not a New York Stock Exchange trading day, the next preceding trading
day. If the net asset value of the common stock at the time of valuation
exceeds the market price of the common stock, participants will receive shares
from the Fund, valued at market price. If the Fund should declare a dividend
or capital gains distribution payable only in cash, EquiServe will buy the
common stock for such Plan in the open market, on the New York Stock Exchange
or elsewhere, for the participants' accounts, except that EquiServe will
endeavor to terminate purchases in the open market and cause the Fund to issue
shares at net asset value if, following the commencement of such purchases,
the market value of the common stock exceeds net asset value.
Participants in the Plan have the option of making additional cash
payments to EquiServe, monthly, for investment in the shares as applicable.
Such payments may be made in any amount from $250 to $10,000. EquiServe will
use all funds received from participants to purchase shares of the Fund in the
open market on or about the 15th of each month. EquiServe will charge each
stockholder who participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected to be
less than the usual brokerage charge for such transactions. It is suggested
that participants send voluntary cash payments to EquiServe in a manner that
ensures that EquiServe will receive these payments approximately 10 days
before the 15th of the month. A participant may without charge withdraw a
voluntary cash payment by written notice, if the notice is received by
EquiServe at least 48 hours before such payment is to be invested.
EquiServe maintains all stockholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including
information needed by stockhold ers for personal and tax records. Shares in
the account of each Plan participant will be held by EquiServe in
noncertificated form in the name of the participant. A Plan participant may
send its share certificates to EquiServe so that the shares represented by
such certificates will be held by EquiServe in the participant's stockholder
account under the Plan.
In the case of stockholders such as banks, brokers or nominees, which
hold shares for others who are the beneficial owners, EquiServe will
administer the Plan on the basis of the number of shares certified from time
to time by the stockholder as representing the total amount registered in the
stockholder's name and held for the account of beneficial owners who
participate in the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate its Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of such
Plan at least 90 days before the record date for such dividend or
distribution. The Plan also may be amended or terminated by EquiServe on at
least 90 days written notice to the participants in such Plan. All
correspondence concerning the Plan should be directed to EquiServe at P.O. Box
43025, Providence, RI 02940-3025.
TAXATION
The following discussion is a brief summary of certain United States
federal income tax considerations affecting the Fund and its stockholders. No
attempt is made to present a detailed explanation of all federal, state, local
and foreign tax concerns, 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 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 has qualified as and intends to continue to qualify as a
regulated invest ment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If it so qualifies, the Fund
will not be subject to U.S. federal income tax on the portion of its net
investment income (i.e., its investment company taxable income as defined in
the Code without regard to the deduction for dividends paid) and on its net
capital gain (i.e., the excess of its net realized long-term capital gain over
its net realized short-term capital loss), if any, which it distributes to its
stockholders in each taxable year, provided that an amount equal to at least
90% of the sum of its net investment income and any net tax-exempt income for
the taxable year is distributed to its stockholders.
Qualification as a RIC requires, among other things, that the Fund: (i)
derive at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies and
(ii) diversify its holdings so that, at the end of each quarter of each
taxable year, subject to certain exceptions, (a) at least 50% of the market
value of the Fund's assets is represented by cash, cash items, U.S. government
securities, 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 assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its
assets is invested in the securities (other than U.S. government securities or
the securities of other RICs) of any one issuer or any two or more issuers
that the Fund controls and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses.
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
stockholders 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 preferred stockholders and common
stockholders 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 gains (the excess of aggregate gains,
including items of income, over aggregate losses that would have been realized
if the Fund had been liquidated) or, alternatively, to elect to be subject to
taxation on such built-in gains recognized for a period of ten years, in order
to qualify as a RIC in a subsequent year.
The IRS has taken the position that if a regulated investment company
has two classes of stock, it may designate distributions made to each class in
any year as consisting of no more than such class's proportionate share of
particular types of income, such as long- term capital gain. A class's
proportionate share of a particular type of income is determined according to
the percentage of total dividends paid by the regulated investment company
during such year that was paid to such class. Consequently, the Fund will
designate distributions made to the common stockholders and preferred
stockholders as consisting of particular types of income in accordance with
the classes' proportionate shares of such income. Because of this rule, the
Fund is required to allocate a portion of its net capital gain, ordinary
investment income and dividends qualifying for the dividends received
deduction to common stockholders and preferred stockholders. The amount of net
capital gain and ordinary investment income and dividends qualifying for the
dividends received deduction allocable among common stockholders and the
preferred stockholders will depend upon the amount of such net capital gain
and ordinary investment income and dividends qualifying for the dividends
received deduction realized by the Fund and the total dividends paid by the
Fund on shares of common stock and the preferred stock during a taxable year.
Under the Code, amounts not distributed by a RIC on a timely basis in
accordance with a calendar year distribution requirement are subject to a 4%
excise tax. 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
for the calendar year, (ii) 98% of its capital gain net income (both long-term
and short-term) for the one year period ending on October 31 of such year,
(unless an election is made to use the Fund's fiscal year), and (iii) all
ordinary income and capital gain net income for previous years that were not
previously distributed or subject to tax under Subchapter M. 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 stockholders 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. While the Fund intends to distribute its ordinary
income and capital gain net income in the manner necessary to minimize
imposition of the 4% excise tax, there can be no assurance that sufficient
amounts of the Fund's ordinary income and capital gain net income will be
distributed to avoid entirely the imposition of the tax. In such event, the
Fund will be liable for the tax only on the amount by which it does not meet
the foregoing distribution require ments.
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 bonds and
other similar debt instruments 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 net investment income and
loss.
If the Fund invests in stock of a passive foreign investment company (a
"PFIC"), the Fund may be subject to federal income tax on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock even if such income is distributed as a taxable dividend by the Fund to
its stockholders. The tax would be determined by allocating such distribution
or gain ratably to each day of the Fund's holding period for the stock. The
amount so allocated to any taxable year of the Fund prior to the taxable year
in which the excess distribution or disposition occurs would be taxed to the
Fund at the highest marginal federal corporate income tax rate in effect for
the year to which it was allocated, and the tax would be further increased by
an interest charge. The amount allocated to the taxable year of the
distribution or disposition would be included in the Fund's net investment
income and, accordingly, would not be taxable to the Fund to the extent
distributed by the Fund as a taxable dividend to stockholders.
If the Fund invests in stock of a PFIC, the Fund may be able to elect to
treat the PFIC as a "qualified electing fund," in lieu of being taxable in the
manner described in the above paragraph, and to include annually in income its
pro rata share of the ordinary earnings and net capital gain (whether or not
distributed) of the PFIC. In order to make this election, the Fund would be
required to obtain annual information from the PFICs in which it invests,
which may be difficult to obtain. Alternatively, the Fund may elect to
mark-to- market at the end of each taxable year all shares that it hold in
PFICs. If it makes this election, the Fund would recognize as ordinary income
any increase in the value of such shares over their adjusted basis and as
ordinary loss any decrease in such value to the extent it does not exceed
prior increases.
The Fund may invest in debt obligations purchased at a discount with the
result that the Fund may be required to accrue income for 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 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 other securities to be able
to make distributions to its stockholders.
If the Fund does not meet the asset coverage requirements of the 1940
Act and the Articles Supplementary, the Fund will be required to suspend
distributions to the holders of the common stock until the asset coverage is
restored. Such a suspension of distributions 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 income and capital gain net income to avoid
completely imposition of the excise tax. Upon any failure to meet the asset
coverage requirements of the 1940 Act or the Articles Supplementary, the Fund
may, and in certain circumstances will, be required to partially redeem the
shares of Preferred Stock in order to restore the requisite asset coverage and
avoid the adverse consequences to the Fund and its stockhold ers of failing to
qualify as a RIC. If asset coverage were restored, the Fund would again be
able to pay dividends and would generally be able to avoid Fund-level federal
income taxation on the income that it distributes.
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 gains or losses
("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 gains or
losses are treated as though they were 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 federal income tax purposes. The straddle rules may affect the character
of gains (or losses) realized by the Fund. In addition, losses 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 losses are 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 gains or losses 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 stockholders, and which will be taxed to stockholders 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. It is anticipated that the Fund
will not invest more than 25% of its total assets in foreign securities.
Accordingly, the Fund will not be eligible to elect to "pass-through" to
stockholders of the Fund the ability to use the foreign tax deduction or
foreign tax credit for foreign taxes paid with respect to qualifying taxes. In
order to make such an election, at least 50% of the Fund's total assets would
be required to be invested in foreign securities.
Taxation of Stockholders
The Fund will determine either to distribute or to retain for
reinvestment all or part of its net capital gain. If any such gains are
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 gains in a notice to its stockholders, each of whom (i) will be
required to include in income for tax purposes as long-term capital gains its
share of such undistrib uted 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 gains included in
such stockholder's gross income.
Distributions of ordinary income are taxable to a U.S. stockholder as
ordinary income, whether paid in cash or shares. Ordinary income dividends
paid by the Fund may qualify for the dividends received deduction available to
corporations, but only to the extent that the Fund's income consists of
qualified dividends received from U.S. corporations. The Fund expects to
distribute a relatively small amount of income that would be eligible for the
dividends received deduction. The amount of any dividend distribution eligible
for the dividends received deduction will be designated by the Fund in a
written notice to stock holders within 60 days of the close of the taxable
year. Distributions of net capital gain designated as capital gain dividends,
if any, are taxable to shareholders at rates applicable to long-term capital
gains, whether paid in cash or in shares, regardless of how long the
stockholder has held the Fund's shares, and are not eligible fo the dividends
received deduction. 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, net investment income will currently be taxed at a maximum rate of
38.6% while net capital gain generally will be taxed at a maximum rate of 20%.
For corporate taxpayers, both net investment income and net capital gain are
taxed at a maxi mum rate of 35%.
Stockholders may be entitled to offset their capital gain dividends with
capital losses. There are a number of statutory provisions affecting when
capital loses may be offset against capital gains, and limiting the use of
losses from certain investments and activities. Accordingly, stockholders with
capital losses are urged to consult their tax advisers.
Stockholders receiving distributions in the form of newly issued shares
will have a basis in such shares of the Fund equal to the fair market value of
such shares on the distribution date. If the net asset value of shares is
reduced below a stockholder's cost as a result of a distribution by the Fund,
such distribution will be taxable even though it repre sents a return of
invested capital. 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 or exchange of shares, a stockholder 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 stockholder on the sale of Fund shares held by
the stock holder for six months or less will be treated for tax purposes as a
long-term capital loss to the extent of any capital gain dividends received by
the stockholder (or amounts credited to the stockholder as an undistributed
capital gain) with respect to such shares.
Ordinary income dividends and capital gain dividends also may be subject
to state and local taxes. Stockholders are urged to consult their own tax
advisers regarding specific questions about the U.S. 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 dividends (but not capital gain dividends) paid to
stockholders who are non-resident aliens or foreign entities will be subject
to a 30% United States 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. Non-resident stockholders are urged to consult their own tax advisers
concerning the applicability of the United States withholding tax.
The Bush Administration has announced a proposal to reduce or eliminate
the tax on dividends; however, many of the details of the proposal (including
how the proposal would apply to dividends paid by a regulated investment
company) have not been specified. Moreover, the prospects for this proposal
are unclear. Accordingly, it is not possible to evaluate how this proposal
might affect the tax discussion above.
Backup Withholding
The Fund may be required to withhold federal income tax on all taxable
distribu tions and redemption proceeds payable to non-corporate stockholders
who fail to provide the Fund with their correct taxpayer identification number
or to make required certifica tions, 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
stockholder's federal income tax liability, if any, provided that the required
information is furnished to the Internal Revenue Service.
The foregoing is a general and abbreviated summary of the applicable
provi sions 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 Series B Preferred or Series C Auction Rate Preferred should
consult their own tax advisers regarding the purchase, ownership and
disposition of Series B Preferred or Series C Auction Rate Preferred.
ADDITIONAL INFORMATION CONCERNING AUCTIONS
FOR SERIES C AUCTION RATE PREFERRED
General
The Articles Supplementary provide that the Applicable Rate for each
Dividend Period of the Series C Auction Rate Preferred will be equal to the
rate per annum that the Auction Agent advises has resulted on the Business Day
preceding the first day of a Dividend Period (an "Auction Date") from
implementation of the Auction Procedures set forth in the Articles
Supplementary, and summarized below, in which persons determine to hold or
offer to sell or, based on dividend rates bid by them, offer to purchase or
sell shares of such Series. Each periodic implementation of the Auction
Procedures is referred to herein as an "Auction." The following summary is
qualified by reference to the Auction Procedures set forth in the Articles
Supplementary.
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
The Bank of New York), which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for Series C Auction Rate Preferred so long as the Applicable
Rate is to be based on the results of the Auction.
Broker-Dealer Agreements. Each Auction requires the participation of one
or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker- Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those
Broker-Dealers in Auctions for Series C Auction Rate Preferred. See
"Broker-Dealers" below.
Securities Depository. DTC will act as the Securities Depository for the
Agent Members with respect to the Series C Auction Rate Preferred. One
certificate for all of the Series C Auction Rate Preferred shares will be
registered in the name of Cede & Co., as nominee of the Securities Depository.
Such certificate will bear a legend to the effect that such certificate
is issued subject to the provisions restricting transfers of Series C Auction
Rate Preferred contained in the Articles Supplementary. The Fund will also
issue stop-transfer instructions to the transfer agent for the Series C
Auction Rate Preferred. Prior to the commencement of the right of Holders of
the Preferred Stock to elect a majority of the Fund's directors, as described
under "Description of the Series B Preferred and Series C Auction Rate
Preferredv-- Voting Rights" in the Prospectus, Cede & Co. will be the Holder
of all the Series C Auction Rate Preferred and owners of such shares will not
be entitled to receive certificates representing their ownership interest in
such shares.
DTC, a New York chartered limited purpose trust company, performs
services for its participants (including Agent Members), some of whom (and/or
their representatives) own DTC. DTC maintains lists of its participants and
will maintain the positions (owner ship interests) held by each such Agent
Member in Series C Auction Rate Preferred, whether for its own account or as a
nominee for another person.
Orders by Existing Holders and Potential Holders
On or prior to the Submission Deadline on each Auction Date for the
Series C Auction Rate Preferred:
(i)each Beneficial Owner of Series C Auction Rate Preferred may submit
to its Broker-Dealer by telephone or otherwise a:
(a) "Hold Order" - indicating the number of Outstanding Series C
Auction Rate Preferred shares, if any, that such Beneficial Owner
desires to continue to hold without regard to the Applicable Rate
for such shares for the next succeeding Dividend Period of such
shares;
(b) "Bid" - indicating the number of Outstanding Series C Auction
Rate Preferred shares, if any, that such Beneficial Owner offers
to sell if the Applicable Rate for such Series C Auction Rate
Preferred for the next succeeding Dividend Period is less than
the rate per annum specified by such Beneficial Owner in such
Bid; and/or
(c) "Sell Order" - indicating the number of Outstanding Series C
Auction Rate Preferred shares, if any, that such Beneficial Owner
offers to sell without regard to the Applicable Rate for such
Series C Auction Rate Preferred for the next succeeding Dividend
Period; and
(ii)Broker-Dealers will contact customers who are Potential Beneficial
Owners by telephone or otherwise to determine whether such customers
desire to submit Bids, in which case they will indicate the number of
Series C Auction Rate Preferred shares that they offer to purchase if
the Applicable Rate for Series C Auction Rate Preferred for the next
succeeding Dividend Period is not less than the rate per annum
specified in such Bids.
The communication to a Broker-Dealer of the foregoing information is
herein referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order with its Broker-Dealer
is herein referred to as a "Bidder" and collectively as "Bidders." The
submission by a Broker-Dealer of an Order to the Auction Agent is referred to
herein as an "Order" and collectively as "Orders," and an Existing Holder or
Potential Holder who places an Order with the Auction Agent or on whose behalf
an Order is placed with the Auction Agent is referred to herein as a "Bidder"
and collectively as "Bidders."
A Bid placed by a Beneficial Owner specifying a rate higher than the
Applicable Rate determined in the Auction will constitute an irrevocable offer
to sell the shares subject thereto. A Beneficial Owner that submits a Bid to
its Broker-Dealer having a rate higher than the Maximum Rate on the Auction
Date thereof will be treated as having submitted a Sell Order to its
Broker-Dealer. A Sell Order will constitute an irrevocable offer to sell
Series C Auction Rate Preferred subject thereto at a price per share equal to
$25,000.
A Beneficial Owner that fails to submit to its Broker-Dealer prior to
the Submission Deadline for the Series C Auction Rate Preferred an Order or
Orders covering all the Outstanding Series C Auction Rate Preferred held by
such Beneficial Owner will be deemed to have submitted a Hold Order to its
Broker-Dealer covering the number of Outstanding Series C Auction Rate
Preferred shares held by such Beneficial Owner and not subject to Orders
submitted to its Broker-Dealer; provided, however, that if a Beneficial Owner
fails to submit to its Broker-Dealer prior to the Submission Deadline for the
Series C Auction Rate Preferred an Order or Orders covering all of the
Outstanding Series C Auction Rate Preferred held by such Beneficial Owner for
an Auction relating to a Special Dividend Period consisting of more than 28
Dividend Period days, such Beneficial Owner will be deemed to have submitted a
Sell Order to its Broker-Dealer covering the number of Outstanding Series C
Auction Rate Preferred shares held by such Beneficial Owner and not subject to
Orders submitted to its Broker-Dealer.
A Potential Beneficial Owner of Series C Auction Rate Preferred may
submit to its Broker-Dealer Bids in which it offers to purchase Series C
Auction Rate Preferred if the Applicable Rate for the next Dividend Period is
not less than the rate specified in such Bid. A Bid placed by a Potential
Beneficial Owner specifying a rate not higher than the Maxi mum Rate will
constitute an irrevocable offer to purchase the number of Series C Auction
Rate Preferred shares specified in such Bid if the rate determined in the
Auction is equal to or greater than the rate specified in such Bid. A
Beneficial Owner of Series C Auction Rate Preferred that offers to become the
Beneficial Owner of additional Series C Auction Rate Preferred is, for
purposes of such offer, a Potential Beneficial Owner.
As described more fully below under "-- Submission of Orders by
Broker-Dealers to Auction Agent," the Broker-Dealers will submit the Orders of
their respective customers who are Beneficial Owners and Potential Beneficial
Owners to the Auction Agent, designat ing themselves (unless otherwise
permitted by the Fund) as Existing Holders in respect of Series C Auction Rate
Preferred subject to Orders submitted or deemed submitted to them by
Beneficial Owners and as Potential Holders in respect of Series C Auction Rate
Preferred subject to Orders submitted to them by Potential Beneficial Owners.
However, neither the Fund nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. Any Order placed with
the Auction Agent by a Broker-Dealer as or on behalf of an Existing Holder or
a Potential Holder will be treated in the same manner as an Order placed with
a Broker-Dealer by a Beneficial Owner or a Potential Beneficial Owner, as
described above. Similarly, any failure by a Broker-Dealer to submit to the
Auction Agent an Order in respect of any Series C Auction Rate Preferred held
by it or its customers who are Beneficial Owners will be treated in the same
manner as a Beneficial Owner's failure to submit to its Broker-Dealer an Order
in respect of Series C Auction Rate Preferred held by it, as described in the
second preceding paragraph. For information concerning the priority given to
different types of Orders placed by Existing Holders, see "-- Submission of
Orders by Broker-Dealers to Auction Agent" below.
The Fund may not submit an Order in any Auction.
The Auction Procedures include a pro rata allocation of shares for
purchase and sale, which may result in an Existing Holder continuing to hold
or selling, or a Potential Holder purchasing, a number of Series C Auction
Rate Preferred shares that is fewer than the number of Series C Auction Rate
Preferred shares specified in its Order. See "-- Acceptance and Rejection of
Submitted Bids and Submitted Sell Orders and Allocation of Shares" below. To
the extent the allocation procedures have that result, Broker-Dealers that
have designated themselves as Existing Holders or Potential Holders in respect
of customer Orders will be required to make appropriate pro rata allocations
among their respective customers. Each purchase or sale will be made for
settlement on the Business Day next succeeding the Auction Date at a price per
share equal to $25,000. See "-- Notification of Results; Settlement" below.
As described above, any Bid specifying a rate higher than the Maximum
Rate will (i) be treated as a Sell Order if submitted by a Beneficial Owner or
an Existing Holder and (ii) not be accepted if submitted by a Potential
Beneficial Owner or a Potential Holder. Accordingly, the Auction Procedures
establish the Maximum Rate as a maximum rate per annum that can result from an
Auction up to the Maximum Rate. See "Determination of Sufficient Clearing
Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and Rejection of
Submitted Bids and Submitted Sell Orders and Allocation of Shares" below.
Concerning the Auction Agent
The Auction Agent is acting as agent for the Fund in connection with
Auctions. In the absence of willful misconduct or gross negligence on its
part, the Auction Agent will not be liable for any action taken, suffered, or
omitted or for any error of judgment made by it in the performance of its
duties under the Auction Agency Agreement and will not be liable for any error
of judgment made in good faith unless the Auction Agent will have been grossly
negligent in ascertaining the pertinent facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of Series C Auction Rate Preferred, the Auction Agent's
registry of Existing Holders, the results of Auctions and notices from any
Broker-Dealer (or other person, if permitted by the Fund) with respect to
transfers described under "The Auction of Series C Auction Rate Preferred --
Secondary Market Trading and Transfer of Series C Auction Rate Preferred" in
the Prospectus and notices from the Fund. The Auction Agent is not required to
accept any such notice for an Auction unless it is received by the Auction
Agent by 3:00 p.m., New York City time, on the Business Day preceding such
Auction.
The Auction Agent may terminate the Auction Agency Agreement upon
written notice to the Fund on a date no earlier than 30 days after the date of
delivery of such notice. If the Auction Agent should resign, the Fund will use
its best efforts to enter into an agreement with a successor Auction Agent
containing substantially the same terms and conditions as the Auction Agency
Agreement. The Fund may remove the Auction Agent, provided that prior to such
removal, the Fund has entered into such an agreement with a successor Auction
Agent.
Broker-Dealers
The Auction Agent after each Auction for Series C Auction Rate Preferred
will pay to each Broker-Dealer, from funds provided by the Fund, a service
charge equal to, in the case of any auction immediately preceding a dividend
period of less than 365 days the product of (i) a fraction, the numerator of
which is the number of days in such dividend period and the denominator of
which is 365, times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the
aggregate number of Series C Auction Rate Preferred shares placed by such
broker- dealer at such auction or, in the case of any auction immediately
preceding a dividend period of one year or longer, a percentage of the
purchase price of the Series C Auction Rate Preferred placed by the
broker-dealers at the auction agreed to by the Fund and the broker- dealers.
For the purposes of the preceding sentence, Series C Auction Rate Preferred
will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
Orders deemed to have been submitted to the Auction Agent by the Broker-Dealer
and were acquired by such Broker-Dealer for its customers who are Beneficial
Owners or (ii) the subject of an Order submitted by such Broker-Dealer that is
(a) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction, (b) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (c) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer (other than an
affiliate of the Fund) may submit Orders in Auctions for its own account,
unless the Fund notifies all Broker-Dealers that they may no longer do so, in
which case Broker-Dealers may continue to submit Hold Orders and Sell Orders
for their own accounts. Any Broker-Dealer that is an affiliate of the Fund may
submit Orders in Auctions, but only if such Orders are not for its own
account. If a Broker-Dealer submits an Order for its own account in any
Auction, it might have an advantage over other Bidders because it would have
knowledge of all Orders submitted by it in that Auction. Such Broker-Dealer,
however, would not have knowledge of Orders submitted by other Broker-Dealers
in that Auction.
Submission of Orders by Broker-Dealers to Auction Agent
Prior to 1:00 p.m., New York City time, on each Auction Date, or such
other time on the Auction Date specified by the Auction Agent (i.e., the
Submission Deadline), each Broker-Dealer will submit to the Auction Agent in
writing all Orders obtained by it for the Auction to be conducted on such
Auction Date, designating itself (unless otherwise permitted by the Fund) as
the Existing Holder or Potential Holder, as the case may be, in respect of
Series C Auction Rate Preferred subject to such Orders. Any Order submitted by
a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by
a Broker- Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date, will be irrevocable.
If any rate specified in any Bid contains more than three figures to the
right of the decimal point, the Auction Agent will round such rate to the next
highest one-thousandth (0.001) of 1%.
If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate more than the number of Outstanding Series C
Auction Rate Preferred shares subject to an Auction held by such Existing
Holder, such Orders will be considered valid in the following order of
priority:
(i)all Hold Orders for Series C Auction Rate Preferred will be
considered valid, but only up to and including in the aggregate the
number of Outstanding shares of Series C Auction Rate Preferred held
by such Existing Holder, and, if the number of Series C Auction Rate
Preferred shares subject to such Hold Orders exceeds the number of
shares of Outstanding Series C Auction Rate Preferred held by such
Existing Holder, the number of shares subject to each such Hold Order
will be reduced pro rata to cover the number of Outstanding shares
held by such Existing Holder;
(ii)(a) any Bid for Series C Auction Rate Preferred will be considered
valid up to and including the excess of the number of Outstanding
shares of Series C Auction Rate Preferred held by such Existing
Holder over the number of Series C Auction Rate Preferred shares
subject to any Hold Orders referred to in clause (i) above;
(b) subject to subclause (a), if more than one Bid of an Existing
Holder for Series C Auction Rate Preferred is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of Series C Auction Rate Preferred subject to such Bids is
greater than such excess, such Bids will be considered valid up
to and including the amount of such excess, and the number of
shares of Series C Auction Rate Preferred subject to each Bid
with the same rate will be reduced pro rata to cover the number
of shares of Series C Auction Rate Preferred equal to such
excess;
(c) subject to subclauses (a) and (b), if more than one Bid of an
Existing Holder for Series C Auction Rate Preferred is submitted
to the Auction Agent with different rates, such Bids will be
considered valid in the ascending order of their respective rates
up to and including the amount of such excess; and
(d) in any such event, the number, if any, of such Outstanding shares
of Series C Auction Rate Preferred subject to any portion of Bids
consid ered not valid in whole or in part under this clause (ii)
will be treated as the subject of a Bid for Series C Auction Rate
Preferred by or on behalf of a Potential Holder at the rate
specified therein; and
(iii) all Sell Orders for Series C Auction Rate Preferred will be
considered valid up to and including the excess of the number of
Outstanding shares of Series C Auction Rate Preferred held by such
Existing Holder over the sum of shares subject to valid Hold Orders
referred to in clause (i) above and valid Bids referred to in clause
(ii) above.
If more than one Bid of a Potential Holder for Series C Auction Rate Preferred
is submitted to the Auction Agent by or on behalf of any Potential Holder,
each such Bid submitted will be a separate Bid with the rate and number of
Series C Auction Rate Preferred shares specified therein.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate
Not earlier than the Submission Deadline on each Auction Date for Series
C Auction Rate Preferred, the Auction Agent will assemble all valid Orders
submitted or deemed submitted to it by the Broker-Dealers (each such Hold
Order, Bid or Sell Order as submitted or deemed submitted by a Broker-Dealer
being herein referred to as a "Submitted Hold Order," a "Submitted Bid" or a
"Submitted Sell Order," as the case may be, or as a "Submitted Order" and
collectively as "Submitted Hold Orders," "Submitted Bids" or "Submitted Sell
Orders," as the case may be, or as "Submitted Orders") and will determine the
excess of the number of Outstanding shares of Series C Auction Rate Preferred
over the number of Outstanding shares of Series C Auction Rate Preferred
subject to Submitted Hold Orders (such excess being herein referred to as the
"Available Series C Auction Rate Preferred") and whether Sufficient Clearing
Bids have been made in the Auction. "Suffi cient Clearing Bids" will have been
made if the number of Outstanding shares of Series C Auction Rate Preferred
that are the subject of Submitted Bids of Potential Holders specify ing rates
not higher than the Maximum Rate equals or exceeds the number of Outstanding
shares of Series C Auction Rate Preferred that are the subject of Submitted
Sell Orders (including the number of Series C Auction Rate Preferred shares
subject to Bids of Existing Holders specifying rates higher than the Maximum
Rate).
If Sufficient Clearing Bids for Series C Auction Rate Preferred have
been made, the Auction Agent will determine the lowest rate specified in such
Submitted Bids (the Winning Bid Rate for shares of such Series) which, taking
into account the rates in the Submitted Bids of Existing Holders, would result
in Existing Holders continuing to hold an aggregate number of Outstanding
Series C Auction Rate Preferred shares which, when added to the number of
Outstanding Series C Auction Rate Preferred shares to be purchased by
Potential Holders, based on the rates in their Submitted Bids, would equal not
less than the Available Series C Auction Rate Preferred. In such event, the
Winning Bid Rate will be the Applica ble Rate for the next Dividend Period for
all shares of such Series.
If Sufficient Clearing Bids have not been made (other than because all
of the Outstanding Series C Auction Rate Preferred is subject to Submitted
Hold Orders), the Applicable Rate for the next Dividend Period for all Series
C Auction Rate Preferred will be equal to the Maximum Rate. In such a case,
Beneficial Owners that have submitted or that are deemed to have submitted
Sell Orders may not be able to sell in the Auction all Series C Auction Rate
Preferred subject to such Sell Orders but will continue to own Series C
Auction Rate Preferred for the next Dividend Period. See " - Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of
Shares" below.
If all of the Outstanding Series C Auction Rate Preferred is subject to
Submitted Hold Orders, the Applicable Rate for all Series C Auction Rate
Preferred for the next succeeding Dividend Period will be the All Hold Rate.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Alloca
tion of Shares
Based on the determinations made under " - Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" above and, subject to the
discretion of the Auction Agent to round and allocate certain shares as
described below, Submitted Bids and Submitted Sell Orders will be accepted or
rejected in the order of priority set forth in the Auction Procedures, with
the result that Existing Holders and Potential Holders of Series C Auction
Rate Preferred will sell, continue to hold and/or purchase such shares as set
forth below. Existing Holders that submitted or were deemed to have submitted
Hold Orders (or on whose behalf Hold Orders were submitted or deemed to have
been submitted) will continue to hold the Series C Auction Rate Preferred
subject to such Hold Orders.
If Sufficient Clearing Bids for Series C Auction Rate Preferred shares
have been made:
(i) Each Existing Holder that placed or on whose behalf was placed a
Submitted Sell Order or Submitted Bid specifying any rate higher
than the Winning Bid Rate will sell the Outstanding Series C
Auction Rate Preferred subject to such Submitted Sell Order or
Submitted Bid;
(ii) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate lower than the Winning Bid Rate
will continue to hold the Outstanding Series C Auction Rate
Preferred subject to such Submitted Bid;
(iii) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate lower than the Winning Bid Rate
will purchase the number of Outstanding Series C Auction Rate
Preferred shares subject to such Submitted Bid;
(iv) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to the Winning Bid Rate will
continue to hold Series C Auction Rate Preferred subject to such
Submitted Bid, unless the number of Outstanding Series C Auction
Rate Preferred shares subject to all such Submitted Bids is
greater than the number of Series C Auction Rate Preferred shares
("remaining shares") in excess of the Available Series C Auction
Rate Preferred over the number of Series C Auction Rate Preferred
shares accounted for in clauses (ii) and (iii) above, in which
event each Existing Holder with such a Submitted Bid will continue
to hold Series C Auction Rate Preferred subject to such Submitted
Bid determined on a pro rata basis based on the number of
Outstanding Series C Auction Rate Pre ferred shares subject to all
such Submitted Bids of such Existing Holders; and
(v) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to the Winning Bid Rate for
Series C Auction Rate Preferred will purchase any Available Series
C Auction Rate Preferred not accounted for in clauses (ii) through
(iv) above on a pro rata basis based on the Outstanding Series C
Auction Rate Preferred shares subject to all such Submitted Bids.
If Sufficient Clearing Bids for Series C Auction Rate Preferred shares
have not been made (unless this results because all Outstanding Series C
Auction Rate Preferred shares are subject to Submitted Hold Orders):
(i) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to or lower than the Maximum
Rate will continue to hold the Series C Auction Rate Preferred
subject to such Submitted Bid;
(ii) Each Potential Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate equal to or lower than the Maximum
Rate will purchase the number of Series C Auction Rate Preferred
shares subject to such Submit ted Bid; and
(iii) Each Existing Holder that placed or on whose behalf was placed a
Submitted Bid specifying a rate higher than the Maximum Rate or a
Submitted Sell Order will sell a number of Series C Auction Rate
Preferred shares subject to such Submitted Bid or Submitted Sell
Order determined on a pro rata basis based on the number of
Outstanding Series C Auction Rate Preferred shares subject to all
such Submitted Bids and Submitted Sell Orders.
If, as a result of the pro rata allocation described in clauses (iv) or
(v) of the second preceding paragraph or clause (iii) of the next preceding
paragraph, any Existing Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase, a fraction of a
Series C Auction Rate Preferred share, the Auction Agent will, in such manner
as, in its sole discretion, it determines, round up or down to the nearest
whole share the number of Series C Auction Rate Preferred shares being sold or
purchased on such Auction Date so that the number of Series C Auction Rate
Preferred shares sold or pur chased by each Existing Holder or Potential
Holder will be whole shares of such Series. If as a result of the pro rata
allocation described in clause (v) of the second preceding para graph, any
Potential Holder would be entitled or required to purchase less than a whole
Series C Auction Rate Preferred share, the Auction Agent will, in such manner
as, in its sole discretion, it will determine, allocate Series C Auction Rate
Preferred for purchase among Potential Holders so that only whole Series C
Auction Rate Preferred shares are purchased by any such Potential Holder, even
if such allocation results in one or more of such Potential Holders not
purchasing shares of such Series.
Notification of Results; Settlement
The Auction Agent will be required to advise each Broker-Dealer that
submitted an Order of the Applicable Rate for the next Dividend Period and, if
the Order was a Bid or Sell Order, whether such Bid or Sell Order was accepted
or rejected, in whole or in part, by telephone by approximately 3:00 p.m., New
York City time, on each Auction Date. Each Broker-Dealer that submitted an
Order for the account of a customer will then be required to advise such
customer of the Applicable Rate for the next Dividend Period and, if such
Order was a Bid or a Sell Order, whether such Bid or Sell Order was accepted
or rejected, in whole or in part, will be required to confirm purchases and
sales with each customer purchasing or selling Series C Auction Rate Preferred
as a result of the Auction and will be required to advise each customer
purchasing or selling Series C Auction Rate Preferred as a result of the
Auction to give instructions to its Agent Member of the Securities Depository
to pay the purchase price against delivery of such shares or to deliver such
shares against payment therefor, as appropriate. The Auction Agent will be
required to record each transfer of Series C Auction Rate Preferred shares on
the registry of Existing Holders to be maintained by the Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
Business Day after the Auction Date, the transactions described above will be
executed through the Securities Depository and the accounts of the respective
Agent Members at the Securities Depository will be debited and credited and
shares delivered as necessary to effect the purchases and sales of Series C
Auction Rate Preferred as determined in the Auction. Purchasers will make
payment through their Agent Members in same-day funds to the Securities
Depository against delivery through their Agent Members; the Securities
Depository will make payment in accordance with its normal procedures, which
now provide for payment against delivery by their Agent Members in same-day
funds.
If any Existing Holder selling Series C Auction Rate Preferred in an
Auction fails to deliver such shares, the Broker-Dealer of any person that was
to have purchased such shares in such Auction may deliver to such person a
number of whole Series C Auction Rate Preferred shares that is less than the
number of Series C Auction Rate Preferred shares that otherwise was to be
purchased by such person. In such event, the number of Series C Auction Rate
Preferred shares to be so delivered will be determined by the Broker-Dealer.
Delivery of such lesser number of Series C Auction Rate Preferred shares will
constitute good delivery.
ADDITIONAL INFORMATION CONCERNING
THE SERIES B PREFERRED AND SERIES C AUCTION RATE PREFERRED
The additional information concerning the Series B Preferred and Series
C Auction Rate Preferred contained in this SAI does not purport to be complete
a complete description of those Series and should be read in conjunction with
the description of the Series B Preferred and Series C Auction Rate Preferred
contained in the Prospectus under "Descrip tion of the Series B Preferred and
Series C Auction Rate Preferred." This description is subject to and qualified
in its entirety by reference to the Fund's Charter, including the provisions
of the Articles Supplementary establishing, respectively, the Series B
Preferred and the Series C Auction Rate Preferred. Copies of these Articles
Supplementary are filed as exhibits to the registration statement of which the
Prospectus and this SAI are a part and may be inspected, and a copy thereof
may be obtained, as described under "Additional Information" in the
Prospectus.
Dividends and Dividend Periods For the Series C Auction Rate Preferred
Holders of Series C Auction Rate Preferred will be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available therefor, cumulative cash dividends on their shares, at the
Applicable Rate determined as described under " - Determination of Dividend
Rate," payable as and when set forth below. Dividends so declared and payable
will be paid to the extent permitted under the Code, and to the extent
available and in preference to and priority over any dividend declared and
payable on shares of the Fund's Common Stock.
By 12:00 noon, New York City time, on the Business Day immediately
preceding each Dividend Payment Date, the Fund is required to deposit with the
Paying Agent sufficient same-day funds for the payment of declared dividends.
The Fund does not intend to establish any reserves for the payment of
dividends.
Each dividend will be paid by the Paying Agent to the Holder, which
Holder is expected to be the nominee of the Securities Depository. The
Securities Depository will credit the accounts of the Agent Members of the
beneficial owners in accordance with the Securities Depository's normal
procedures. The Securities Depository's current procedures provide for it to
distribute dividends in same-day funds to Agent Members who are in turn
expected to distribute such dividends to the persons for whom they are acting
as agents. The Agent Member of a beneficial owner will be responsible for
holding or disbursing such payments on the applicable Dividend Payment Date to
such beneficial owner in accordance with the instructions of such beneficial
owner.
Holders of Series C Auction Rate Preferred will not be entitled to any
dividends, whether payable in cash, property or shares, in excess of full
cumulative dividends. No interest will be payable in respect of any dividend
payment or payments that may be in arrears. See " - Default Period."
The amount of dividends per Outstanding Series C Auction Rate Preferred
share payable (if declared) on each Dividend Payment Date of each Dividend
Period of less than one year (or in respect of dividends on another date in
connection with a redemption during such Dividend Period) will be computed by
multiplying the Applicable Rate (or the Default Rate) for such Dividend Period
(or a portion thereof) by a fraction, the numerator of which will be the
number of days in such Dividend Period (or portion thereof) such share was
Outstanding and for which the Applicable Rate or the Default Rate was
applicable (but in no event will the numerator exceed 360) and the denominator
of which will be 360, multiplying the amount so obtained by the $25,000, and
rounding the amount so obtained to the nearest cent. During any Dividend
Period of one year or more, the amount of dividends per Series C Auction Rate
Preferred share payable on any Dividend Payment Date (or in respect of
dividends on another date in connection with a redemption during such Dividend
Period) will be computed as described in the preceding sentence except that
the numerator, with respect to any full twelve month period, will be 360.
Determination of Dividend Rate. The dividend rate for the initial
Dividend Period (i.e., the period from and including the Date of Original
Issue to and including the initial Auction Date) and the initial Auction Date
for the Series C Auction Rate Preferred is set forth in the Prospectus. See
"The Auction of Series C Auction Rate Preferred -- Summary of Auction
Procedures" in the Prospectus. For each subsequent Dividend Period, subject to
certain exceptions, the dividend rate will be the Applicable Rate that the
Auction Agent advises the Fund has resulted from an Auction.
Dividend Periods after the initial Dividend Period will either be
Standard Dividend Periods (generally seven days) or, subject to certain
conditions and with notice to Holders, Special Dividend Periods.
A Special Dividend Period will not be effective unless Sufficient
Clearing Bids exist at the Auction in respect of such Special Dividend Period
(that is, in general, the number of shares subject to Bids by Potential
Beneficial Owners is at least equal to the number of shares subject to Sell
Orders by Existing Holders). If Sufficient Clearing Bids do not exist at any
Auction in respect of a Special Dividend Period, the Dividend Period
commencing on the Business Day succeeding such Auction will be the Standard
Dividend Period, and the Holders of the Series C Auction Rate Preferred will
be required to continue to hold such shares for such Standard Dividend Period.
The designation of a Special Dividend Period is also subject to additional
conditions. See "-- Notification of Dividend Period" below.
Dividends will accumulate at the Applicable Rate from the Date of
Original Issue and will be payable on each Dividend Payment Date thereafter.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date. The Applicable Rate resulting from an Auction will not be
greater than the Maximum Rate. The Maximum Rate is subject to upward, but not
downward, adjustment in the discretion of the Board of Directors after
consultation with the Broker-Dealers, provided that immediately following any
such increase the Fund would be in compliance with the Series C Auction Rate
Preferred Basic Maintenance Amount.
The Maximum Rate will apply automatically following an Auction for
Series C Auction Rate Preferred in which Sufficient Clearing Bids have not
been made (other than because all Series C Auction Rate Preferred were subject
to Submitted Hold Orders) or following the failure to hold an Auction for any
reason on the Auction Date scheduled to occur (except for (i) circumstances in
which the Dividend Rate is the Default Rate, as described below or (ii) in the
event an auction is not held because an unforeseen event or unforeseen events
cause a day that otherwise would have been an Auction Date not to be a
Business Day, in which case the length of the then current dividend period
will be extended by seven days, or a multiple thereof if necessary because of
such unforeseen event or events, the applicable rate for such period will be
the applicable rate for the then current dividend period so extended and the
dividend payment date for such dividend period will be the first business day
next succeeding the end of such period). The All Hold Rate will apply
automatically following an Auction in which all of the Outstanding Series C
Auction Rate Preferred shares are subject (or are deemed to be subject) to
Hold Orders.
Prior to each Auction, Broker-Dealers will notify Holders of the term of
the next succeeding Dividend Period as soon as practicable after the
Broker-Dealers have been so advised by the Fund. After each Auction, on the
Auction Date, Broker-Dealers will notify Holders of the Applicable Rate for
the next succeeding Dividend Period and of the Auction Date of the next
succeeding Auction.
Notification of Dividend Period. The Fund will designate the duration of
Dividend Periods of the Series C Auction Rate Preferred; provided, however,
that no such designation is necessary for a Standard Dividend Period and that
any designation of a Special Dividend Period will be effective only if (i)
notice thereof has been given as provided herein, (ii) any failure to pay in
the timely manner to the Auction Agent the full amount of any dividend on, or
the redemption price of, the Series C Auction Rate Preferred has been cured as
set forth under " - Default Period," (iii) Sufficient Clearing Orders existed
in an Auction held on the Auction Date immediately preceding the first day of
such proposed Special Dividend Period, (iv) if the Fund mailed a notice of
redemption with respect to any shares, the Redemption Price with respect to
such shares has been deposited with the Paying Agent, and (v) the Fund has
confirmed that, as of the Auction Date next preceding the first day of such
Special Dividend Period, it has Eligible Assets with an aggregate Discounted
Value at least equal to the Series C Auction Rate Preferred Basic Maintenance
Amount and has consulted with the Broker-Dealers and has provided notice and a
Series C Auction Rate Preferred Basic Maintenance Report to each Rating Agency
which is then rating the Series C Auction Rate Preferred and so requires.
If the Fund proposes to designate any Special Dividend Period, not fewer
than seven Business Days (or two Business Days in the event the duration of
the Special Dividend Period is fewer than eight days) nor more than 30
Business Days prior to the first day of such Special Dividend Period, notice
will be made by press release and communicated by the Fund by telephonic or
other means to the Auction Agent and confirmed in writing promptly thereafter.
Each such notice will state (x) that the Fund proposes to exercise its option
to designate a succeeding Special Dividend Period, specifying the first and
last days thereof and (y) that the Fund will, by 3:00 p.m., New York City
time, on the second Business Day next preceding the first day of such Special
Dividend Period, notify the Auction Agent, who will promptly notify the
Broker-Dealers, of either its determination, subject to certain conditions, to
proceed with such Special Dividend Period, in which case the Fund may specify
the terms of any Specific Redemption Provisions, or its determination not to
proceed with such Special Dividend Period, in which case the succeeding
Dividend Period will be a Standard Dividend Period.
No later than 3:00 p.m., New York City time, on the second Business Day
next preceding the first day of any proposed Special Dividend Period, the Fund
will deliver to the Auction Agent, who will promptly deliver to the
Broker-Dealers and Existing Holders, either:
(a) a notice stating (1) that the Fund has determined to designate the
immediately succeeding Dividend Period as a Special Dividend
Period, specifying the first and last days thereof and (2) the
terms of the Specific Redemption Provisions, if any; or
(b) a notice stating that the Fund has determined not to exercise its
option to designate a Special Dividend Period.
If the Fund fails to deliver either such notice with respect to any
designation of any proposed Special Dividend Period to the Auction Agent or is
unable to make the confirma tion described above by 3:00 p.m., New York City
time, on the second Business Day next preceding the first day of such proposed
Special Dividend Period, the Fund will be deemed to have delivered a notice to
the Auction Agent with respect to such Dividend Period to the effect set forth
in clause (b) above, thereby resulting in a Standard Dividend Period.
Default Period. A "Default Period" with respect to Series C Auction Rate
Preferred will commence on any date upon which the Fund fails to deposit
irrevocably in trust in same-day funds with the Paying Agent by 12:00 noon,
New York City time, on the Business Day immediately preceding the relevant
Dividend Payment Date or Redemption Date, as the case may be, (i) the full
amount of any declared dividend on the Series C Auction Rate Preferred payable
on such Dividend Payment Date (a "Dividend Default") or (ii) the full amount
of any redemption price (the "Redemption Price") payable on the Series C
Auction Rate Preferred being redeemed on such Redemption Date (a "Redemption
Default" and, together with a Dividend Default, a "Default").
A Default Period with respect to a Dividend Default or a Redemption
Default will end by 12:00 noon, New York City time, on the Business Day on
which all unpaid dividends and any unpaid Redemption Price will have been
deposited irrevocably in trust in same-day funds with the Paying Agent.
In the case of a Dividend Default, no Auction will be held during a
Default Period applicable to the Series C Auction Rate Preferred, and the
dividend rate for each Dividend Period commencing during a Default Period will
be equal to the Default Rate; provided, however, that if a Default Period is
deemed not to have occurred because the Default has been cured, then the
dividend rate for the period shall be the Applicable Rate set at the auction
for such period.
Each subsequent Dividend Period commencing after the beginning of a
Default Period will be a Standard Dividend Period; provided, however, that the
commencement of a Default Period will not by itself cause the commencement of
a new Dividend Period. No Auction will be held during a Default Period
applicable to such Series; provided, however, that if a Default Period shall
end prior to the end of Standard Dividend Period that had commenced during the
Default Period, an Auction shall be held on the last day of such Standard
Dividend Period.
In the event the Fund fully pays all default amounts due during a
Dividend Period, the dividend rate for the remainder of that Dividend Period
will be, as the case may be, the Applicable Rate (for the first Dividend
Period following a Dividend Default) or the Maximum Rate (for any subsequent
Dividend Period for which such Default is continuing).
No Default Period with respect to a Dividend Default or Redemption
Default will be deemed to commence if the amount of any dividend or any
Redemption Price due (if such Default is not solely due to the willful failure
of the Fund) is deposited irrevocably in trust, in same-day funds with the
Paying Agent by 12:00 noon, New York City time, within three Business Days
after the applicable Dividend Payment Date or Redemption Date, together with
an amount equal to the Default Rate applied to the amount of such non- payment
based on the actual number of days comprising such period divided by 360. The
Default Rate will be equal to the Reference Rate multiplied by three.
Restrictions on Dividends, Redemption and Other Payments
Under the 1940 Act, the Fund may not (i) declare any dividend (except a
dividend payable in stock of the issuer) or other distributions upon any of
its outstanding common stock, or purchase any such common stock, if at the
time of the declaration, distribution or purchase, as applicable (and after
giving effect thereto), asset coverage with respect to the Fund's outstanding
senior securities representing stock, including the Series B Preferred or
Series C Auction Rate Preferred, would be less than 200% (or such higher
percentage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities representing indebtedness of a
closed-end investment company as a condition of declaring distributions,
purchases or redemptions of its capital stock), or (ii) declare any dividend
(except a dividend payable in stock of the issuer) or other distributions upon
any of its outstanding capital stock, including the Series B Preferred or
Series C Auction Rate Preferred, or purchase any such capital stock if, at the
time of such declara tion, distribution or purchase, as applicable (and after
giving effect thereto), asset coverage with respect to the senior securities
representing indebtedness would be less than 300% (or such other percentage as
may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities representing stock of a closed-end investment
company as a condition of declaring dividends on its Preferred Stock), except
that dividends may be declared upon any Preferred Stock, including the Series
B Preferred or Series C Auction Rate Preferred, if, at the time of such
declaration (and after giving effect thereto), asset coverage with respect to
the senior securities representing indebtedness would be equal to or greater
than 200% (or such other percentage as may in the future be specified in or
under the 1940 Act as the minimum asset coverage for senior securities
representing stock of a closed-end investment company as a condition of
declaring dividends on its Preferred Stock). A declaration of a dividend or
other distribution on or purchase or redemption of Series B Preferred or
Series C Auction Rate Preferred is prohibited, unless there is no event of
default under indebtedness senior to the Series B Preferred and/or Series C
Auction Rate Preferred and, immediately after such transaction, the Fund would
have Eligible Assets with an aggregated Discounted Value at least equal to the
asset coverage requirements under indebtedness senior to its Preferred Stock
(including the Series B Preferred and/or Series C Auction Rate Preferred).
For so long as the Series B Preferred or Series C Auction Rate Preferred
is Out standing, except as otherwise provided in the Articles Supplementary,
the Fund will not pay any dividend or other distribution (other than a
dividend or distribution paid in shares of, or options, warrants or rights to
subscribe for or purchase, shares of Common Stock or other stock, if any,
ranking junior to the Series B Preferred and/or Series C Auction Rate Pre
ferred as to dividends or upon liquidation) with respect to shares of Common
Stock or any other stock of the Fund ranking junior to the Series B Preferred
and/or Series C Auction Rate Preferred as to dividends or upon liquidation, or
call for redemption, redeem, purchase or otherwise acquire for consideration
any shares of Common Stock or other stock ranking junior to the Series B
Preferred and/or Series C Auction Rate Preferred (except by conver sion into
or exchange for shares of the Fund ranking junior to the Series B Preferred
and/or Series C Auction Rate Preferred as to dividends and upon liquidation),
unless, in each case, (x) immediately after such transaction, the Fund would
have Eligible Assets with an aggregate Discounted Value at least equal to the
Basic Maintenance Amount applicable to, as the case may be, the Series B
Preferred or Series C Auction Rate Preferred and the 1940 Act Asset Coverage
with respect to the Fund's Outstanding Preferred Stock, including the Series B
Preferred and/or Series C Auction Rate Preferred, would be achieved, (y) all
cumulative and unpaid dividends due on or prior to the date of the transaction
have been declared and paid in full with respect to the Preferred Stock,
including the Series B Pre ferred and/or Series C Auction Rate Preferred (or
will have been declared and sufficient funds for the full payment thereof will
have been deposited with the Paying Agent or the dividend-disbursement agent,
as applicable) and (z) the Fund has redeemed the full number of shares of
Preferred Stock to be redeemed pursuant to any provision for mandatory
redemption contained in the Articles Supplementary, including any Series B
Preferred and/or Series C Auction Rate Preferred required or determined to be
redeemed pursuant to any such provision.
No full dividend will be declared or paid on the Series B Preferred or
Series C Auction Rate Preferred for any Dividend Period or part thereof,
unless full cumulative dividends due through the most recent Dividend Payment
Dates of the Outstanding Pre ferred Stock (including the Series B Preferred
and/or Series C Auction Rate Preferred) have been or contemporaneously are
declared and paid. If full cumulative dividends due have not been paid on all
such shares of Preferred Stock, any dividends being paid on such shares of
Preferred Stock (including the Series B Preferred and/or Series C Auction Rate
Preferred) will be paid as nearly pro rata as possible in proportion to the
respective amounts of dividends accumulated but unpaid on each such series of
Preferred Stock on the relevant Dividend Payment Date.
Asset Maintenance
The Fund is required to satisfy two separate asset maintenance
requirements in respect of its Preferred Stock, including the Series B
Preferred and/or Series C Auction Rate Preferred: (i) the Fund must maintain
assets in its portfolio that have a value, discounted in accordance with the
Rating Agency Guidelines, at least equal to the aggregate liquidation
preference of each of the series of Preferred Stock, including Series B
Preferred and/or Series C Auction Rate Preferred, plus specified liabilities,
payment obligations and other amounts; and (ii) the Fund must maintain asset
coverage for its Outstanding Preferred Stock, including for the Series B
Preferred and/or Series C Auction Rate Preferred, of at least 200%.
Basic Maintenance Amount. The Fund is required to maintain, as of each
Valuation Date, Eligible Assets having in the aggregate a Discounted Value at
least equal to the Basic Maintenance Amount, calculated separately for Moody's
(if Moody's is then rating the Series B Preferred or Series C Auction Rate
Preferred at the request of the Fund) and Fitch (if Fitch is then rating the
Series B Preferred or Series C Auction Rate Preferred at the request of the
Fund). For this purpose, the value of the Fund's portfolio securities will be
the Market Value. If the Fund fails to meet such requirement on any Valuation
Date and such failure is not cured by the related Cure Date, the Fund will be
required under certain circumstances to redeem some or all of the Series B
Preferred or Series C Auction Rate Preferred.
The "Basic Maintenance Amount" means, as of any Valuation Date, the
dollar amount equal to (i) the sum of (a) the product of the number of shares
of each class or series of Preferred Stock Outstanding on such Valuation Date
multiplied by the Liquidation Preference per share; (b) to the extent not
included in (a) the aggregate amount of cash dividends (whether or not earned
or declared) that will have accumulated for each Outstand ing share of
Preferred Stock from the most recent Dividend Payment Date to which dividends
have been paid or duly provided for (or, in the event the Basic Maintenance
Amount is calculated on a date prior to the initial Dividend Payment Date with
respect to a class or series of the Preferred Stock, then from the date of
original issue) through the Valuation Date plus all dividends to accumulate on
the Preferred Stock then Outstanding during the 70 days following such
Valuation Date or, if less, during the number of days following such Valuation
Date that shares of Preferred Stock called for redemption are scheduled to
remain Outstanding; (c) the Fund's other liabilities due and payable as of
such Valuation Date (except that dividends and other distributions payable by
the Fund on Common Stock will not be included as a liability) and such
liabilities projected to become due and payable by the Fund during the 90 days
following such Valuation Date (excluding liabilities for investments to be
purchased and for dividends and other distributions not declared as of such
Valuation Date); and (d) any current liabilities of the Fund as of such
Valuation Date to the extent not reflected in (or specifically excluded by)
any of (i)(a) through (i)(c) (including, without limitation, and immediately
upon determination, any amounts due and payable by the Fund pursuant to
reverse repurchase agreements and any payables for assets purchased as of such
Valuation Date) less (ii) (a) the adjusted value of any of the Fund's assets
or (b) the face value of any of the Fund's assets if, in the case of both
(ii)(a) and (ii)(b), such assets are either cash or evidences of indebtedness
which mature prior to or on the date of redemption or repurchase of shares of
Preferred Stock or payment of another liability and are either U.S. Government
Obligations or evidences of indebtedness which have a rating assigned by
Moody's of at least Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+
or A-1+, and are irrevocably held by the Fund's custodian bank in a segregated
account or deposited by the Fund with the dividend-disburs ing agent or Paying
Agent, as the case may be, for the payment of the amounts needed to redeem or
repurchase Preferred Stock subject to redemption or repurchase or any of
(i)(b) through (i)(d); and provided that in the event the Fund has repurchased
Preferred Stock and irrevocably segregated or deposited assets as described
above with its custodian bank or the dividend-disbursing agent or Paying Agent
for the payment of the repurchase price the Fund may deduct 100% of the
Liquidation Preference of such Preferred Stock to be repurchased from (i)
above.
The Discount Factors, the criteria used to determine whether the assets
held in the Fund's portfolio are Eligible Assets, and guidelines for
determining the market value of the Fund's portfolio holdings for purposes of
determining compliance with the Basic Mainte nance Amount are based on the
criteria established in connection with rating the Series B Preferred or
Series C Auction Rate Preferred, as the case may be. These factors include,
but are not limited to, the sensitivity of the market value of the relevant
asset to changes in interest rates, the liquidity and depth of the market for
the relevant asset, the credit quality of the relevant asset (for example, the
lower the rating of a debt obligation, the higher the related discount factor)
and the frequency with which the relevant asset is marked to market. In no
event will the Discounted Value of any asset of the Fund exceed its unpaid
principal balance or face amount as of the date of calculation.
The Discount Factor relating to any asset of the Fund, the Basic
Maintenance Amount, the assets eligible for inclusion in the calculation of
the Discounted Value of the Fund's portfolio and certain definitions and
methods of calculation relating thereto may be changed from time to time by
the Fund, without stockholder approval, but only in the event that the Fund
receives written confirmation from each Rating Agency which is then rating the
Series B Preferred or Series C Auction Rate Preferred, as the case may be, and
which so requires that any such changes would not impair an applicable Aaa
credit rating from Moody's or AAA rating from Fitch.
A Rating Agency's Guidelines will apply to the Series B Preferred or
Series C Auction Rate Preferred only so long as such Rating Agency is rating
such shares at the request of the Fund. The Fund will pay certain fees to
Moody's and Fitch for rating, as the case may be, the Series B Preferred
and/or Series C Auction Rate Preferred. The ratings assigned to the Series B
Preferred or Series C Auction Rate Preferred are not recommenda tions to buy,
sell or hold Series B Preferred or Series C Auction Rate Preferred. Such
ratings may be subject to revision or withdrawal by the assigning Rating
Agency at any time. Any rating of the Series B Preferred or Series C Auction
Rate Preferred should be evaluated independently of any other rating.
Upon any failure to maintain the required Discounted Value of the Fund's
Eligible Assets, the Fund will seek to alter the composition of its portfolio
to re-attain the Basic Maintenance Amount on or prior to the applicable Cure
Date, thereby incurring additional transaction costs and possible losses
and/or gains on dispositions of portfolio securities.
Under certain circumstances, as described in the Articles Supplementary,
the Board of Directors without further action by the stockholders may modify
the calculation of Adjusted Value (as defined in the Articles Supplementary),
Basic Maintenance Amount and the elements of each of them and the definitions
of such terms and elements if the Board of Directors determines that such
modification is necessary to prevent a reduction in rating of the shares of
Preferred Stock by a rating agency rating such shares at the request of the
Fund or is in the best interests of the holders of common stock and is not
adverse to the holders of Preferred Stock in view of advice to the Fund by the
relevant rating agency that such modification would not adversely affect the
then-current rating of the affected Preferred Shares. In addition, subject to
compliance with applicable law, the Board of Directors may amend the
definition of Maximum Rate to increase the percentage amount by which the
Reference Rate is multiplied to determine the Maximum Rate shown therein
without the vote or consent of the Holders of shares of Preferred Stock,
including the Series C Auction Rate Preferred Shares, or any other stockholder
of the Fund, after consultation with the Broker-Dealers, and with confirmation
from each Rating Agency that immediately follow ing any such increase the Fund
would meet the Series C Auction Rate Preferred Basic Maintenance Amount Test.
1940 Act Series C Auction Rate Preferred Asset Coverage. As of each
Valuation Date, the Fund will determine whether the 1940 Act Asset Coverage is
met as of that date. The Fund will deliver to the Auction Agent and each
Rating Agency a 1940 Act Asset Coverage Certificate which sets forth the
determination of the preceding sentence (i) as of the Date of Original Issue
and, thereafter, (ii) as of (x) the last Business Day of each March, June,
September and December and (y) a Business Day on or before any 1940 Act Asset
Coverage Cure Date following a failure to meet 1940 Act Asset Coverage. Such
1940 Act Asset Coverage Certificate will be delivered in the case of clause
(i) on the Date of Original Issue and in the case of clause (ii) on or before
the seventh Business Day after the last Business Day of such March, June,
September and December, as the case may be, or the relevant Cure Date.
Notices. The Fund must deliver a Basic Maintenance Report to each
applicable Rating Agency and the Auction Agent, if any, which sets forth, as
of the related Valuation Date, Eligible Assets sufficient to meet or exceed
the applicable Basic Maintenance Amount, the Market Value and Discounted Value
thereof (in a series and in the aggregate) and the applicable Basic
Maintenance Amount. Such Basic Maintenance Reports must be delivered as of the
applicable Date of Original Issue and thereafter upon the occurrence of
specified events on or before the seventh Business Day after the relevant
Valuation Date or Cure Date.
Deposit Assets Requirements Relating to the Series C Auction Rate Preferred
The Fund is obligated to deposit in a segregated custodial account a
specified amount of Deposit Assets not later than 12:00 noon, New York City
time, on each Dividend Payment Date and each Redemption Date relating to the
Series C Auction Rate Preferred. These Deposit Assets, in all cases, will have
an initial combined value greater than or equal to the cash amounts payable on
the applicable Dividend Payment Date or Redemption Date, and will mature prior
to such date.
Restrictions on Transfer Relating to the Series C Auction Rate Preferred
Series C Auction Rate Preferred may be transferred only (i) pursuant to
an Order placed in an Auction, (ii) to or through a Broker-Dealer, or (iii) to
the Fund or any Affiliate. Notwithstanding the foregoing, a transfer other
than pursuant to an Auction will not be effective unless the selling Existing
Holder or the Agent Member of such Existing Holder, in the case of an Existing
Holder whose shares are listed in its own name on the books of the Auction
Agent, or the Broker-Dealer or Agent Member of such Broker-Dealer, in the case
of a transfer between persons holding Series C Auction Rate Preferred through
different Broker-Dealers, advises the Auction Agent of such transfer. Any
certificates representing the Series C Auction Rate Preferred shares issued to
the Securities Depository will bear legends with respect to the restrictions
described above and stop-transfer instructions will be issued to the Transfer
Agent and/or Registrar.
MOODY'S AND FITCH GUIDELINES
The descriptions of the Moody's and Fitch Guidelines contained in this
SAI do not purport to be complete and are subject to and qualified in their
entireties by reference to the applicable Articles Supplementary. Copies of
the Articles Supplementary are filed as an exhibit to the registration
statement of which the Prospectus and this SAI are a part and may be
inspected, and copies thereof may be obtained, as described under "Additional
Informa tion" in the Prospectus.
The composition of the Fund's portfolio reflects guidelines (referred to
herein as the "Rating Agency Guidelines") established by Moody's and Fitch,
each a Rating Agency, in connection with the Fund's receipt of a rating of Aaa
from Moody's and AAA from Fitch, respectively, for the Series C Auction Rate
Preferred and a rating of Aaa from Moody's for the Series B Preferred. These
Rating Agency Guidelines relate, among other things, to industry and credit
quality characteristics of issuers and diversification requirements and
specify various Discount Factors for different types of securities (with the
level of discount greater as the rating of a security becomes lower). Under
the Rating Agency Guidelines, certain types of securities in which the Fund
may otherwise invest consistent with its investment strategy are not eligible
for inclusion in the calculation of the Discounted Value of the Fund's
portfolio. Such instruments include, for example, private placements (other
than Rule 144A Securities) and other securities not within the Rating Agency
Guidelines. Accordingly, although the Fund reserves the right to invest in
such securities to the extent set forth herein, such securities have not and
it is anticipated that they will not constitute a significant portion of the
Fund's portfolio.
The Rating Agency Guidelines require that the Fund maintain assets
having an aggregate Discounted Value, determined on the basis of the
Guidelines, greater than the aggregate liquidation preference of the
Outstanding shares of Series B Preferred, Series C Auction Rate Preferred and
other Preferred Stock plus specified liabilities, payment obligations and
other amounts, as of periodic Valuation Dates. The Rating Agency Guidelines
also require the Fund to maintain asset coverage for the Outstanding Shares of
Series B Preferred, Series C Auction Rate Preferred and other Preferred Stock
on a non- discounted basis of at least 200% as of the end of each month, and
the 1940 Act requires this asset coverage as a condition to paying dividends
or other distributions on Common Shares. See "Additional Information
Concerning The Series B Preferred and Series C Auction Rate Preferred - Asset
Maintenance." The effect of compliance with the Rating Agency Guidelines may
be to cause the Fund to invest in higher quality assets and/or to maintain
relatively substantial balances of highly liquid assets or to restrict the
Fund's ability to make certain investments that would otherwise be deemed
potentially desirable by the Investment Adviser, including private placements
of other than Rule 144A Securities (as defined herein). The Rating Agency
Guidelines are subject to change from time to time with the consent of the
relevant Rating Agency and would not apply if the Fund in the future elected
not to use investment leverage consisting of senior securities rated by either
Moody's or Fitch, although other similar arrangements might apply with respect
to other rated senior securities that the Fund may issue.
The Fund intends to maintain, at specified times, a Discounted Value for
its portfolio at least equal to the amount specified by each Rating Agency
(the "Basic Mainte nance Amount"), the determination of which is as set forth
under "Additional Information Concerning The Series B Preferred and Series C
Auction Rate Preferred -- Asset Mainte nance." Moody's and Fitch have each
established separate guidelines for determining Discounted Value. To the
extent any particular portfolio holding does not satisfy the applicable Rating
Agency's Guidelines, all or a portion of such holding's value will not be
included in the calculation of Discounted Value (as defined by such Rating
Agency).
Upon any failure to maintain the required Discounted Value, the Fund may
seek to alter the composition of its portfolio to reestablish required asset
coverage within the specified ten Business Day cure period, thereby incurring
additional transaction costs and possible losses and/or gains on dispositions
of portfolio securities. To the extent any such failure is not cured in a
timely manner, the holders of the Series B Preferred and Series C Auction Rate
Preferred will acquire certain rights. See "Additional Information Concerning
The Series B Preferred and Series C Auction Rate Preferred -- Asset
Maintenance."
The Rating Agency Guidelines do not impose any limitations on the
percentage of Fund assets that may be invested in holdings not eligible for
inclusion in the calculation of the Discounted Value of the Fund's portfolio.
The amount of such assets included in the portfolio at any time may vary
depending upon the rating, diversification and other charac teristics of the
assets included in the portfolio which are eligible for inclusion in the
Discounted Value of the portfolio under the Rating Agency Guidelines.
A rating of preferred stock as Aaa (as described by Moody's) or AAA (as
described by Fitch) indicates strong asset protection, conservative balance
sheet ratios and positive indications of continued protection of preferred
dividend requirements. A Moody's or Fitch credit rating of preferred stock
does not address the likelihood that a resale mechanism (such as the Auction)
will be successful. As described respectively by Moody's and Fitch, an issue
of preferred stock which is rated Aaa or AAA is considered to be top-quality
preferred stock with good asset protection and the least risk of dividend
impairment within the universe of preferred stocks.
Ratings are not recommendations to purchase, hold or sell Series B
Preferred or Series C Auction Rate Preferred, inasmuch as the rating does not
comment as to market price or suitability for a particular investor. The
rating is based on current information furnished to Moody's and Fitch by the
Fund and obtained by Moody's and Fitch from other sources. The rating may be
changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information.
MOODY'S GUIDELINES
Under the Moody's guidelines, the Fund is required to maintain specified
discounted asset values for its portfolio representing the Preferred Basic
Maintenance Amount. To the extent any particular portfolio holding does not
meet the applicable guide lines, it is not included for purposes of
calculating the Discounted Value of the Fund's portfolio, and, among the
requirements, the amount of such assets included in the portfolio at any time,
if any, may vary depending upon the credit quality (and related Discounted
Value) of the Fund's eligible assets at such time.
Upon any failure to maintain the required Discounted Value, the Fund may
seek to alter the composition of its portfolio to reestablish required asset
coverage within the specified ten Business Day cure period, thereby incurring
additional transaction costs and possible losses and/or gains on dispositions
of portfolio securities. To the extent any such failure is not cured in a
timely manner, the holders of the Series B Preferred and/or Series C Auction
Rate Preferred will acquire certain rights. See "Description of the Series B
Preferred -- Asset Maintenance" and "Description of the Series C Auction Rate
Preferred -- Asset Maintenance."
The following Discount Factors apply to portfolio holdings as described
below, subject to diversification, issuer size and other requirements, in
order to constitute Moody's Eligible Assets includable within the calculation
of Discounted Value:
.
Moody's
Type of Moody's Eligible Asset: Discount Factor:
------------------------------ ---------------
ShortTerm Money Market Instruments (other than U.S. Government Obligations
set forth below) and other commercial paper:
U.S. Treasury Securities with final maturities that are less than or equal to 60 days................. 1.00
Demand or time deposits, certificates of deposit and bankers' acceptances includible in Moody's Short 1.00
Term Money Market Instruments......................................................................
Commercial paper rated P-1 by Moody's maturing in 30 days or less..................................... 1.00
Commercial paper rated P-1 by Moody's maturing in more than 30 days but in 270 days or less........... 1.15
Commercial paper rated A-1+ by S&P maturing in 270 days or less....................................... 1.25
Repurchase obligations includible in Moody's Short Term Money Market Instruments if term is less than 1.00
30 days and counterparty is rated at least A2......................................................
Other repurchase obligations.......................................................................... *
U.S. Common Stock and Common Stock of foreign issuers for which ADRs are Traded....................... 3.00
Common Stock of foreign issuers (in existence for at least five years) for which no ADRs are traded... 4.00
Convertible preferred stocks.......................................................................... 3.00
Preferred stocks:
Auction rate preferred stocks......................................................................... 3.50
Other preferred stocks issued by issuers in the financial and industrial industries................... 1.62
Other preferred stocks issued by issuers in the utilities industry.................................... 1.40
U.S. Government Obligations (other than U.S. Treasury Securities set forth above or U.S. Treasury 1.04-1.26
Securities Strips set forth below)
U.S. Treasury Securities Strips 1.04-1.66
Corporate evidences of indebtedness:
Corporate evidences of indebtedness rated Aaa3 1.10-1.33
Corporate evidences of indebtedness rated at least Aa3 1.15-1.39
Corporate evidences of indebtedness rated at least A3 1.20-1.45
Corporate evidences of indebtedness rated at least Baa3 1.25-1.52
Corporate evidences of indebtedness rated at least Ba3 1.36-1.64
Corporate evidences of indebtedness rated at least B1and B2 1.46-1.77
Convertible corporate evidences of indebtedness with senior debt securities rated at least Aa3 issued by
the following type of issuers:
Utility............................................................................................... 1.28
Industrial............................................................................................ 1.75
Financial............................................................................................. 1.53
Transportation........................................................................................ 2.13
Convertible corporate evidences of indebtedness with senior debt securities rated at least A3 issued by
the following type of issuers:
Utility............................................................................................... 1.33
Industrial............................................................................................ 1.80
Financial............................................................................................. 1.58
Transportation........................................................................................ 2.18
Convertible corporate evidences of indebtedness with senior debt securities rated at least Baa3 issued by
the following type of issuers:
Utility............................................................................................... 1.48
Industrial............................................................................................ 1.95
Financial............................................................................................. 1.73
Transportation........................................................................................ 2.33
Convertible corporate evidences of indebtedness with senior debt securities rated at least Ba3 issued by
the following type of issuers:
Utility............................................................................................... 1.49
Industrial............................................................................................ 1.96
Financial............................................................................................. 1.74
Transportation........................................................................................ 2.34
Convertible corporate evidences of indebtedness with senior debt securities rated at least B2 issued by
the following type of issuers:
Utility............................................................................................... 1.59
Industrial............................................................................................ 2.06
Financial............................................................................................. 1.84
Transportation........................................................................................ 2.44
-------------------
* Discount factor applicable to the underlying assets.
"Moody's Eligible Assets" means:
(a) cash (including, for this purpose, receivables for investments
sold to a counterparty whose senior debt securities are rated at least Baa3 by
Moody's or a counterparty approved by Moody's and payable within five Business
Days following such Valuation Date and dividends and interest receivable
within 70 days on invest ments);
(b) Short-Term Money Market Instruments;
(c) commercial paper that is not includible as a Short-Term Money
Market Instrument having on the Valuation Date a rating from Moody's of at
least P- 1 and maturing within 270 days;
(d) preferred stocks (i) which either (A) are issued by issuers
whose senior debt securities are rated at least Baa1 by Moody's or (B) are
rated at least Baa3 by Moody's or (C) in the event an issuer's senior debt
securities or preferred stock is not rated by Moody's, which either (1) are
issued by an issuer whose senior debt securities are rated at least A- by S&P
or (2) are rated at least A- by S&P and for this purpose have been assigned a
Moody's equivalent rating of at least Baa3, (ii) of issuers which have (or, in
the case of issuers which are special purpose corporations, whose parent
companies have) common stock listed on the New York Stock Ex change, the
American Stock Exchange or the Nasdaq National Market System, (iii) which have
a minimum issue size (when taken together with other of the issuer's issues of
similar tenor) of $50,000,000, (iv) which have paid cash dividends consis
tently during the preceding three-year period (or, in the case of new issues
without a dividend history, are rated at least A1 by Moody's or, if not rated
by Moody's, are rated at least AA- by S&P), (v) which pay cumulative cash
dividends in U.S. dollars, (vi) which are not convertible into any other class
of stock and do not have warrants attached, (vii) which are not issued by
issuers in the transportation industry and (viii) in the case of auction rate
preferred stocks, which are rated at least Aa3 by Moody's, or if not rated by
Moody's, AAA by S&P or are otherwise approved in writing by Moody's and have
never had a failed auction; provided, however, that for this purpose the
aggregate Market Value of the Fund's holdings of any single issue of auction
rate preferred stock shall not be more than 1% of the Fund's total assets.
(e) common stocks (i) (A) which are traded on a nationally recog
nized stock exchange or in the over-the-counter market, (B) if cash dividend
paying, pay cash dividends in U.S. dollars and (C) which may be sold without
restriction by the Fund; provided, however, that (y) common stock which, while
a Moody's Eligible Asset owned by the Fund, ceases paying any regular cash
dividend will no longer be considered a Moody's Eligible Asset until 71 days
after the date of the announcement of such cessation, unless the issuer of the
common stock has senior debt securities rated at least A3 by Moody's and (z)
the aggregate Market Value of the Fund's holdings of the common stock of any
issuer in excess of 4% in the case of utility common stock and 6% in the case
of non-utility common stock of the aggregate Market Value of the Fund's
holdings shall not be Moody's Eligible Assets, (ii) which are securities
denominated in any currency other than the U.S. dollar or securities of
issuers formed under the laws of jurisdictions other than the United States,
its states and the District of Columbia for which there are dollar-denominated
American Depository Receipts ("ADRs") or their equivalents which are traded in
the United States on exchanges or over-the-counter and are issued by banks
formed under the laws of the United States, its states or the District of
Columbia or (iii) which are securities of issuers formed under the laws of
jurisdictions other than the United States (and in existence for at least five
years) for which no ADRs are traded; provid ed, however, that the aggregate
Market Value of the Fund's holdings of securities denominated in currencies
other than the U.S. dollar and ADRs in excess of (A) 6% of the aggregate
Market Value of the outstanding shares of common stock of such issuer thereof
or (B) in excess of 10% of the Market Value of the Fund's Moody's Eligible
Assets with respect to issuers formed under the laws of any single such non-
U.S. jurisdiction other than Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway,
Spain, Sweden, Switzerland and the United Kingdom, shall not be a Moody's
Eligible Asset;
(f) ADR securities, based on the following guidelines: (i)
Sponsored ADR program or (ii) Level II or Level III ADRs. Private placement
Rule 144A ADRs are not eligible for collateral consideration. Global GDR
programs will be evaluated on a case by case basis;
(g) U.S. Government Obligations;
(h) corporate evidences of indebtedness (i) which may be sold
without restriction by the Fund which are rated at least B3 (Caa subordinate)
by Moody's (or, in the event the security is not rated by Moody's, the
security is rated at least BB- by S&P and which for this purpose is assigned a
Moody's equivalent rating of one full rating category lower), with such rating
confirmed on each Valuation Date, (ii) which have a minimum issue size of at
least (A) $100,000,000 if rated at least Baa3 or (B) $50,000,000 if rated B or
Ba3, (iii) which are not convertible or exchangeable into equity of the
issuing corporation and have a maturity of not more than 30 years and (iv) for
which, if rated below Baa3 or not rated, the aggregate Market Value of the
Fund's holdings do not exceed 10% of the aggregate Market Value of any
individual issue of corporate evidences of indebtedness calculated at the time
of original issuance; and
(i) convertible corporate evidences of indebtedness (i) which are
issued by issuers whose senior debt securities are rated at least B2 by
Moody's (or, in the event an issuer's senior debt securities are not rated by
Moody's, which are issued by issuers whose senior debt securities are rated at
least BB by S&P and which for this purpose is assigned a Moody's equivalent
rating of one full rating category lower), (ii) which are convertible into
common stocks which are traded on the New York Stock Exchange or the American
Stock Exchange or are quoted on the Nasdaq National Market System and (iii)
which, if cash dividend paying, pay cash dividends in U.S. dollars; provided,
however, that once convertible corporate evidences of indebtedness have been
converted into common stock, the common stock issued upon conversion must
satisfy the criteria set forth in clause (e) above and other relevant criteria
set forth in this definition in order to be a Moody's Eligible Asset;
provided, however, that the Fund's investments in auction rate preferred
stocks described in clause (d) above shall be included in Moody's Eligible
Assets only to the extent that the aggregate Market Value of such stocks does
not exceed 10% of the aggregate Market Value of all of the Fund's investments
meeting the criteria set forth in clauses (a) through (g) above less the
aggregate Market Value of those investments excluded from Moody's Eligible
Assets pursuant to the proviso appearing after clause (i) below; and
(j) no assets which are subject to any lien or irrevocably
deposited by the Fund for the payment of amounts needed to meet the following
obligations may be includible in Moody's Eligible Assets:
(i) the sum of (A) the product of the number of shares of each class or
series of Preferred Stock Outstanding on such Valuation Date multi
plied by the liquidation preference per share; (B) to the extent
not included in (A) the aggregate amount of cash dividends (whether
or not earned or declared) that will have accumulated for each
Outstand ing share of Preferred Stock from the most recent dividend
payment date to which dividends have been paid or duly provided for
(or, in the event the asset coverage in respect of such shares is
calculated on a date prior to the initial dividend payment date
with respect to a class or series of the Preferred Stock, then from
the date of original issue) through the Valuation Date plus all
dividends to accumulate on the Preferred Stock then Outstanding
during the 70 days following such Valuation Date or, if less,
during the number of days following such Valuation Date that shares
of Preferred Stock called for redemption are scheduled to remain
Outstanding; (C) the Fund's other liabilities due and payable as of
such Valuation Date (except that dividends and other distributions
payable by the Fund on Common Shares shall not be included as a
liability) and such liabilities projected to become due
and payable by the Fund during the 90 days following such Valuation
Date (excluding liabilities for investments to be purchased and for
dividends and other distributions not declared as of such Valuation
Date); and (D) any current liabilities of the Fund as of such
Valuation Date to the extent not reflected in any of (i)(i)(A)
through (i)(i)(C) (including, without limitation, and immediately
upon determination, any amounts due and payable by the Fund
pursuant to reverse repur chase agreements and any payables for
assets purchased as of such Valuation Date) less
(ii) (A) the adjusted value of any of the Fund's assets or (B) the face
value of any of the Fund's assets if, in the case of both (ii)(A)
and (ii)(B), such assets are either cash or evidences of
indebtedness which mature prior to or on the date of redemption or
repurchase of shares of pre ferred stock or payment of another
liability and are either U.S. Gov ernment Obligations or evidences
of indebtedness which have a rating assigned by Moody's of at least
Aaa, P-1, VMIG-1 or MIG-1 or by S&P of at least AAA, SP-1+ or A-1+,
and are irrevocably held by the Fund's custodian bank in a
segregated account or deposited by the Fund with the
dividend-disbursing agent or Paying Agent for the payment of the
amounts needed to redeem or repurchase preferred stock subject to
redemption or repurchase or any of (i)(B) through (i)(D); and
provided that in the event the Fund has repurchased pre ferred
stock and irrevocably segregated or deposited assets as de scribed
above with its custodian bank, the dividend-disbursing agent or
Paying Agent for the payment of the repurchase price the Fund may
deduct 100% of the liquidation preference of such preferred stock
to be repurchased from (i) above.
Notwithstanding anything to the contrary in the preceding clauses
(a)-(i), the Fund's investment in preferred stock, common stock, corporate
evidences of in debtedness and convertible corporate evidences of indebtedness
shall not be treated as Moody's Eligible Assets except to the extent they
satisfy the following diversifica tion requirements (utilizing Moody's
Industry and Sub-industry Categories) with respect to the Market Value of the
Fund's holdings:
Issuer:
Non-Utility Utility
Maximum Single Maximum Single
Moody's Rating(1)(2) Issuer(3)(4) Issuer(3)(4)
-------------------- ------------ ------------
Aaa 100% 100%
Aa 20% 20%
A 10% 10%
CS/CB, "Baa", Baa(5) 6% 4%
Ba 4% 4%
B1/B2 3% 3%
B3 (Caa subordinate) 2% 2%
Industry and State:
Utility Utility
Non-Utility Maximum Maximum
Maximum Single Single Sub- Single
Moody's Rating(1) Industry(3) Industry(3)(6) State(3)
----------------- ----------- -------------- --------
Aaa 100% 100% 100%
Aa 60% 60% 20%
A 40% 50% 10%(7)
CS/CB, "Baa", Baa(5) 20% 50% 7%(7)
Ba 12% 12% 0%
B1/B2 8% 8% 0%
B3 (Caa subordinate) 5% 5% 0%
______________
(1) The equivalent Moody's rating must be lowered one full rating category
for pre ferred stocks, corporate evidences of indebtedness and
convertible corporate evidences of indebtedness rated by S&P but not by
Moody's.
(2) Corporate evidences of indebtedness from issues ranging $50,000,000 to
$100,000,000 are limited to 20% of Moody's Eligible Assets.
(3) The referenced percentages represent maximum cumulative totals only for
the related Moody's rating category and each lower Moody's rating
category.
(4) Issuers subject to common ownership of 25% or more are considered as one
name.
(5) CS/CB refers to common stock and convertible corporate evidences of
indebted ness, which are diversified independently from the rating
level.
(6) In the case of utility common stock, utility preferred stock, utility
evidences of indebtedness and utility convertible evidences of
indebtedness, the definition of industry refers to sub-industries
(electric, water, hydro power, gas, diversified). Investments in other
sub-industries are eligible only to the extent that the combined sum
represents a percentage position of the Moody's Eligible Assets less
than or equal to the percentage limits in the diversification tables
above.
(7) Such percentage shall be 15% in the case of utilities regulated by
California, New York and Texas.
FITCH GUIDELINES
Under the Fitch guidelines, the Fund is required to maintain specified
discounted asset values for its portfolio representing the Basic Maintenance
Amount. The Fitch Discount Factor for any Fitch Eligible Asset other than the
securities set forth below will be the percentage provided in writing by
Fitch. The following Discount Factors apply to portfolio holdings as described
below, subject to diversification, issuer size and other requirements, in
order to constitute Fitch Eligible Assets includable within the calculation of
Discounted Value:
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.
Portfolio instruments of the Fund which are traded in a market subject
to govern ment 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 instru ments (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 calcula tion of the Fund's net asset value may not take
place contemporaneously with the determina tion 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 Board of Directors 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 Directors.
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.
BENEFICIAL OWNERS
Name and Address of
Beneficial/Record Owner Amount of Shares and
as of March 7, 2003 Title of Class Nature of Ownership Percent of Class
------------------- -------------- -------------------- ----------------
Cede & Co.* Common %
P.O. Box 20
Bowling Green Station Series A %
New York, NY 10274 Preferred
* A nominee partnership of DTC.
** Shares held at DTC.
As of March 1, 2003, the Directors and Officers of the Fund as a group
beneficially owned approximately [__]% of the outstanding shares of the Fund's
common stock.
GENERAL INFORMATION
Book-Entry-Only Issuance
DTC will act as securities depository for the shares of Series B
Preferred and/or Series C Auction Rate Preferred 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 partici pants 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 partici pants 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
require ments as may be in effect from time to time. Payment of dividends to
DTC is the responsi bility 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 circum stances, 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 Series B Preferred and/or Series C Auction Rate Preferred.
PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue of
the Americas, New York, New York 10036, serve as auditors of the Fund and will
annually render an opinion on the financial statements of the Fund.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the
Fund's Shareholders for the fiscal year ended December 31, 2002, together with
the report of PricewaterhouseCoopers LLP thereon, are also incorporated herein
by reference from the Fund's Annual Report to Shareholders. All other portions
of the Annual Report to Share holders are not incorporated herein by reference
and are not part of the Registration Statement. A copy of the Annual Report to
Shareholders may be obtained without charge by writing to the Fund at its
address at One Corporate Center, Rye, New York 10580-1434 or by calling the
Fund toll-free at 800-GABELLI (422-3554).
Glossary
"AA Financial Composite Commercial Paper Rate" on any date means (i) the
interest equivalent of the 7-day rate, in the case of a Dividend Period of 7
days or shorter; for Dividend Periods greater than 7 days but fewer than or
equal to 31 days, the 30-day rate; for Dividend Periods greater than 31 days
but fewer than or equal to 61 days, the 60-day rate; for Dividend Periods
greater than 61 days but fewer than or equal to 91 days, the 90 day rate; for
Dividend Periods greater than 91 days but fewer than or equal to 270 days, the
rate described in (ii) below; for Dividend Periods greater than 270 days, the
Treasury Index Rate; on commercial paper on behalf of issuers whose corporate
bonds are rated "AA" by S&P, or the equivalent of such rating by another
nationally recognized rating agency, as announced by the Federal Reserve Bank
of New York for the close of business on the Business Day immediately
preceding such date; or (ii) if the Federal Reserve Bank of New York does not
make available such a rate, then the arithmetic average of the interest
equivalent of such rates on commercial paper placed on behalf of such issuers,
as quoted on a discount basis or otherwise by the Commercial Paper Dealers to
the Auction Agent for the close of business on the Business Day immediately
preceding such date (rounded to the next highest .001 of 1%). If any
Commercial Paper Dealer does not quote a rate required to determine the "AA"
Financial Composite Commercial Paper Rate, such rate will be determined on the
basis of the quotations (or quotation) furnished by the remaining Commercial
Paper Dealers (or Dealer), if any, or, if there are no such Commercial Paper
Dealers, by the Auction Agent pursuant to instructions from the Fund. For
purposes of this definition, (A) "Commercial Paper Dealers" will mean (1)
Salomon Smith Barney Inc., Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Goldman Sachs & Co.; (2) in lieu of any thereof, its
respective affiliate or successor; and (3) in the event that any of the
foregoing will cease to quote rates for commercial paper of issuers of the
sort described above, in substitution therefor, a nationally recognized dealer
in commer cial paper of such issuers then making such quotations selected by
the Fund, and (B) "interest equivalent" of a rate stated on a discount basis
for commercial paper of a given number of days maturity will mean a number
equal to the quotient (rounded upward to the next higher one-thousandth of 1%)
of (1) such rate expressed as a decimal, divided by (2) the difference between
(x) 1.00 and (y) a fraction, the numerator of which will be the product of
such rate expressed as a decimal, multiplied by the number of days in which
such commercial paper will mature and the denominator of which will be 360.
"Adjusted Value" of each Eligible Asset shall be computed as follows:
(i) cash shall be valued at 100% of the face value thereof; and
(ii) all other Eligible Assets shall be valued at the applicable
Discounted Value thereof; and
(iii)each asset that is not an Eligible Asset shall be valued at zero.
"Administrator"means the other party to the Administration Agreement with the
Fund which shall initially be Gabelli Funds, LLC.
"Affiliate" means, with respect to the Auction Agent, any person known to the
Auction Agent to be controlled by, in control of or under common control with
the Fund; provided, however, that no Broker-Dealer controlled by, in control
of or under common control with the Fund will be deemed to be an Affiliate nor
will any corporation or any Person controlled by, in control of or under
common control with such corporation one of the directors or executive
officers of which is director of the Fund be deemed to be an Affiliate solely
because such director or executive officer is also a director of the Fund.
"Agent Member" means a member of or a participant in the Securities Depository
that will act on behalf of a Bidder.
"All Hold Rate" means 80% of the "AA" Financial Composite Commercial Paper
Rate.
"Applicable Rate" means, with respect to the Series C Auction Rate Preferred,
for each Dividend Period (i) if Sufficient Clearing Bids exist for the Auction
in respect thereof, the Winning Bid Rate, (ii) if Sufficient Clearing Orders
do not exist for the Auction in respect thereof or an Auction does not take
place with respect to such Dividend Period because of the commencement of a
Default Period that ends prior to an Auction Date, the Maximum Rate and (iii)
if all Series C Auction Rate Preferred is the subject of Submitted Hold Orders
for the Auction in respect thereof, the All Hold Rate.
"Approved Foreign Nations" has the meaning ascribed to it in "Moody's and
Fitch Guidelines -- Fitch Guidelines."
"Auction" means each periodic operation of the Auction Procedures.
"Auction Agent" means The Bank of New York unless and until another commercial
bank, trust company, or other financial institution appointed by a resolution
of the Board of Directors enters into an agreement with the Fund to follow the
Auction Procedures for the purpose of determining the Applicable Rate.
"Auction Date" means the last day of the initial Dividend Period and each
seventh day after the immediately preceding Auction Date; provided, however,
that if any such seventh day is not a Business Day, such Auction Date shall be
the first preceding day that is a Business Day and the next Auction Date, if
for a Standard Dividend Period, shall (subject to the same advancement
procedure) be the seventh day after the date that the preceding Auction Date
would have been if not for the advancement procedure; provided further,
however, that the Auction Date for the Auction at the conclusion of any
Special Dividend Period shall be the last Business Day in such Special
Dividend Period and that no more than one Auction shall be held during any
Dividend Period. Notwithstanidng the foregoing, in the event an auction is not
held because an unforeseen event or unforeseen events cause a day that
otherwise would have been an Auction Date not to be a Business Day, then the
length of the then current dividend period will be extended by seven days (or
a multiple thereof if necessary because of such unforeseen event or events).
"Auction Procedures" means the procedures for conducting Auctions described in
"Additional Information Concerning the Auction for Series C Auction Rate
Preferred."
"Available Series C Auction Rate Preferred" has the meaning set forth in
"Additional Information Concerning the Auction for Series C Auction Rate
Preferred -- Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate."
"Basic Maintenance Amount" has the meaning set forth in "Additional
Information Concerning The Series B Preferred and Series C Auction Rate
Preferred -- Asset Mainte
nance."
"Basic Maintenance Report" means, with respect to the Series C Auction Rate
Preferred, a report prepared by the Administrator which sets forth, as of the
related Valuation Date, Moody's Eligible Assets and Fitch Eligible Assets
sufficient to meet or exceed the Basic Maintenance Amount, the Market Value
and Discounted Value thereof (seriatim and in the aggregate), and the Basic
Maintenance Amount, and shall have a correlative meaning with respect to any
other class or series of Preferred Stock.
"Beneficial Owner" with respect to Series C Auction Rate Preferred, means a
customer of a Broker-Dealer who is listed on the records of that Broker-Dealer
(or, if applicable, the Auction Agent) as a holder of such shares of such
series.
"Bid" has the meaning set forth in "Additional Information Concerning the
Auction for the Series C Auction Rate Preferred -- Submission of Orders by
Broker-Dealers to Auction Agent."
"Bidder" has the meaning set forth in "Additional Information Concerning the
Auction for Series C Auction Rate Preferred -- Submission of Orders by
Broker-Dealers to Auction Agent."
"Board of Directors" or "Board" means the Board of Directors of the Fund or
any duly authorized committee thereof as permitted by applicable law.
"Broker-Dealer" means any broker-dealer or broker-dealers, or other entity
permitted by law to perform the functions required of a Broker-Dealer by the
Auction Procedures, that has been selected by the Fund and has entered into a
Broker-Dealer Agreement that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and a
Broker-Dealer, pursuant to which such Broker-Dealer agrees to follow the
Auction Proce dures.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in The
City of New York, New York are authorized or obligated by law to close.
"Canadian Bonds" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Fitch Guidelines."
"Charter" means the Articles of Amendment and Restatement of the Fund, as
amended or supplemented (including the Articles Supplementary), as filed with
the State Department of Assessments and Taxation of the State of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of the Fund's common stock, par value $.001
per share.
"Cure Date" has the meaning set forth in paragraph 3(a)(i) of Article II of
the Articles Supplementary for the Series B Preferred and paragraph 3(a)(ii)
of Article I of the Articles Supplementary for the Series C Auction Rate
Preferred.
"Date of Original Issue" means the date on which the Series B Preferred or
Series C Auction Rate Preferred, as the case may be, is originally issued by
the Fund.
"Debt Securities" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Fitch Guidelines."
"Default Period" has the meaning set forth in "Additional Information
Concerning the Series B Preferred and Series C Auction Rate Preferred --
Dividends and Dividend Period."
"Default Rate" means the Reference Rate multiplied by three (3).
"Deposit Assets" means cash, Short-Term Money Market Instruments and U.S.
Govern ment Obligations. Except for determining whether the Fund has Eligible
Assets with an Adjusted Value equal to or greater than the Basic Maintenance
Amount, each Deposit Asset shall be deemed to have a value equal to its
principal or face amount payable at maturity plus any interest payable thereon
after delivery of such Deposit Asset but only if payable on or prior to the
applicable payment date in advance of which the relevant deposit is made.
"Discount Factor" means (i) so long as Moody's is rating the Series B
Preferred or Series C Auction Rate Preferred at the Fund's request, the
Moody's Discount Factor, (ii) so long as Fitch is rating the Series C Auction
Rate Preferred, the Fitch Discount Factor, and/or (iii) any applicable
discount factor established by any Other Rating Agency, whichever is
applicable.
"Discounted Value" means, as applicable, (i) the quotient of the Market Value
of an Eligible Asset divided by the applicable Discount Factor, provided that
with respect to an Eligible Asset that is currently callable, Discounted Value
will be equal to the applicable quotient or product as calculated above or the
call price, whichever is lower, and that with respect to an Eligible Asset
that is prepayable, Discounted Value will be equal to the applicable quotient
or product as calculated above or the par value, whichever is lower.
"Dividend Default" has the meaning set forth in "Additional Information
Concerning the Series B Preferred and Series C Auction Rate Preferred --
Dividends and Dividend Period."
"Dividend Payment Date" means, with respect to the Series B Preferred Stock,
any date on which dividends declared by the Board of Directors thereon are
payable pursuant to the provisions of paragraph 1(a) of Article II of the
Articles Supplementary of the Series B Preferred, and, with respect to the
Series C Auction Rate Preferred, any date on which dividends declared by the
Board of Directors thereon are payable pursuant to the provisions of paragraph
2(b) of Article I of the Articles Supplementary, for the Series C Auction Rate
Preferred, and shall have a correlative meaning with respect to any other
class or series of Preferred Stock.
"Dividend Period" means, with respect to Series B Preferred, the quarterly
dividend specified in paragraph 1(a) of Article II of the Articles
Supplementary for the Series B Preferred and, with respect to Series C Auction
Rate Preferred, the initial period determined in the manner set forth under
"Designation" in the Articles Supplementary of the Series C Auction Rate
Preferred, and thereafter, the period commencing on the Business Day following
each Auction Date and ending on the next Auction Date or, if such next Auction
Date is not immediately followed by a Business Day, on the latest day prior to
the next succeeding Business Day.
"Eligible Assets" means Moody's Eligible Assets (if Moody's is then rating the
Series B Preferred or Series C Auction Rate Preferred at the request of the
Fund), Fitch Eligible Assets (if Fitch is then rating the Series C Auction
Rate Preferred at the request of the Fund), and/or Other Rating Agency
Eligible Assets if any Other Rating Agency is then rating the Series B
Preferred or Series C Auction Rate Preferred, whichever is applicable.
"Existing Holder" means (i) a person who beneficially owns those shares of
Series C Auction Rate Preferred listed in that person's name in the records of
the Fund or the Auction Agent or (ii) the beneficial owner of those shares of
Series C Auction Rate Preferred which are listed under such person's
Broker-Dealer's name in the records of the Auction Agent, which Broker-Dealer
will have signed a master purchaser's letter.
"Fitch" means Fitch, Inc. and its successors at law.
"Fitch Discount Factor" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Fitch Guidelines."
"Fitch Eligible Assets" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Fitch Guidelines."
"Fitch Exposure Period" means the period commencing on (and including) a given
Valuation Date and ending 49 days thereafter.
"Fitch Industry Classifications" means, for the purposes of determining Fitch
Eligible Assets, each of the following industry classifications:
1. Aerospace & Defense
2. Automobiles
3. Banking, Finance & Real Estate
4. Broadcasting & Media
5. Building & Materials
6. Cable
7. Chemicals
8. Computers & Electronics
9. Consumer Products
10. Energy
11. Environmental Services
12. Farming & Agriculture
13. Food, Beverage & Tobacco
14. Gaming, Lodging & Restaurants
15. Healthcare & Pharmaceuticals
16. Industrial/Manufacturing
17. Insurance
18. Leisure & Entertainment
19. Metals & Mining
20. Miscellaneous
21. Paper & Forest Products
22. Retail
23. Sovereign
24. Supermarkets & Drugstores
25. Telecommunications
26. Textiles & Furniture
27. Transportation
28. Utilities
"Foreign Bonds" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Fitch Guidelines."
"Hold Order" has the meaning set forth in "Additional Information Concerning
the Auction for Series C Auction Rate Preferred-- Orders By Existing Holders
and Potential Holders."
"Holder" means, with respect to the Series C Auction Rate Preferred, the
registered holder of Series C Auction Rate Preferred shares as the same
appears on the stock ledger or stock records of the Fund or records of the
Auction Agent, as the case may be.
"Industry Classification" means a six-digit industry classification in the
Standard Industry Classification system published by the United States.
"ISDA" has the meaning ascribed to it in "Moody's and Fitch Guidelines --
Fitch Guide lines."
"Liquidation Preference" means $25 per share of Series B Preferred and $25,000
per share of Series C Auction Rate Preferred Stock and will have a correlative
meaning with respect to shares of any other class or series of Preferred
Stock.
"Market Capitalization" means, with respect to any issue of common stock, as
of any date, the product of (i) the number of shares of such common stock
issued and outstanding as of the close of business on the date of
determination thereof and (ii) the Market Value per share of such common stock
as of the close of business on the date of determination thereof.
"Market Value" means the amount determined by the Fund with respect to
specific Eligible Assets in accordance with valuation policies adopted from
time to time by the Board of Directors as being in compliance with the
requirements of the 1940 Act.
Notwithstanding the foregoing, "Market Value" may, at the option of the
Fund with respect to any of its assets, mean the amount determined with
respect to specific Eligible Assets of the Fund in the manner set forth below:
(i) as to any common or preferred stock which is an Eligible Asset, (a)
if the stock is traded on a national securities exchange or quoted
on the Nasdaq System, the last sales price reported on the
Valuation Date or (b) if there was no reported sales price on the
Valuation Date, the lower of two bid prices for such stock provided
to the Administrator by two recognized securities dealers with a
minimum capitalization of $25,000,000 (or other wise approved for
such purpose by Moody's and Fitch) or by one such securities dealer
and any other source (provided that the utilization of such source
would not adversely affect Moody's and Fitch's then-current rating
of the Series C Auction Rate Preferred), at least one of which will
be provided in writing or by telecopy, telex, other electronic
transcription, computer obtained quotation reducible to written
form or similar means, and in turn provided to the Fund by any such
means by such administrator, or, if two bid prices cannot be
obtained, such Eligible Asset will have a Market Value of zero;
(ii) as to any U.S. Government Obligation, Short-Term Money Market
Instru ment (other than demand deposits, federal funds, bankers'
acceptances and next Business Day repurchase agreements) and
commercial paper, with a maturity of greater than 60 days, the
product of (a) the principal amount (accreted principal to the
extent such instrument accretes interest) of such instrument and
(b) the lower of the bid prices for the same kind of instru ments
having, as nearly as practicable, comparable interest rates and
maturi ties provided by two recognized securities dealers having
minimum capital ization of $25,000,000 (or otherwise approved for
such purpose by Moody's and Fitch) or by one such dealer and any
other source (provided that the utilization of such source would
not adversely affect Moody's and Fitch's then-current rating of the
Series B Preferred or Series C Auction Rate Preferred, as the case
may be,) to the administrator, at least one of which will be
provided in writing or by telecopy, telex, other electronic
transcrip tion, computer obtained quotation reducible to written
form or similar means, and in turn provided to the Fund by any such
means by such admin istrator, or, if two bid prices cannot be
obtained, such Eligible Asset will have a Market Value of zero;
(iii)as to cash, demand deposits, federal funds, bankers' acceptances
and next Business Day repurchase agreements included in Short-Term
Money Market Instruments, the face value thereof;
(iv) as to any U.S. Government Obligation, Short-Term Money Market
Instru ment or commercial paper with a maturity of 60 days or
fewer, amortized cost unless the board of directors determines that
such value does not constitute fair value;
(v) as to any other evidence of indebtedness which is an Eligible
Asset, (a) the product of (1) the unpaid principal balance of such
indebtedness as of the Valuation Date and (2)(A) if such
indebtedness is traded on a national securities exchange or quoted
on the Nasdaq System, the last sales price reported on the
Valuation Date or (B) if there was no reported sales price on the
Valuation Date or if such indebtedness is not traded on a national
securities exchange or quoted on the Nasdaq System, the lower of
two bid prices for such indebtedness provided by two recognized
dealers with a minimum capitalization of $25,000,000 (or otherwise
approved for such purpose by Moody's and Fitch) or by one such
dealer and any other source (provided that the utilization of such
source would not adversely affect Moody's and Fitch's then-current
rating of the Series B Preferred or Series C Auction Rate Preferred
, as the case may be,) to the administrator of the Fund's assets,
at least one of which will be provided in writing or by telecopy,
telex, other electronic transcription, computer obtained quotation
reducible to written form or similar means, and in turn provided to
the Fund by any such means by such administrator, plus (b) accrued
interest on such indebtedness.
"Maximum Rate" means, on any date on which the Applicable Rate is determined,
the applicable percentage of (i) in the case of dividend period of 184 days or
less, the "AA" Financial Composite Commercial Paper Rate on the date of such
Auction determined as set forth below based on the lower of the credit ratings
assigned to the Series C Auction Rate Preferred by Moody's and Fitch subject
to upward but not downward adjustment in the discretion of the Board of
Directors after consultation with the Broker-Dealers; provided
that immediately following any such increase the Fund would be in compliance
with the Series C Auction Rate Preferred Basic Maintenance Amount or (ii) in
the case of a dividend period of longer than 184 days, the Treasury Index
Rate.
Moody's Credit Rating Fitch Credit Rating APPLICABLE PERCENTAGE
-------------------- -----------------------
Aa3 or higher AA- or higher 150%
A3 to A1 A- to A+ 175%
Baa3 to Baa1 BBB- to BBB+ 250%
Below Baa3 Below BBB- 275%
"Moody's" means Moody's Investors Service, Inc. and its successors at law.
"Moody's Discount Factor" has the meaning ascribed to it in "Moody's and Fitch
Guide lines -- Moody's Guidelines."
"Moody's Eligible Assets" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Moody's Guidelines."
"1940 Act" means the Investment Company Act of 1940, as amended, or any
successor statute.
"1940 Act Asset Coverage" means asset coverage, as determined in accordance
with Section 18(h) of the 1940 Act, of at least 200% with respect to all
outstanding senior securities of the Fund which are stock, including all
Outstanding shares of Series B Preferred and Series C Auction Rate Preferred
(or such other asset coverage as may in the future be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are
stock of a closed-end investment company as a condition of declaring dividends
on its common stock), determined on the basis of values calculated as of a
time within 48 hours (not including Saturdays, Sundays or holidays) next
preceding the time of such determination.
"1940 Act Asset Coverage Certificate" means the certificate required to be
delivered by the Fund pursuant to paragraph 9(a)(i)(B) of Article I of the
Articles Supplementary of the Series C Auction Rate Preferred.
"Non-Call Period" means a period determined by the Board of Directors after
consultation with the Broker-Dealers, during which the Series C Auction Rate
Preferred Stock subject to such Special Dividend Period are not subject to
redemption at the option of the Fund but only to mandatory redemption.
"NRSRO" means a Nationally Recognized Statistical Ratings Organization.
"Order" has the meaning set forth in "Additional Information Concerning the
Auction for Series C Auction Rate Preferred -- Orders By Existing Holders and
Potential Holders."
"Other Rating Agency" means any rating agency other than Moody's or Fitch then
providing a rating for the Series C Auction Rate Preferred pursuant to the
request of the Fund.
"Other Rating Agency Eligible Assets" means assets of the Fund designated by
any Other Rating Agency as eligible for inclusion in calculating the
discounted value of the Fund's assets in connection with such Other Rating
Agency's rating of the Series C Auction Rate Preferred.
"Outstanding" means, as of any date, Preferred Stock theretofore issued by the
Fund except:
(i) any such share of Preferred Stock theretofore cancelled by the Fund
or delivered to the Fund for cancellation;
(ii) any such share of Preferred Stock other than the Series C Auction
Rate Preferred (or other auction market preferred stock) shares as
to which a notice of redemption will have been given and for whose
payment at the redemption thereof Deposit Assets in the necessary
amount are held by the Fund on in trust for or were paid by the
Fund to the holder of such share pursuant to the Articles
Supplementary with respect thereto;
(iii)in the case of shares of the Series C Auction Rate Preferred or
other auction market preferred stock, any such shares theretofore
delivered to the applica ble auction agent for cancellation or with
respect to which the Fund has given notice of redemption and
irrevocably deposited with the applicable paying agent sufficient
funds to redeem such shares; and
(iv) any such share in exchange for or in lieu of which other shares
have been issued and delivered.
Notwithstanding the foregoing, (x) for purposes of voting rights (including
the determina tion of the number of shares required to constitute a quorum),
any Preferred Stock as to which the Fund or any subsidiary is the holder or
Existing Holder, as applicable, will be disregarded and deemed not
Outstanding; (y) in connection with any auction, any auction rate Preferred
Stock as to which the Fund or any Person known to the auction agent to be an
subsidiary is the holder or Existing Holder, as applicable, will be
disregarded and not deemed Outstanding; and (z) for purposes of determining
the Basic Maintenance Amount, Series C Auction Rate Preferred held by the Fund
will be disregarded and deemed not Outstanding.
"Paying Agent" means with respect to Series C Auction Rate Preferred, The Bank
of New York unless and until another entity appointed by a resolution of the
Board of Directors enters into an agreement with the Fund to serve as paying
agent, which paying agent may be the same as the Auction Agent and, with
respect to any other class or series of preferred stock, the Person appointed
by the Fund as dividend disbursing or paying agent with respect to such class
or series.
"Person"means and includes an individual, a partnership, the Fund, a trust, a
corporation, a limited liability company, an unincorporated association, a
joint venture or other entity or a government or any agency or political
subdivision thereof.
"Potential Beneficial Owner or Holder" means (i) any Existing Holder who may
be interested in acquiring additional shares of Series C Auction Rate
Preferred or (ii) any other person who may be interested in acquiring shares
of Series C Auction Rate Preferred and who has signed a master purchaser's
letter or whose shares will be listed under such person's Broker-Dealer's name
on the records of the Auction Agent which Broker-Dealer will have executed a
master purchaser's letter.
"Preferred Stock" means the preferred stock, par value $.001 per share, of the
Fund, and includes the Series B Preferred and Series C Auction Rate Preferred.
"Premium Call Period" means a period consisting of a number of whole years as
deter mined by the Board of Directors after consultation with the
Broker-Dealers, during each year of which the shares subject to such Special
Dividend Period will be redeemable at the Fund's option at a price per share
equal to the Liquidation Preference plus accumulated but unpaid dividends
(whether or not earned or declared) plus a premium expressed as a percentage
or percentages of the Liquidation Preference or expressed as a formula using
specified variables as determined by the Board of Directors after consultation
with the Broker-Dealers.
"Pricing Service" means any of the following: Bloomberg Financial Service,
Bridge Information Services, Data Resources Inc., FT Interactive,
International Securities Market Association, Merrill Lynch Securities Pricing
Service, Muller Data Corp., Reuters, S&P/J.J. Kenny, Telerate, Trepp Pricing
and Wood Gundy.
"Rating Agency" means Moody's and Fitch as long as such rating agency is then
rating the Series B Preferred or Series C Auction Rate Preferred at the
request of the Fund.
"Rating Agency Guidelines" has the meaning set forth in set forth in "Moody's
and Fitch Guidelines."
"Redemption Date" means, with respect to shares of the Fund's Outstanding
Preferred Stock, the date fixed by the Fund for the redemption of such shares.
"Redemption Default" has the meaning set forth in "Additional Information
Concerning the Series B Preferred and Series C Auction Rate Preferred --
Dividends and Dividend Period."
"Redemption Price" means, with respect to the Series B Preferred, the price
set forth in paragraph 3(a) of Article II of the Articles Supplementary for
the Series B Preferred Stock and, with respect to the Article C Auction Rate
Preferred, the price set forth in paragraph 3(a)(i) of Article I of the
Articles Supplementary for the Series C Auction Rate Preferred Stock.
"Reference Rate" means, with respect to the determination of the Default Rate,
the applicable "AA" Financial Composite Commercial Paper Rate for a Dividend
Period of 184 days or fewer or the applicable Treasury Index Rate for a
Dividend Period of longer than 184 days and, with respect to the determination
of the Maximum Rate, the "AA" Financial Composite Commercial Paper Rate or the
Treasury Index Rate, as appropriate.
"Reorganization Bonds" has the meaning ascribed to it in "Moody's and Fitch
Guidelines -- Fitch Guidelines."
"S&P" means Standard & Poor's Ratings Services, or its successors at law.
"Securities Act" means The Securities Act of 1933, as amended, or any
successor statute.
"Securities Depository" means The Depository Trust Company and its successors
and assigns or any successor securities depository selected by the Fund that
agrees to follow the procedures required to be followed by such securities
depository in connection with the shares of Series B Preferred or Series C
Auction Rate Preferred.
"Sell Order" has the meaning set forth in "Additional Information Concerning
the Auction for Series C Auction Rate Preferred -- Submission of Orders by
Broker-Dealers to Auction Agent."
"Series A Preferred" means the Fund's 8% Cumulative Preferred Stock, $.001 par
value per share and liquidation preference $25 per share.
"Series B Preferred" means the Fund's Series B Cumulative Preferred Stock,
$.001 par value per share and liquidation preference $25 per share.
"Series C Auction Rate Preferred" means the Fund's Series C Auction Rate
Cumulative Preferred Stock, $.001 par value per share and liquidation
preference $25,000 per share.
"Series C Auction Rate Preferred Basic Maintenance Amount Test" means a test
which is met if the lower of the aggregate Discounted Values of the Moody's
Eligible Assets or the Fitch Eligible Assets if both Moody's and Fitch are
then rating the Series C Auction Rate Preferred at the request of the Fund, or
the Eligible Assets of whichever of Moody's or Fitch is then doing so if only
one of Moody's or Fitch is then rating the Series C Auction Rate Preferred at
the request of the Fund, meets or exceeds the Basic Maintenance Amount with
respect to the Series C Auction Rate Preferred.
"Short-Term Money Market Instrument" means the following types of instruments
if, on the date of purchase or other acquisition thereof by the Fund, the
remaining term to maturity thereof is not in excess of 180 days:
(i) commercial paper rated A-1 if such commercial paper matures in 30
days or A-1+ if such commercial paper matures in over 30 days;
(ii) demand or time deposits in, and banker's acceptances and
certificates of deposit of (a) a depository institution or trust
company incorporated under the laws of the United States of America
or any state thereof or the District of Columbia or (b) a United
States branch office or agency of a foreign depository institution
(provided that such branch office or agency is subject to banking
regulation under the laws of the United States, any state thereof
or the District of Columbia);
(iii)overnight funds; and
(iv) U.S. Government Obligations.
"Special Dividend Period" means a Dividend Period that is not a Standard
Dividend Period.
"Specific Redemption Provisions" means, with respect to any Special Dividend
Period of more than one year, either, or any combination of (i) a Non-Call
Period and (ii) a Premium Call Period.
"Standard Dividend Period" means a Dividend Period of seven days, subject to
increase or decrease to the extent necessary for the next Auction Date and
Dividend Payment Date to each be Business Days.
"Submission Deadline" means 1:00 p.m., New York City time, on any Auction Date
or such other time on any Auction Date by which Broker-Dealers are required to
submit Orders to the Auction Agent as specified by the Auction Agent from time
to time.
"Submitted Bid" has the meaning set forth in "Additional Information
Concerning the Auction for Series C Auction Rate Preferred -- Determination of
Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Bid Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series C Auction Rate Preferred -- Determination of
Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Hold Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series C Auction Rate Preferred -- Determination of
Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
A-12
"Submitted Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series C Auction Rate Preferred -- Determination of
Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Submitted Sell Order" has the meaning set forth in "Additional Information
Concerning the Auction for Series C Auction Rate Preferred -- Determination of
Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and Applicable Rate."
"Sufficient Clearing Bids" has the meaning set forth in "Additional
Information Concern ing the Auction for Series C Auction Rate Preferred --
Determination of Sufficient Clearing Bids, Winning Bids, Winning Bid Rate and
Applicable Rate."
"Sufficient Clearing Orders" means that all shares of Series C Auction Rate
Preferred are the subject of Submitted Hold Orders or that the number of
shares of Series C Auction Rate Preferred that are the subject of Submitted
Bids by Potential Holders specifying one or more rates equal to or less than
the Maximum Rate exceeds or equals the sum of (i) the number of shares of
Series C Auction Rate Preferred that are subject of Submitted Bids by Existing
Holders specifying one or more rates higher than the Maximum Rate and (ii) the
number of shares of Series C Auction Rate Preferred that are subject to
Submitted Sell Orders.
"Treasury Index Rate" means the average yield to maturity for actively traded
marketable U.S. Treasury fixed interest rate securities having the same number
of 30-day periods to maturity as the length of the applicable Dividend Period,
determined, to the extent neces sary, by linear interpolation based upon the
yield for such securities having the next shorter and next longer number of
30-day periods to maturity treating all Dividend Periods with a length greater
than the longest maturity for such securities as having a length equal to such
longest maturity, in all cases based upon data set forth in the most recent
weekly statistical release published by the Board of Governors of the Federal
Reserve System (currently in H.15 (519)); provided, however, if the most
recent such statistical release will not have been published during the 15
days preceding the date of computation, the foregoing computations will be
based upon the average of comparable data as quoted to the Fund by at least
three recognized dealers in U.S. Government Obligations selected by the Fund.
"U.S. Government Obligations" means direct obligations of the United States or
by its agencies or instrumentalities that are entitled to the full faith and
credit of the United States and that, other than United States Treasury Bills,
provide for the periodic payment of interest and the full payment of principal
at maturity or call for redemption.
"Valuation Date" means the last Business Day of each month, or such other date
as the Fund and Rating Agencies may agree to for purposes of determining the
Basic Maintenance Amount.
"Winning Bid Rate" means the lowest rate specified in the Submitted Bids which
if:
(i) (a) each such Submitted Bid of Existing Holders specifying
such lowest rate and
(b) all other such Submitted Bids of Existing Holders specifying
lower rates were rejected, thus entitling such Existing
Holders to continue to hold the shares of such series that are
subject to such Submitted Bids; and
(ii) (a) each such Submitted Bid of Potential Holders specifying
such lowest rate and
(b) all other such Submitted Bids of Potential Holders specifying
lower rates were accepted;
would result in such Existing Holders described in subclause (i) above
continuing to hold an aggregate number of Outstanding Series C Auction Rate
Preferred shares which, when added to the number of Outstanding Series C
Auction Rate Preferred shares to be purchased by such Potential Holders
described in subclause (ii) above, would equal not less than the Available
Series C Auction Rate Preferred shares.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
(a) Financial Statements (audited) for the fiscal year 2002(1)
(i) Portfolio of Investments as of December 31, 2002
(ii) Statement of Assets and Liabilities as of December 31, 2002
(iii) Statement of Operations for the year ended December 31, 2002
(iv) Statement of Changes in Net Assets for the year ended
December 31, 2002
(v) Financial highlights for a share outstanding throughout the
periods 1992 through 2002
(vi) Notes to Financial Statements
(vii) Report of Independent Accountants
(2) Exhibits
(a) (i) Articles of Incorporation(2)
(ii) Articles Supplementary for the 7.92% Cumulative Preferred
Stock(3)
(iii) Articles Supplementary for the Series B___% Cumulative Preferred
Stock (4)
(iv) Articles Supplementary for the Series C Auction Rate Cumulative
Preferred Stock(4)
(b) Amended and Restated By-Laws of Registrant(3)
(c) Not applicable
(d) (i) Specimen Stock Certificate:
(A) 7.92% Cumulative Preferred Stock
(B) Series B ___% Cumulative Preferred Stock (4)
(C) Series C Auction Rate Cumulative Preferred Stock (4).
(e) Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan of
Registrant(5)
(f) Not applicable
(g) Investment Advisory Agreement between Registrant and Gabelli Funds,
LLC(5)
(h) Form of Underwriting Agreement(4)
(i) Not applicable
(j) Custodian Contract between Registrant and Boston Safe Deposit and
Trust Company(3)
(k) Registrar, Transfer Agency and Service Agreement between Registrant
and EquiServe Trust Company(3)
(l) (i) Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP(4)
(ii) Opinion and Consent of Miles & Stockbridge(4)
(iii)Opinion and Consent of Simpson Thacher & Bartlett (4)
(m) Not applicable
(n) (i) Consent of independent accountant(4)
(ii) Powers of Attorney
(o) Not applicable
(p) Not applicable
(q) Not Applicable
(r) Codes of Ethics of the Fund and the Adviser(5)
___________________
(1) Incorporated by reference to the Fund's annual report filed on March 10,
2003.
(2) Incorporated by reference from the Registrant's Registration
Statement on Form N-2, File Nos.333-60407 and 811-8476, as filed
with the Securities and Exchange Commission on June 20, 1995
(3) Incorporated by reference from Amendment No. 1 to the Registrant's
Registration Statement on Form N-2, File No. 333-60407 and 811-8476,
as filed with the Securities and Exchange Commission on August 7, 1997.
(4) To be filed by amendment.
(5) Incorporated by reference from the Registrant's Registration
Statement on Form N-2, File No. 333-33514 and 811- 8476, as filed
with the Securities and Exchange Commission on June 2, 2000
Item 25. Marketing Arrangements
See Exhibit 2(h) to this Registration Statement.
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:
SEC registration fees.............................................. $
New York Stock Exchange listing fee................................
Printing and engraving expenses ...................................
Auditing fees and expenses ........................................
Legal fees and expenses............................................
Blue Sky fees and expenses.........................................
Miscellaneous......................................................
Total....................................................... $
Item 27. Persons Controlled by or Under Common Control with Registrant
NONE
Item 28. Number of Holders of Securities as of December 31, 2002
Number of Record
Title of Class Holders
-------------- -------
Capital Stock, par value $.001 per share
8.00% Cumulative Preferred Stock, par value $.001 per
share
Item 29. Indemnification
The response of this Item is incorporated by reference to the
caption "Limitation of Officers' and Directors Liability" in the Part B of
this Registration Statement.
Insofar as indemnification for liability arising under the
Securities Act may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or
controlling person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered. Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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 directors 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 directors 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
10580-1434, in part at the offices of the Custodian, Boston Safe Deposit and
Trust Company, One Boston Place, Boston, Massachusetts 02108, 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 EquiServe Trust Company,
N.A., PO Box 43025, Providence, RI 02940-3025.
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. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwith standing the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of prospec
tus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation
of Registra tion Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
2. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
3. The undersigned registrant hereby undertakes to supplement
the prospectus, after expiration of the subscription period,
to set forth the results of the subscription offer, and the
terms of any subsequent reoffering thereof.
5. 1. Registrant undertakes that, for the purpose of determining any
liability under the Securities 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.
2. Registrant undertakes that, for the purpose of determining any
liability under the Securities 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 and the Investment Company
Act of 1940, this Registrant's Registration Statement has been signed on
behalf of the Registrant, in the City of Rye, State of New York, on the 17th
day of March, 2003.
THE GABELLI MULTIMEDIA TRUST INC.
By: /s/ Bruce N. Alpert
---------------------------------
Bruce N. Alpert
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities set forth below on the 17th day of March, 2003.
Signature Title
* Director, and Chief Investment Officer
--------------------------
Mario J. Gabelli
* Director
--------------------------
Thomas E. Bratter
* Director
--------------------------
Anthony J. Colavita
* Director
--------------------------
James P. Conn
* Director
--------------------------
Frank J. Fahrenkopf, Jr.
* Director
--------------------------
Karl Otto Pohl
* Director
--------------------------
Anthony R. Pustorino
* Director
--------------------------
Werner Roeder
* Director
--------------------------
Salvatore J. Zizza
/s/ Bruce N. Alpert
-------------------------- President
Bruce N. Alpert
Attorney-in-Fact
* Pursuant to a Power of Attorney, filed herewith.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EX-99 (a) (i) Articles of Incorporation*
EX-99 (a) (ii) Articles Supplementary relating to the Series A
7.92% Cumulative Preferred Stock*
EX-99 (a) (iii) Articles Supplementary relating to the Series B __%
Cumulative Preferred Stock**
EX-99 (a) (iv) Articles Supplementary relating to the Series C
Auction Rate Cumulative Preferred**
EX-99 (b) Amended and Restated By-Laws
EX-99 (d) (i) (A) Specimen Stock Certificate, Series A 7.92% Cumulative
Preferred Stock*
EX-99 (d) (i) (B) Specimen Stock Certificate, Series B Cumulative
Preferred Stock**
EX-99 (d) (i) (C) Specimen Stock Certificate, Series C Auction Rate
Cumulative Preferred Stock**
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) (i) Registrar, Transfer Agency and Service Agreement
between Registrant and EquiServe Trust Company*
EX-99 (k) (ii) Form of Auction Agency Agreement**
EX-99 (k) (iii) Form of Broker-Dealer Agreement**
EX-99 (k) (iv) Form of DTC Agreement**
EX-99 (l) (i) Opinion and Consent of Skadden, Arps, Slate, Meagher
& Flom LLP**
EX-99 (l) (ii) Opinion and Consent of Miles & Stockbridge**
EX-99 (l) (iii) Opinion and Consent of Simpson Thacher & Bartlett**
EX-99 (n) (i) Consent of PricewaterhouseCoopers LLP
EX-99 (n) (ii) Powers of Attorney
EX-99 (r) Code of Ethics*
--------------
* Previously filed and incorporated by reference.
** To be filed by amendment.