nv2
As filed with the Securities and Exchange Commission on
July 21, 2011
Securities Act File
No. 333-
Investment Company Act File
No. 811-21529
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form N-2
þ Registration
Statement under the Securities Act of 1933
o Pre-Effective
Amendment No. 3
o Post-Effective
Amendment No.
and/or
þ Registration
Statement under the Investment Company Act of 1940
þ Amendment
No. 7
(Check Appropriate Box or Boxes)
THE GABELLI GLOBAL
UTILITY & INCOME TRUST
(Exact name of Registrant as
specified in Charter)
One Corporate Center, Rye, New
York
10580-1422
(Address of Principal
Executive Offices)
Registrants
Telephone Number, including Area Code:
(800) 422-3554
Bruce N. Alpert
The Gabelli Global
Utility & Income Trust
One Corporate Center
Rye, New York
10580-1422
(914) 921-5100
(Name and Address of
Agent for Service)
Copies to:
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Richard Prins, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
(212) 735-3000
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David Goldman, Esq.
The Gabelli Global Utility & Income Trust
One Corporate Center
Rye, New York 10580-1422
(914) 921-5100
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Approximate date of proposed public
offering: From time to time after the effective
date of this Registration Statement.
If any securities being registered on this form will be offered
on a delayed or continuous basis in reliance on Rule 415
under the Securities Act of 1933, as amended, other than
securities offered in connection with a dividend reinvestment
plan, check the following
box. þ
It is proposed that this filing will become effective (check
appropriate box)
þ When
declared effective pursuant to section 8(c)
If appropriate, check the following box:
o This
[post-effective] amendment designates a new effective date for a
previously foiled [post-effective amendment] [registration
statement].
o This
form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the
Securities Act registration number of the earlier effective
registration statement for the same offering
is .
CALCULATION
OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum
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Proposed Maximum
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Amount of
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Amount Being
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Offering
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Aggregate
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Registration
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Title of Securities Being Registered
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Registered
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Price Per Share
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Offering Price(1)
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Fee(1)(3)
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Common Shares of Beneficial Interest(2)
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Preferred Shares of Beneficial Interest(2)
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Notes(2)
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Subscription Rights for Common Shares(2)
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Subscription Rights for Preferred Shares(2)
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Total
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[ ]
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$[ ]
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$100 million
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11,610
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(1)
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Estimated pursuant to Rule 457
solely for the purpose of determining the registration fee. The
proposed maximum offering price per security will be determined,
from time to time, by the Registrant in connection with the sale
by the Registrant of the securities registered under this
registration statement.
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(2)
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There is being registered hereunder
an indeterminate principal amount of common or preferred shares,
notes, or subscription rights to purchase common or preferred
shares as may be sold, from time to time. In no event will the
aggregate offering price of all securities issued from time to
time pursuant to this registration statement exceed
$100 million.
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(3)
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Includes a payment of $8,540 and an
unused registration fee of $3,070 that was previously paid in
connection with the filing of a registration statement for the
Registrant on November 21, 2007.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer and sale is not
permitted.
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Subject to Completion
Preliminary Prospectus dated July 21, 2011
PROSPECTUS
$100,000,000
The Gabelli Global
Utility & Income Trust
Common Shares
Preferred Shares
Notes
Subscription Rights for Common
or Preferred Shares
Investment Objectives. The Gabelli Global
Utility & Income Trust (the Fund) is a
non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940, as amended
(the 1940 Act). The Funds investment objective
is to seek a consistent level of after-tax total return for its
investors with an emphasis currently on tax-advantaged dividend
income (which is scheduled to change by the end of 2012 unless
further legislative action is taken). We cannot assure you that
the Funds objective will be achieved. Gabelli Funds, LLC
(the Investment Adviser) serves as investment
adviser to the Fund. Under normal market conditions, the Fund
invests at least 80% of its assets in equity securities of
domestic and foreign companies involved in the utilities
industry and other industries that are expected to
periodically pay dividends. The Funds 80% policy is not
fundamental and shareholders will be notified if it is changed.
Under current tax law, which expires for taxable years beginning
after December 31, 2012, dividends on most stocks issued by
publicly traded companies may qualify for U.S. federal
income taxation at rates applicable to long-term capital gains,
which currently are taxed at a maximum rate of 15%. Such
dividends are referred to in this prospectus as
tax-advantaged qualified dividend income or
qualifying dividends. Companies in the
utilities industry are those companies involved to a
substantial extent (i.e., at least 50% of the assets, gross
income or net profits of a company is committed to or derived
from) in providing (i) products, services or equipment for
the generation or distribution of electricity, gas or water,
(ii) infrastructure operations such as airports, toll roads
and municipal services and (iii) telecommunications
services such as telephone, telegraph, satellite, cable,
microwave, radiotelephone, mobile communication and cellular,
paging, electronic mail, videotext, voice communications, data
communications and internet. Under normal market conditions, at
least 50% of the Funds assets will consist of equity
securities of domestic and foreign companies involved to a
substantial extent in the utilities industry. In
making stock selections, the Funds Investment Adviser
looks for companies that have proven dividend records and sound
financial structures. The Fund was organized as a Delaware
statutory trust on March 8, 2004 and commenced its
investment operations on May 28, 2004. An investment in the
Fund is not appropriate for all investors.
We may offer, from time to time, in one or more offerings, our
common or preferred shares, each with a par value $0.001 per
share (together, shares), our promissory notes
(notes), or our subscription rights to purchase our
common or preferred shares, which we refer to collectively as
the securities. Securities may be offered at prices
and on terms to be set forth in one or more supplements to this
Prospectus (each a Prospectus Supplement). You
should read this Prospectus and the applicable Prospectus
Supplement carefully before you invest in our securities.
Our securities may be offered directly to one or more
purchasers, through agents designated from time to time by us,
or to or through underwriters or dealers. The Prospectus
Supplement relating to the offering will identify any agents or
underwriters involved in the sale of our securities, and will
set forth any applicable purchase price, fee, commission or
discount arrangement between us and our agents or underwriters,
or among our underwriters, or the basis upon which such amount
may be calculated. The Prospectus Supplement relating to any
sale of preferred shares will set forth the liquidation
preference and information about the dividend period, dividend
rate, any call protection or non-call period and other matters.
The Prospectus Supplement relating to any sale of notes will set
forth the principal amount, interest rate, interest payment
dates, prepayment protection (if any), and other matters. The
Prospectus Supplement relating to any offering of subscription
rights will set forth the number of common or preferred shares
issuable upon the exercise of each right and the other terms of
such rights offering. We may not sell any of our securities
through agents, underwriters or dealers without delivery of a
Prospectus Supplement describing the method and terms of the
particular offering of our securities. Our common shares are
listed on the NYSE Amex LLC (the NYSE Amex) under
the symbol GLU. On [ , 2011] the last reported sale
price of our common shares was
$[ ]. The net asset value of the
Funds common shares at the close of business on [ , 2011]
was $[ ] per share.
Shares of closed-end funds often trade at a discount from net
asset value. This creates a risk of loss for an investor
purchasing shares in a public offering.
Investing in the Funds securities involves risks. See
Risk Factors and Special Considerations on
page 26 for factors that should be considered before
investing in securities of the Fund.
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.
This prospectus may not be used to consummate sales of
securities by us through agents, underwriters or dealers unless
accompanied by a Prospectus Supplement.
This prospectus sets forth concisely the information about the
Fund that a prospective investor should know before investing.
You should read this prospectus, which contains important
information about the Fund, before deciding whether to invest in
the securities, and retain it for future reference. A Statement
of Additional Information, dated July 21, 2011, containing
additional information about the Fund, has been filed with the
Securities and Exchange Commission and is incorporated by
reference in its entirety into this prospectus. You may request
a free copy of our annual and semi-annual reports, request a
free copy of the Statement of Additional Information, the table
of contents of which is on page 53 of this prospectus,
request other information about us and make shareholder
inquiries by calling (800) GABELLI
(422-3554)
or by writing to the Fund, or obtain a copy (and other
information regarding the Fund) from the Securities and Exchange
Commissions web site
(http://www.sec.gov).
Our securities do not represent a deposit or obligation of, and
are not guaranteed or endorsed by, any bank or other insured
depository institution, and are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other government agency.
You should rely only on the information contained or
incorporated by reference in this prospectus. The Fund has not
authorized anyone to provide you with different information. The
Fund is not making an offer to sell these securities in any
state where the offer or sale is not permitted. You should not
assume that the information contained in this prospectus is
accurate as of any date other than the date of this
prospectus.
TABLE OF
CONTENTS
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12
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71
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A-1
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EX-99.N.II |
i
PROSPECTUS
SUMMARY
This is only a summary. This summary may not contain all of
the information that you should consider before investing in our
shares. You should review the more detailed information
contained in this Prospectus and the Statement of Additional
Information, dated July 21, 2011 (the SAI).
The
Fund
The Gabelli Global Utility & Income Trust is a
closed-end, non-diversified management investment company
organized as a Delaware statutory trust on March 8, 2004.
Throughout this Prospectus, we refer to The Gabelli Global
Utility & Income Trust as the Fund or as
we. See The Fund.
The Funds outstanding common shares, par value $0.001 per
share, are listed on the NYSE Amex LLC (NYSE Amex)
under the symbol GLU. On
[ , 2011], the last reported sale
price of our common shares was
$[ ]. As of
[ , 2011], the net asset value of
the Funds common shares was
$[ ] per share. As of June 30,
2011, the Fund had outstanding 3,073,974 common shares.
The
Offering
We may offer, from time to time, in one or more offerings, our
common or preferred shares, $0.001 par value per share, our
notes, or our subscription rights to purchase our common or
preferred shares. The preferred shares may be either fixed rate
preferred shares or variable rate preferred shares, which are
sometimes referred to as auction rate preferred
shares. The securities may be offered at prices and on terms to
be set forth in one or more supplements to this Prospectus (each
a Prospectus Supplement). The offering price per
share of our common stock will not be less than the net asset
value per share of our common stock at the time we make the
offering, exclusive of any underwriting commissions or
discounts, provided that transferable rights offerings that meet
certain conditions may be offered at a price below the then
current net asset value. See Rights Offerings. You
should read this Prospectus and the applicable Prospectus
Supplement carefully before you invest in our securities. Our
securities may be offered directly to one or more purchasers,
through agents designated from time to time by us, or through
underwriters or dealers. The Prospectus Supplement relating to
the offering will identify any agents, underwriters or dealers
involved in the sale of our shares, and will set forth any
applicable purchase price, fee, commission or discount
arrangement between us and our agents or underwriters, or among
our underwriters, or the basis upon which such amount may be
calculated. The Prospectus Supplement relating to any sale of
preferred shares will set forth the liquidation preference and
information about the dividend period, dividend rate, any call
protection or non-call period and other matters. The Prospectus
Supplement relating to any sale of notes will set forth the
principal amount, interest rate, interest payment dates,
prepayment protection (if any), and other matters. The
Prospectus Supplement relating to any offering of subscription
rights will set forth the number of common or preferred shares
issuable upon the exercise of each right and the other terms of
such rights offering.
While the aggregate number and amount of securities we may issue
pursuant to this registration statement is limited to
$100,000,000 of securities, our Board of Trustees (the
Board) may, without any action by the shareholders,
amend our Agreement and Declaration of Trust from time to time
to increase or decrease the aggregate number of shares or the
number of shares of any class or series that we have authority
to issue. We may not sell any of our securities through agents,
underwriters or dealers without delivery of a Prospectus
Supplement describing the method and terms of the particular
offering.
Investment
Objectives and Policies
The Funds investment objective is to seek a consistent
level of after-tax total return with an emphasis currently on
tax-advantaged qualified dividend income. No assurance can be
given that the Fund will achieve its investment objective or
that tax-advantaged treatment for qualifying dividends will
continue to be available after 2012. The Fund will attempt to
achieve its investment objective by investing, under normal
market conditions, at least 80% of its assets in (i) equity
securities (including common stock, preferred stock, convertible
stock and options on these securities) of domestic and foreign
companies involved to a substantial
1
extent (i.e., at least 50% of the assets, gross income or net
profits of a company is committed to or derived from) in
providing (a) products, services or equipment for the
generation or distribution of electricity, gas or water,
(b) infrastructure operations such as airports, toll roads
and municipal services and (c) telecommunications services
such as telephone, telegraph, satellite, cable, microwave,
radiotelephone, mobile communication and cellular, paging,
electronic mail, videotext, voice communications, data
communications and internet (collectively, the Utilities
Industry) and (ii) equity securities (including
preferred securities) of companies in other industries, in each
case in such securities that are expected to periodically pay
dividends. The Funds 80% policy is not fundamental and
shareholders will be notified if it is changed. In addition,
under normal market conditions, at least 50% of the Funds
assets will consist of equity securities (including preferred
securities) of domestic and foreign companies involved to a
substantial extent in the Utilities Industry. The remaining Fund
assets will generally be invested in other securities that the
Investment Adviser views as not being correlated with the
Funds Utilities Industry investments. Such investments may
include convertible securities, securities of issuers subject to
reorganization or other risk arbitrage investments, certain
derivative instruments including equity contract for difference
swap transactions, debt (including obligations of the U.S.
Government), and money market instruments. The Fund may invest
without limitation in securities of foreign issuers and will
generally be invested in securities of issuers located in at
least three countries, including the United States. Among the
foreign securities in which the Fund may invest are those issued
by companies located in emerging market countries,
which are countries in the initial stages of their
industrialization cycles.
The Fund will invest in securities across all market
capitalization ranges. No assurance can be given that the Fund
will achieve its investment objective. See Investment
Objectives and Policies.
The Fund is intended for investors seeking a consistent level of
after-tax total return consisting of income (with a current
emphasis on qualifying dividends) and long-term capital gain. It
is not intended for those who wish to play short-term swings in
the stock market.
The Investment Advisers investment philosophy with respect
to selecting investments in the Utilities Industry is to
emphasize quality. The Investment Adviser will seek companies
that have proven dividend records and sound financial
structures. In addition, in making stock selections, the
Funds Investment Adviser looks for securities that have a
superior yield, as well as capital gains potential. The
Investment Adviser 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 an 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.
Preferred
Shares
The terms of each series of preferred shares may be fixed by the
Board and may materially limit and/or qualify the rights of
holders of the Funds common shares. If the Funds
Board determines that it may be advantageous to the holders of
the Funds common shares for the Fund to utilize additional
leverage, the Fund may issue series of fixed rate preferred
shares (Fixed Rate Preferred Shares) or series of
variable rate preferred shares (Variable Rate Preferred
Shares). Any Fixed Rate Preferred Shares or Variable Rate
Preferred Shares issued by the Fund will pay, as applicable,
distributions at a fixed rate or at rates that will be reset
frequently based on short-term interest rates. Leverage creates
a greater risk of loss as well as a potential for more gains for
the common shares than if leverage were not used. See Risk
Factors and Special ConsiderationsLeverage Risk. The
Fund may also determine in the future to issue other forms of
senior securities, such as securities representing debt, subject
to the limitations of the 1940 Act. The Fund may also engage in
investment management techniques which will not be considered
senior securities if the Fund establishes a segregated account
with cash or other liquid securities equal to the Funds
obligations in respect of such techniques. The Fund may also
borrow money, to the extent permitted by the 1940 Act.
2
Dividends
and Distributions
Preferred Shares Distributions. In
accordance with the Funds Agreement and Declaration of
Trust and By-laws (together with any amendments or supplements
thereto, including any Statement of Preferences of the Fund
establishing a series of preferred shares (the Statement
of Preferences and together with the Agreement and
Declaration of Trust, the Governing Documents), all
preferred shares of the Fund must have the same seniority with
respect to distributions. Accordingly, no full distribution will
be declared or paid on any series of preferred shares of the
Fund for any dividend period, or part thereof, unless full
cumulative dividends and distributions due through the most
recent dividend payment dates for all series of outstanding
preferred shares of the Fund are declared and paid. If full
cumulative distributions due have not been declared and made on
all outstanding preferred shares of the Fund, any distributions
on such preferred shares will be made as nearly pro rata as
possible in proportion to the respective amounts of
distributions accumulated but unmade on each such series of
preferred shares on the relevant dividend payment date.
In the event that for any calendar year the total distributions
on the Funds preferred shares exceed the Funds
ordinary income and net capital gain allocable to such shares,
the excess distributions will generally be treated as a tax-free
return of capital (to the extent of the shareholders tax
basis in the shares) or capital gains. Any return of capital
that is a component of a distribution is not sourced from
realized or unrealized profits of the Fund and that portion
should not be considered by investors as yield or total return
on their investment in the Fund. The amount treated as a
tax-free return of capital will reduce a shareholders
adjusted tax basis in the preferred shares, thereby increasing
the shareholders potential taxable gain or reducing the
potential taxable loss on the sale of the shares. The
composition of each distribution is estimated based on the
earnings of the Fund as of the record date for each
distribution. The actual composition of each of the current
years distributions will be based on the Funds
investment activity through the end of the calendar year.
Fixed Rate Preferred Shares. Distributions on
fixed rate preferred shares, at the applicable annual rate of
the per share liquidation preference, are cumulative from the
original issue date and are payable, when, as and if declared by
the Board of Trustees of the Fund, out of funds legally
available therefor.
Variable Rate Preferred Shares. The holders of variable
rate preferred shares are entitled to receive cash
distributions, stated at annual rates of the applicable per
share liquidation preference, that vary from dividend period to
dividend period.
Common Shares Distributions. In order to
allow its common shareholders to realize a predictable, but not
assured, level of cash flow and some liquidity periodically on
their investment without having to sell shares, the Fund has
adopted a managed distribution policy, which may be changed at
any time by the Board, of paying a minimum annual distribution
of 6% of the initial public offering price of $20.00 per share
to common shareholders. In the event the Fund does not generate
a total return from dividends and interest received and net
realized capital gains in an amount equal to or in excess of its
stated distribution in a given year, the Fund may return capital
as part of such distribution, which may have the effect of
decreasing the asset coverage per share with respect to the
Funds preferred shares. Any return of capital should not
be considered by investors as yield or total return on their
investment in the Fund. For the fiscal year ended
December 31, 2010, the Fund made distributions of $1.20 per
common share, $0.51 of which constituted a return of capital.
The Fund has made monthly distributions with respect to its
common shares since September 2004. The composition of each
distribution is estimated based on the earnings of the Fund as
of the record date for each distribution. The actual composition
of each of the current years distributions will be based
on the Funds investment activity through the end of the
calendar year.
Payment
on Notes
Under applicable state law and our Agreement and Declaration of
Trust, we may borrow money without prior approval of holders of
common and preferred stock. We may issue debt securities,
including notes, or other evidence of indebtedness and may
secure any such notes or borrowings by mortgaging, pledging or
otherwise subjecting as security our assets to the extent
permitted by the 1940 Act or rating agency guidelines. Any
borrowings, including without limitation the notes, will rank
senior to the preferred shares and the
3
common shares. The prospectus supplement will describe the
interest payment provisions relating to notes. Interest on notes
will be payable when due as described in the related prospectus
supplement. If we do not pay interest when due, it will trigger
an event of default and we will be restricted from declaring
dividends and making other distributions with respect to our
common shares and preferred shares.
Use of
Proceeds
The Fund will use the net proceeds from the offering to purchase
portfolio securities in accordance with its Investment
Objectives and Policies. Depending on market conditions and
operations, a portion of the proceeds may be used to pay
distributions. See Use of Proceeds.
Exchange
Listing
The Funds outstanding common shares are listed on the NYSE
Amex, under the trading or ticker symbol
GLU. See Description of the Securities.
Any series of Fixed Rate Preferred Shares or subscription rights
issued by the Fund would also likely be listed on the NYSE Amex.
Any series of Variable Rate Preferred Shares would likely not be
listed on an exchange.
Risk
Factors and Special Considerations
Risk is inherent in all investing. Therefore, before investing
in the Funds preferred shares, you should consider the
risks carefully.
Industry Concentration Risk. Under normal
market conditions, the Fund invests at least 50% of its assets
in foreign and domestic companies in the Utilities Industry (as
described under Investment Objective and Policies).
As a result of this policy of concentrating its investments in a
particular industry, the net asset value of the Fund will be
more susceptible to factors affecting those particular types of
companies, such as government regulation, inflation, cost
increases in fuel and other operating expenses, technological
innovations that may render existing products and equipment
obsolete, and increasing interest rates resulting in high
interest costs on borrowings needed for product development,
capital investment and construction programs, including costs
associated with compliance with environmental and other
regulations. In addition, the Funds concentration policy
may subject it to greater risk of market fluctuation than a fund
that had securities representing a broader range of investment
alternatives. See Risk Factors and Special
ConsiderationsIndustry Risk.
Leverage Risk. The Fund may use financial
leverage for investment purposes by issuing preferred shares or
notes. If the Fund does use leverage, the Funds capital
structure would create special risks not associated with
unleveraged funds having a similar investment objective and
policies. These include the possibility of greater loss and the
likelihood of higher volatility of the net asset value of the
Fund and the asset coverage for the preferred shares. Such
volatility may increase the likelihood of the Fund having to
sell investments in order to meet its obligations to make
distributions on the preferred shares or principal or interest
payments on debt securities, or to redeem preferred shares or
repay debt, when it may be disadvantageous to do so. The use of
leverage magnifies both the favorable and unfavorable effects of
price movements in the investments made by the Fund. To the
extent that the Fund determines to employ leverage in its
investment operations, the Fund will be subject to substantial
risk of loss. The Fund cannot assure you that borrowings or the
issuance of preferred shares will result in a higher yield or
return to the holders of the common shares. Also, if the Fund
utilizes leverage, a decline in net asset value could affect the
ability of the Fund to make common share distributions and such
a failure to make distributions could result in the Fund ceasing
to qualify as a regulated investment company under the Code.
The issuance of preferred shares or notes causes the net asset
value and market value of the common shares to become more
volatile. If the interest rate on the notes or the dividend rate
on the preferred shares approaches the net rate of return on the
Funds investment portfolio, the benefit of leverage to the
holders of the common shares would be reduced. If the interest
rates on the notes or the dividend rate on the preferred shares
plus the management fee annual rate of 1.00% (as applicable)
exceeds the net rate of return on the
4
Funds portfolio, the leverage will result in a lower rate
of return to the holders of common shares than if the Fund had
not issued preferred shares or notes.
Any decline in the net asset value of the Funds
investments would be borne entirely by the holders of common
shares. Therefore, if the market value of the Funds
portfolio declines, the leverage will result in a greater
decrease in net asset value to the holders of common shares than
if the Fund were not leveraged. This greater net asset value
decrease will also tend to cause a greater decline in the market
price for the common shares. The Fund might be in danger of
failing to maintain the required asset coverage of the notes or
preferred shares or of losing its ratings on the preferred
shares or notes or, in an extreme case, the Funds current
investment income might not be sufficient to meet the
distribution requirements on the preferred shares or notes. In
order to counteract such an event, the Fund might need to
liquidate investments in order to fund redemption of some or all
of the preferred shares or notes.
In addition, the Fund would pay (and the holders of common
shares will bear) all costs and expenses relating to the
issuance and ongoing maintenance of the preferred shares or
notes, including any additional advisory fees on the incremental
assets attributable to such preferred shares or notes. Holders
of preferred shares may have different interests than holders of
common shares and at times may have disproportionate influence
over the Funds affairs. In the event the Fund fails to
maintain the specified level of asset coverage of any notes
outstanding, the holders of the preferred shares will have the
right to elect a majority of the Funds trustees. In
addition, holders of preferred shares, voting separately as a
single class, have the right to elect two members of the Board
of Trustees at all times and in the event dividends become in
arrears for two full years would have the right (subject to the
rights of noteholders) to elect a majority of the Trustees until
the arrearage is completely eliminated. In addition, preferred
shareholders have class voting rights on certain matters,
including changes in fundamental investment restrictions and
conversion of the Fund to open-end status, and accordingly can
veto any such changes. See Risk Factors and Special
ConsiderationsSpecial Risks to Holders of Common
SharesLeverage Risk.
Special Risks to Holders of Notes. An
investment in our notes is subject to special risks. There may
not be an established market for our notes. To the extent that
our notes trade, they may trade at a price either higher or
lower than their principal amount depending on interest rates,
the rating (if any) on such notes and other factors. See
Risk Factors and Special ConsiderationsSpecial Risks
to Holders of Notes.
Special Risks to Holders of Fixed Rate Preferred
Shares. Prior to any offering, there will be no
public market for Fixed Rate Preferred Shares. In the event any
series of Fixed Rate Preferred Shares are issued, prior
application will have been made to list such shares on a
national securities exchange, which will likely be the NYSE
Amex. However, during an initial period, which is not expected
to exceed 30 days after the date of its initial issuance,
such shares may not be listed on any securities exchange. During
such period, the underwriters may make a market in such shares,
although they will have no obligation to do so. Consequently, an
investment in such shares may be illiquid during such period.
Shares of Fixed Rate Preferred may trade at a premium to or
discount from liquidation value for various reasons, including
changes in interest rates.
Special Risks for Holders of Variable Rate Preferred
Shares.
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Auction Risk. You may not be able to sell your
auction Variable Rate Preferred Shares at an auction if the
auction fails, i.e., if more Variable Rate Preferred Shares are
offered for sale than there are buyers for those shares. Also,
if you place an order (a hold order) at an auction to retain
Variable Rate Preferred Shares only at a specified rate that
exceeds the rate set at the auction, you will not retain your
Variable Rate Preferred Shares. 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. Further, the dividend period
may be changed, subject to certain conditions and with notice to
the holders of the Variable Rate Preferred Shares, which could
also affect the liquidity of your investment. Since 2008, most
auction-rate preferred share auctions have been unable to hold
successful auctions and holders of such shares have suffered
reduced liquidity. There can be no assurance that liquidity will
improve.
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5
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Secondary Market Risk. If you try to sell your
Variable Rate Preferred Shares between auctions, you may not be
able to sell them for their liquidation preference per share or
such amount 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
Variable Rate Preferred Shares are not required to maintain this
market, and the Fund is not required to redeem Variable Rate
Preferred Shares if either an auction or an attempted secondary
market sale fails because of a lack of buyers. The Variable Rate
Preferred Shares will not be registered on a stock exchange. If
you sell your Variable Rate Preferred Shares 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.
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Special Risk to Holders of Subscription
Rights. There is a risk that changes in market
conditions may result in the underlying common or preferred
shares purchaseable upon exercise of the subscription rights
being less attractive to investors at the conclusion of the
subscription period. This may reduce or eliminate the value of
the subscription rights. Investors who receive subscription
rights may find that there is no market to sell rights they do
not wish to exercise. If investors exercise only a portion of
the rights, the number of common or preferred shares issued may
be reduced, and the common or preferred shares may trade at less
favorable prices than larger offerings for similar securities.
Tax Risk. The Fund has qualified, and intends
to remain qualified, for federal income tax purposes as a
regulated investment company.
Qualification requires, among other things, compliance by the
Fund with certain distribution requirements. Statutory
limitations on distributions on the common shares if the Fund
fails to satisfy the 1940 Acts asset coverage requirements
could jeopardize the Funds ability to meet such
distribution requirements. The Fund presently intends, however,
to purchase or redeem preferred shares to the extent necessary
in order to maintain compliance with such asset coverage
requirements. See Taxation for a more complete
discussion of these and other federal income tax considerations.
We cannot assure you what percentage of the distributions paid
on the common shares, if any, will consist of tax-advantaged
qualified dividend income or long-term capital gains or what the
tax rates on various types of income will be in future years.
The favorable rates on qualifying dividends and capital gains
are currently scheduled to increase for income received or gains
realized in taxable years beginning after December 31,
2012. See Risk Factors and Special ConsiderationsTax
Risk.
Foreign Securities Risk. Subject to the
Funds other policies including investing at least 50% of
its assets in the Utilities Industry, the Fund may invest
without limitation in securities of foreign issuers and will
generally be invested in securities of issuers located in at
least three countries, including the United States. 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. Foreign companies generally are
not subject to the same accounting, auditing and financial
standards and requirements as those applicable to U.S. companies.
Typically, the Fund will not hold any foreign securities of
emerging market issuers and, if it does, such securities will
not comprise more than 10% of the Funds managed assets.
Investing in securities of companies in emerging markets may
entail special risks relating to potential political and
economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions
on foreign investment, the lack of hedging instruments and
restrictions on repatriation of capital invested. Emerging
securities markets are substantially smaller, less developed,
less liquid and more volatile than the major securities markets.
The limited size of emerging securities markets and limited
trading value compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart
from factors that affect the quality of the securities. For
example, limited market size may cause prices to be unduly
influenced by traders who control large positions. Adverse
publicity and investors perceptions, whether or not based
on fundamental analysis, may decrease the value and liquidity of
portfolio securities, especially in these markets. Many emerging
6
market countries have experienced substantial, and in some
periods extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates and
corresponding currency devaluations have had and may continue to
have negative effects on the economies and securities markets of
certain emerging market countries. See Risk Factors and
Special ConsiderationsForeign Securities Risk.
Foreign Currency Risk. The Fund expects to
invest in companies whose securities are denominated in
currencies other than U.S. dollars or have operations outside of
the U.S. In such instances, the Fund will be exposed to currency
risk, including the risk of fluctuations in the exchange rate
between U.S. dollars (in which the Funds shares are
denominated) and such foreign currencies and the risk of
currency devaluations. Certain non- U.S. currencies, primarily
in developing countries, have been devalued in the past and
might face devaluation in the future. Currency devaluations
generally have a significant and adverse impact on the devaluing
countrys economy in the short and intermediate term and on
the financial condition and results of companies
operations in that country. Currency devaluations may also be
accompanied by significant declines in the values and liquidity
of equity and debt securities of affected governmental and
private sector entities generally. To the extent that affected
companies have obligations denominated in currencies other than
the devalued currency, those companies may also have difficulty
in meeting those obligations under such circumstances, which in
turn could have an adverse effect upon the value of the
Funds investments in such companies. There can be no
assurance that current or future developments with respect to
foreign currency devaluations will not impair the Funds
investment flexibility, its ability to achieve its investment
objective or the value of certain of its foreign currency
denominated investments. See Risk Factors and Special
ConsiderationsForeign Currency Risk.
Equity Risk. A principal risk of investing in
the Fund is equity risk, which is the risk that the securities
held by the Fund will fall in market value due to adverse market
and economic conditions, perceptions regarding the industries in
which the issuers of securities held by the Fund participate and
the particular circumstances and performance of particular
companies whose securities the Fund holds. An investment in the
Fund represents an indirect investment in the securities owned
by the Fund, which are for the most part traded on securities
exchanges or in the
over-the-counter
markets. The market value of these securities, like other market
investments, may move up or down, sometimes rapidly and
unpredictably. The net asset value of the Fund may at any point
in time be worth less than the amount at the time the
shareholder invested in the Fund, even after taking into account
any reinvestment of distributions. See Risk Factors and
Special ConsiderationsEquity Risk.
Dependence on Key Personnel. The Investment
Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing investment advisory services with respect
to the Funds investments. If the Investment Adviser were
to lose the services of Mr. Gabelli, its ability to service
the Fund could be adversely affected. There can be no assurance
that a suitable replacement could be found for Mr. Gabelli
in the event of his death, resignation, retirement or inability
to act on behalf of the Investment Adviser. See Risk
Factors and Special ConsiderationsDependence on Key
Personnel.
Market Discount Risk. 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 to or discount from
net asset value. Listed shares of closed-end investment
companies often trade at discounts from net asset value. This
characteristic of shares of a closed-end fund is a risk separate
and distinct from the risk that its net asset value may
decrease. The Fund cannot predict whether its listed shares will
trade at, below or above net asset value. See Risk Factors
and Special Considerations Market Discount
Risk.
Long-Term Objective; Not a Complete Investment
Program. The Fund is intended for investors
seeking a consistent level of after-tax total return consisting
of income (with a current emphasis on qualifying dividends) and
long-term capital gains. 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 Funds investment objective as
well as the shareholders other investments when
considering an investment in the Fund. See Risk Factors
and Special ConsiderationsLong-term Objective; Not a
Complete Investment Program.
7
Common Shares Distribution Policy
Risk. The Board has adopted a distribution
policy, which may be changed at any time, to pay monthly
distributions on the Funds common shares equal to an
annual rate of 6% of the initial public offering price of $20.00
per share. To the extent its total distributions for a year
exceed its net investment company taxable income and net
realized capital gain for that year, the excess would generally
constitute a return of capital. This would have the effect of
decreasing the asset coverage per share with respect to any
preferred shares, and may adversely affect their liquidity or
market value. Return of capital distributions are generally
tax-free up to the amount of a shareholders tax basis in
the shares and thereafter are treated as capital gains and
should not be considered by investors as an element of yield or
total return on their investment in the Fund. See
Taxation. In addition, such excess distributions
will decrease the Funds total assets and may increase the
Funds expense ratio. In order to make such distributions,
the Fund may have to sell a portion of its investment portfolio
at a time when independent investment judgment may not dictate
such action. See Risk Factors and Special Considerations
Common Shares Distribution Policy Risk.
Management Risk. The Fund is subject to
management risk because it is an actively managed portfolio. The
Investment Adviser will apply investment techniques and risk
analyses in making investment decisions for the Fund, but there
can be no guarantee that these will produce the desired results.
See Risk Factors and Special
ConsiderationsManagement Risk.
Distribution Risk for Equity Income Portfolio
Securities. The Fund will invest a portion of its
assets in the shares of issuers that pay dividends. Such
dividends are not guaranteed and in the event an issuer does not
realize sufficient income in a particular period to both service
its liabilities and to pay dividends, it may forgo paying
dividends. See Risk Factors and Special
ConsiderationsDistribution Risk for Equity Income
Portfolio Securities.
Special Risks Related to Investing in Preferred
Securities. Special risks associated with
investing in preferred securities include deferral of
distributions or dividend payments, in some cases the right of
an issuer never to pay missed dividends, subordination,
illiquidity, limited voting rights and redemption by the issuer.
Because the Fund has no limit on its investment in
non-cumulative preferred securities, the amount of distributions
the Fund pays may be adversely affected if an issuer of a
non-cumulative preferred stock held by the Fund determines not
to pay dividends on such stock. There is no assurance that
dividends or distributions on preferred stock in which the Fund
invests will be declared or otherwise made payable. See
Risk Factors and Special ConsiderationsSpecial Risks
Related to Preferred Securities.
Income Risk. The income shareholders receive
from the Fund is expected to be based primarily on dividends and
interest the Fund earns from its investments, which can vary
widely over the short and long-term. If prevailing market
interest rates drop, distribution rates of the Funds
holdings in preferred stock and any bond holdings could decline
and shareholders income from the Fund could drop as well.
The Funds income also would likely be affected adversely
when prevailing short-term interest rates increase and the Fund
is utilizing leverage. See Risk Factors and Special
ConsiderationsIncome Risk.
Interest Rate Risk. Interest rate risk is the
risk that fixed-income securities, fixed-rate preferred shares,
and to a lesser extent common stocks issued by some companies in
the Utilities Industry will decline in value because of changes
in market interest rates. When market interest rates rise, the
market value of such securities generally will fall. The
Funds investment in such securities means that the net
asset value and market price of its outstanding common stock
will tend to decline if market interest rates rise. An increase
in market interest rates will also generally result in a
decrease in the price of any of the Funds outstanding
preferred shares, although this effect would normally be more
pronounced for its fixed rate preferred shares than for its
variable rate preferred shares.
During periods of declining interest rates, the issuer of a
security may exercise an option to prepay principal earlier than
scheduled, forcing the Fund to reinvest in lower yielding
securities. This is known as call or prepayment risk. Preferred
stock and debt securities frequently have call features that
allow the issuer to redeem the securities prior to their stated
maturities. An issuer may redeem such a security if the issuer
can refinance it at a lower cost due to declining interest rates
or an improvement in the credit standing of the issuer. During
periods of rising interest rates, the average life of certain
types of securities may be extended
8
because of slower than expected principal payments. This may
lock in a below market interest rate, increase the
securitys duration and reduce the value of the security.
This is known as extension risk.
Market interest rates for investment grade fixed-income
securities of the type in which the Fund will invest have
recently declined significantly below the historical average
rates for such securities. This decline may have increased the
risk that these rates will rise in the future (which would cause
the value of the Funds assets invested in fixed income
securities to decline) and the degree to which asset values may
decline in such event; however, historical interest rate levels
are not necessarily predictive of future interest rate levels.
See Risk Factors and Special ConsiderationsInterest
Rate Risk.
Inflation Risk. Inflation risk is the risk
that the value of assets or income from investments will be
worth less in the future as inflation decreases the value of
money. As inflation increases, the real value of the Funds
shares and distributions thereon can decline. In addition,
during any periods of rising inflation, dividend rates of any
variable rate preferred shares or debt securities issued by the
Fund would likely increase, which would tend to further reduce
returns to common shareholders. See Risk Factors and
Special ConsiderationsInflation Risk.
Dilution Risk for Convertible Securities. In
the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Funds
holding may occur in the event the underlying shares are
subdivided, additional equity securities are issued for below
market value, a stock dividend is declared, or the issuer enters
into another type of corporate transaction that has a similar
effect. See Risk Factors and Special
ConsiderationsDilution Risk for Convertible
Securities.
Value Investing Risk. The Fund invests in
dividend-paying common and preferred stocks in the Utilities
Industry that the Investment Adviser believes are undervalued or
inexpensive relative to other investments. These types of
securities may present risks in addition to the general risks
associated with investing in common and preferred stocks. See
Risk Factors and Special ConsiderationsValue
Investing Risk.
Non-Diversified Status. As a non-diversified
investment company under the 1940 Act, the Fund is not limited
in the proportion of its assets that may be invested in
securities of a single issuer, and accordingly, an investment in
the Fund may, under certain circumstances, present greater risk
to an investor than an investment in a diversified company. See
Risk Factors and Special
ConsiderationsNon-Diversified Status. See also
Taxation.
Illiquid Securities. The Fund has no limit on
the amount of its net assets it may invest in unregistered or
otherwise illiquid investments. Unregistered securities are
securities that cannot be sold publicly in the United States
without registration under the Securities Act of 1933 (the
Securities Act). Unregistered securities generally
can be resold only in privately negotiated transactions with a
limited number of purchasers or in a public offering registered
under the Securities Act. Considerable delay could be
encountered in either event and, unless otherwise contractually
provided for, the Funds proceeds upon sale may be reduced
by the costs of registration or underwriting discounts. The
difficulties and delays associated with such transactions could
result in the Funds inability to realize a favorable price
upon disposition of unregistered securities, and at times might
make disposition of such securities impossible. See Risk
Factors and Special ConsiderationsIlliquid
Securities.
Risk Arbitrage. To the extent consistent with
the Funds investment objective and policies, the Fund may
invest in securities pursuant to risk arbitrage
strategies or in other investment funds managed pursuant to such
strategies. Risk arbitrage strategies attempt to exploit merger
activity to capture the spread between current market values of
securities and their values after successful completion of a
merger, restructuring or similar corporate transaction. A merger
or other restructuring or tender or exchange offer anticipated
by the Fund and in which it holds an arbitrage position may not
be completed on the terms contemplated or within the time frame
anticipated, resulting in losses to the Fund. Such losses would
be magnified to the extent that the Fund uses leverage to
increase its stake in an arbitrage position. See Risk
Factors and Special ConsiderationsRisk Arbitrage.
9
Lower Rated Securities. The Fund may invest up
to 10% of its total assets in fixed income securities rated
below investment grade by recognized statistical rating agencies
or unrated securities of comparable quality. The prices of these
lower grade securities are more sensitive to negative
developments, such as a decline in the issuers revenues or
a general economic downturn, than are the prices of higher grade
securities. Securities of below investment grade
qualitythose securities rated below Baa by Moodys or
below BBB by S&Pare predominantly speculative with
respect to the issuers capacity to pay interest and repay
principal when due and therefore involve a greater risk of
default and are commonly referred to as junk bonds.
See Risk Factors and Special ConsiderationsLower
Rated Securities.
Loans of Portfolio Securities. The Fund may
seek to earn income by lending portfolio securities to
broker-dealers or other institutional borrowers. As with other
extensions of credit, there are risks of delay in recovery or
even loss of rights in the securities loaned if the borrower of
the securities violates the terms of the loan or fails
financially. See Risk Factors and Special Considerations
Loans of Portfolio Securities.
Market Disruption and Geopolitical Risk. The
terrorist attacks on domestic U.S. targets on September 11,
2001, the wars in Iraq and Afghanistan and other geopolitical
events have led to, and may in the future lead to, increased
short-term market volatility and may have long-term effects on
U.S. and world economies and markets. The nature, scope and
duration of the war and occupation cannot be predicted with any
certainty. Similar events in the future or other disruptions of
financial markets could affect interest rates, securities
exchanges, auctions, secondary trading, ratings, credit risk,
inflation, energy prices and other factors relating to the
common shares. See Risk Factors and Special
ConsiderationsMarket Disruption and Geopolitical
Risk.
Recent Economic Events. While the U.S. and
global markets had experienced extreme volatility and disruption
for an extended period of time, fiscal year 2010 and the first
quarter of 2011 witnessed more stabilized economic activity as
expectations for an economic recovery increased. However, risks
to a robust resumption of growth persist: a weak consumer
weighed down by too much debt and increasing joblessness, the
growing size of the federal budget deficit and national debt,
and the threat of inflation. A return to unfavorable economic
conditions could impair the Funds ability to execute its
investment strategies. See Risk Factors and Special
ConsiderationsRecent Economic Developments.
2012 U.S. Federal Budget. The proposed U.S.
federal budget for fiscal year 2012 calls for the elimination of
approximately $40 billion in tax incentives widely used by
oil, gas and coal companies and the imposition of new fees on
certain energy producers. The elimination of such tax incentives
and imposition of such fees could adversely affect natural
resources companies in which the Fund invests and/or the natural
resources sector generally. See Risk Factors and Special
Considerations2012 U.S. Federal Budget.
Government Intervention in Financial Markets
Risk. The recent instability in the financial
markets has led the U.S. government and foreign governments to
take a number of unprecedented actions designed to support
certain financial institutions and segments of the financial
markets that have experienced extreme volatility, and in some
cases a lack of liquidity. U.S. federal and state governments
and foreign governments, their regulatory agencies or self
regulatory organizations may take additional actions that affect
the regulation of the securities in which the Fund invests, or
the issuers of such securities, in ways that are unforeseeable.
Issuers of corporate securities might seek protection under the
bankruptcy laws. Legislation or regulation may also change the
way in which the Fund itself is regulated. Such legislation or
regulation could limit or preclude the Funds ability to
achieve its investment objectives. The Investment Adviser will
monitor developments and seek to manage the Funds
portfolio in a manner consistent with achieving the Funds
investment objectives, but there can be no assurance that it
will be successful in doing so. See Risk Factors and
Special ConsiderationsGovernment Intervention in Financial
Markets Risk.
Anti-takeover Provisions. The Funds
governing documents include provisions that could limit the
ability of other entities or persons to acquire control of the
Fund or convert the Fund to an open-end fund. See
Anti-Takeover Provisions of the Funds Governing
Documents.
10
Management
and Fees
Gabelli Funds, LLC serves as the Funds Investment Adviser
and is compensated for its services and its related expenses at
an annual rate of 1.00% of the Funds average weekly total
assets. This fee will be reduced each year following the fifth
anniversary of the investment advisory agreement by
10 basis points until the eighth anniversary, after which
time the Investment Adviser will be compensated at an annual
rate of .50% of the Funds average weekly total assets. The
Funds total assets for purposes of calculating the level
of the management fee will typically include assets attributable
to any outstanding senior securities, such as preferred shares,
or indebtedness, such as notes. The Investment Adviser is
responsible for administration of the Fund and currently
utilizes and pays the fees of a third party
sub-administrator.
See Management of the Fund.
During periods when the Fund has outstanding preferred shares or
notes, the fees paid to the Investment Adviser for its services
to the Fund may be higher than if the Fund did not issue such
securities because such fees will be calculated on the basis of
the Funds average weekly total assets. Consequently, the
Fund and the Investment Adviser may have differing interests in
determining whether to leverage the Funds assets by
issuing such securities. The Board will monitor this potential
conflict.
A discussion regarding the basis for the Boards approval
of the continuation of the investment advisory contract of the
Fund will be available in the Funds semi-annual report to
shareholders dated June 30, 2011.
Repurchase
of Common Shares
The Funds Board has authorized the Fund to repurchase its
common shares in the open market when the common shares are
trading at a discount of 10% or more from net asset value (or
such other percentage as the Board may determine from time to
time). The Fund Manager has discretion as to whether or not
he wants to repurchase common shares if they are trading at the
required discount. Such repurchases are subject to certain
notice and other requirements under the 1940 Act. See
Repurchase of Common Shares.
Anti-Takeover
Provisions
Certain provisions of the Funds Governing Documents may be
regarded as anti-takeover provisions. Pursuant to
these provisions, only one of three classes of Trustees is
elected each year, and the affirmative vote of the holders of
75% of the outstanding shares of the Fund are necessary to
authorize the conversion of the Fund from a closed-end to an
open-end investment company. The overall effect of these
provisions is to render more difficult the accomplishment of a
merger with, or the assumption of control by, a principal
shareholder. These provisions may have the effect of depriving
Fund common shareholders of an opportunity to sell their shares
at a premium to the prevailing market price. See
Anti-Takeover Provisions of the Funds Governing
Documents.
Custodian,
Transfer Agent, Auction Agent and
Dividend
Disbursing Agent
State Street Bank and Trust Company, located at One
Heritage Drive, Palmer 2N, North Quincy, Massachusetts 02171,
serves as the custodian of the Funds assets pursuant to a
custody agreement. Under the custody agreement, the Custodian
holds the Funds assets in compliance with the 1940 Act.
For its services, the Custodian receives a monthly fee based
upon the month end value of the total assets of the Fund, plus
certain charges for securities transactions.
Computershare Trust Company, N.A.
(Computershare), located at
P.O. Box 43010, Providence, Rhode Island 02940,
serves as the Funds dividend disbursing agent, as agent
under the Funds automatic dividend reinvestment and
voluntary cash purchase plan (the Plan) and as
transfer agent and registrar with respect to the common shares
and preferred shares of the Fund.
11
USE OF
PROCEEDS
The Investment Adviser expects that it will initially invest the
proceeds of the offering in high quality short-term debt
securities and instruments. The Investment Adviser anticipates
that the investment of the proceeds will be made in accordance
with the Funds investment objectives and policies as
appropriate investment opportunities are identified, which is
expected to substantially be completed within three months;
however, changes in market conditions could result in the
Funds anticipated investment period extending to as long
as six months. Depending on market conditions and operations, a
portion of the cash held by the Fund, including any proceeds
raised from this offering, may be used to pay distributions in
accordance with the Funds distribution policy. Such
distribution would constitute a return of capital and should not
be considered as dividend yield or the total return from an
investment in the Fund.
12
SUMMARY
OF FUND EXPENSES
The following table shows the Funds expenses, including
preferred shares offering expenses, as a percentage of net
assets attributable to common shares.
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Shareholder Transaction Expenses
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Sales Load (as a percentage of offering price)
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1.54%(1)
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Offering Expenses Borne by the Fund (excluding Preferred
Shares Offering Expenses) (as a percentage of offering
price)
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0.23%(1)
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Dividend Reinvestment Plan Fees
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None(2)
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Preferred Shares Offering Expenses Borne by the Fund (as a
percentage of net assets attributable to common shares)
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0.25%(3)
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|
Percentage of Net
|
|
|
|
Assets Attributable
|
|
|
|
to Common Shares
|
|
|
Annual Expenses
|
|
|
|
|
Management Fees
|
|
|
0.82
|
%(4)
|
Interest on Borrowed Funds
|
|
|
None
|
|
Other Expenses
|
|
|
0.46
|
%(4)
|
|
|
|
|
|
Total Annual Expenses
|
|
|
1.28
|
%
|
Dividends on Preferred Shares
|
|
|
1.07
|
%(5)
|
|
|
|
|
|
Total Annual Expenses and Dividends on Preferred Shares
|
|
|
2.35
|
%
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated maximum amount based on offering of $75 million
in common shares and $25 million in preferred shares. The
actual amounts in connection with any offering will be set forth
in the Prospectus Supplement if applicable. |
|
(2) |
|
Shareholders participating in the Funds Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plans would pay $0.75
plus their pro rata share of brokerage commissions per
transactions to purchase shares and $2.50 plus their pro rata
share of brokerage commissions per transaction to sell shares.
See Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plans. |
|
(3) |
|
Assumes issuance of $25 million in liquidation preference
of fixed rate preferred shares and net assets attributable to
common shares of $140.5 million (which includes issuance of
$75 million in common shares). The actual amounts in
connection with any offering will be set forth in the Prospectus
Supplement if applicable. |
|
(4) |
|
The investment Advisers fee is 0.70% annually of the
Funds average weekly net assets, plus assets attributable
to any outstanding senior securities, with no deduction for the
liquidation preference of any outstanding preferred shares or
the principal amount of any outstanding notes. Consequently, if
the fund has preferred shares or notes outstanding, the
investment management fees and other expenses as a percentage of
net assets attributable to common shares will be higher than if
the Fund does not utilize a leveraged capital structure.
Other Expenses are based on estimated amounts for
the current year assuming completion of the proposed issuances. |
|
(5) |
|
Dividends on Preferred Shares represent the distributions that
would be made assuming $25 million of preferred shares is
issued with a fixed dividend rate of 6.00%. There can, of
course, be no guarantee that any preferred shares would be
issued or, if issued, the terms thereof. |
The purpose of the table above and the example below is to help
you understand all fees and expenses that you, as a holder of
common shares, would bear directly or indirectly.
13
The following example illustrates the expenses (including the
maximum estimated sales load of $10 and estimated offering
expenses of $0.93 from the issuance of $75 million in
common shares) you would pay on a $1,000 investment in common
shares, assuming a 5% annual portfolio total return.* The actual
amounts in connection with any offering will be set forth in the
Prospectus Supplement if applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
|
Total Expenses incurred
|
|
$
|
33
|
|
|
$
|
82
|
|
|
$
|
134
|
|
|
$
|
275
|
|
|
|
|
* |
|
The example should not be considered a representation of future
expenses. The example is based on total Annual Expenses and
Dividends on Preferred Shares shown in the table above and
assumes that the amounts set forth in the table do not change
and that all distributions are reinvested at net asset value.
Actual expenses may be greater or less than those assumed.
Moreover, the Funds actual rate of return may be greater
or less than the hypothetical 5% return shown in the example. |
The example includes Dividends of Preferred Shares. If Dividends
on Preferred Shares were not included in the example
calculation, the expense would be as follows (based on the same
assumptions as above).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
|
Total Expenses incurred
|
|
$
|
22
|
|
|
$
|
50
|
|
|
$
|
79
|
|
|
$
|
162
|
|
14
FINANCIAL
HIGHLIGHTS
The selected data below sets forth the per share operating
performance and ratios for the period 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 the fiscal year ended
December 31, 2010, 2009, 2008, 2007 and 2006 has been
audited by
[ ],
the Funds independent registered public accounting firm,
whose unqualified report on such Financial Statements is
incorporated by reference into the SAI.
Selected data for a common share of beneficial interest
outstanding throughout each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Operating Performance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
19.87
|
|
|
$
|
18.50
|
|
|
$
|
25.50
|
|
|
$
|
24.52
|
|
|
$
|
20.45
|
|
Net investment income
|
|
|
0.48
|
|
|
|
0.48
|
|
|
|
0.47
|
|
|
|
0.45
|
|
|
|
0.64
|
|
Net realized and unrealized gain/(loss) on investments, swap
contracts, and foreign currency transactions
|
|
|
1.34
|
|
|
|
2.09
|
|
|
|
(6.27
|
)
|
|
|
2.06
|
|
|
|
4.63
|
|
Total from investment operations
|
|
|
1.82
|
|
|
|
2.57
|
|
|
|
(5.80
|
)
|
|
|
2.51
|
|
|
|
5.27
|
|
Distributions to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.67
|
)
|
|
|
(0.52
|
)
|
|
|
(0.55
|
)
|
|
|
(0.30
|
)
|
|
|
(0.65
|
)
|
Net realized gain
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
(0.48
|
)
|
|
|
(1.23
|
)
|
|
|
(0.55
|
)
|
Return of capital
|
|
|
(0.51
|
)
|
|
|
(0.68
|
)
|
|
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(1.20
|
)
|
|
|
(1.20
|
)
|
|
|
(1.20
|
)
|
|
|
(1.53
|
)
|
|
|
(1.20
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution from Adviser
|
|
|
|
|
|
|
|
|
|
|
0.00
|
(a)
|
|
|
|
|
|
|
|
|
Total capital share transactions
|
|
|
|
|
|
|
|
|
|
|
0.00
|
(a)
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Period
|
|
$
|
20.49
|
|
|
$
|
19.87
|
|
|
$
|
18.50
|
|
|
$
|
25.50
|
|
|
$
|
24.52
|
|
NAV total return
|
|
|
9.60
|
%
|
|
|
14.92
|
%
|
|
|
(23.30
|
)%
|
|
|
10.46
|
%
|
|
|
26.66
|
%
|
Market value, end of period
|
|
$
|
20.31
|
|
|
$
|
19.42
|
|
|
$
|
15.90
|
|
|
$
|
23.05
|
|
|
$
|
22.17
|
|
Investment total return
|
|
|
11.24
|
%
|
|
|
31.31
|
%
|
|
|
(26.43
|
)%
|
|
|
11.29
|
%
|
|
|
32.83
|
%
|
Ratios to Average Net Assets and Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (in 000s)
|
|
$
|
62,981
|
|
|
$
|
60,694
|
|
|
$
|
56,422
|
|
|
$
|
77,778
|
|
|
$
|
74,807
|
|
Ratio of net investment income to average net assets
|
|
|
2.46
|
%
|
|
|
2.70
|
%
|
|
|
2.15
|
%
|
|
|
1.82
|
%
|
|
|
2.92
|
%
|
Ratio of operating expenses to average net assets
|
|
|
1.65
|
%
|
|
|
1.61
|
%
|
|
|
1.54
|
%
|
|
|
1.55
|
%
|
|
|
1.66
|
%
|
Portfolio turnover rate
|
|
|
7.8
|
%
|
|
|
9.5
|
%
|
|
|
24.3
|
%
|
|
|
16.7
|
%
|
|
|
21.8
|
%
|
|
|
|
|
|
Based on net asset value per share, adjusted for reinvestment of
distributions at the net asset value per share on the
ex-dividend dates. |
|
|
|
Based on market value per share, adjusted for reinvestment of
distributions at prices determined under the Funds
dividend reinvestment plan. |
|
|
|
Effective in 2008, a change in accounting policy was adopted
with regard to the calculation of the portfolio turnover rate to
include cash proceeds due to mergers. Had this policy adopted
retroactively, the portfolio turnover rate for the years ended
December 31, 2007 and 2006 would have been 35.0% and 22.2%.
respectively. |
|
(a) |
|
Amount represents less than $0.005 per share. |
15
THE
FUND
The Fund is a non-diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as
a Delaware statutory trust on March 8, 2004. The Fund
commenced its investment operations on May 28, 2004. The
Funds principal office is located at One Corporate Center,
Rye, New York
10580-1422.
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives
The Funds investment objective is to seek a consistent
level of after-tax total return over the long-term with an
emphasis currently on qualifying dividends. The Fund will
attempt to achieve its investment objective by investing, under
normal market conditions, at least 80% of its assets in
(i) equity securities (including common stock, preferred
stock, convertible stock and options on these securities) of
domestic and foreign companies involved to a substantial extent
(i.e., at least 50% of the assets, gross income or net profits
of a company is committed to or derived from) in providing
(a) products, services or equipment for the generation or
distribution of electricity, gas or water and
(b) infrastructure operations such as airports, toll roads
and municipal services and telecommunications services such as
telephone, telegraph, satellite, cable, microwave,
radiotelephone, mobile communication and cellular, paging,
electronic mail, videotext, voice communications, data
communications and internet (collectively, the Utilities
Industry) and (ii) in equity securities (including
preferred securities) of companies in other industries, in each
case in such securities that are expected to periodically pay
dividends. The Funds 80% policy is not fundamental and
shareholders will be notified if it is changed. In addition,
under normal market conditions, at least 50% of the Funds
assets will consist of equity securities (including preferred
securities) of domestic and foreign companies involved to a
substantial extent (i.e., at least 50% of the assets, gross
income or net profits of a company is committed to or derived
from) in the Utilities Industry. The remaining Fund assets will
generally be invested in other securities that the Investment
Adviser views as not being correlated with the Funds
Utilities Industry investments. Such investments may include
convertible securities, securities of issuers subject to
reorganization or other risk arbitrage investments, certain
derivative instruments, debt (including obligations of the
U.S. Government) and money market instruments.
No assurance can be given that the Funds investment
objective will be achieved.
Investment
Methodology of the Fund
In selecting securities for the Fund, the Investment Adviser
normally will consider the following factors, among others:
|
|
|
|
|
the Investment Advisers own evaluations of the private
market value (which is defined below), cash flow, earnings per
share and other fundamental aspects of the underlying assets and
business of the company;
|
|
|
|
the potential for capital appreciation of the securities;
|
|
|
|
the interest or dividend income generated by the securities;
|
|
|
|
the prices of the securities relative to other comparable
securities;
|
|
|
|
whether the securities are entitled to the benefits of call
protection or other protective covenants;
|
|
|
|
the existence of any anti-dilution protections or guarantees of
the security; and
|
|
|
|
the number and size of investments of the portfolio.
|
The Investment Advisers investment philosophy with respect
to debt and equity securities is to identify assets that are
selling in the public market at a discount to their private
market value. The Investment Adviser
16
defines private market value as the value informed purchasers
are willing to pay to acquire assets with similar
characteristics. The Investment Adviser also normally evaluates
an 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
Utilities Industry Concentration. Under normal
conditions, the Fund will invest at least 50% of its assets in
foreign and domestic companies involved to a substantial extent
in the Utilities Industry. See Risk Factors and Special
ConsiderationsIndustry Risks.
Tax-Advantaged Qualified Dividends. The
Funds investments will emphasize securities that will pay
what under current law through 2012 are tax-advantaged qualified
dividends. For the Fund to receive tax-advantaged qualified
dividends, the Fund must, in addition to other requirements,
hold the otherwise qualified stock for more than 61 days
during the
121-day
period beginning 60 days before the ex-dividend date (or,
in the case of preferred stock, more than 91 days during
the 181-day
period beginning 90 days before the ex-dividend date). The
ex-dividend date is the date which is established by
a stock exchange (usually two business days before the record
date) whereby the owner of a security at the commencement of
such date is entitled to receive the next issued dividend
payment for such security, even if the security is sold by such
owner on the ex-dividend date or thereafter. In addition, for
dividends to be tax-advantaged qualified dividends, the Fund
cannot have an option to sell or be under a contractual
obligation to sell (pursuant to a short sale or otherwise)
substantially identical stock or securities. Accordingly, the
Funds writing of call options may, depending on the terms
of the option, adversely impact the Funds ability to pay
tax-advantaged qualified dividends. For an individual
shareholder to be taxed at the rates applicable to
tax-advantaged qualified dividends on dividends received from
the Fund that are attributable to tax-advantaged qualified
dividends received by the Fund, the shareholder must hold its
common shares for more than 61 days during the
121-day
period beginning 60 days before the ex-dividend date for
the Funds common shares (or, in the case of preferred
stock, more than 91 days during the
181-day
period beginning 90 days before the ex-dividend date for
the Funds preferred shares). Consequently, short-term
investors in the Fund may not realize the benefits of
tax-advantaged qualified dividends. There can be no assurance as
to the portion of the Funds dividends that will be
tax-advantaged. The provisions of the Code applicable to
tax-advantaged qualified dividends are currently effective for
taxable years beginning on or before December 31, 2012 but
may be changed at any time, possibly with retroactive effect.
Thereafter, higher tax rates will apply unless further
legislative action is taken.
Foreign Securities. Subject to the Funds
other policies including investing at least 50% of its assets in
the Utilities Industry, the Fund may invest without limit in
securities of foreign issuers, which are generally denominated
in foreign currencies. The Fund expects to generally be invested
in securities of issuers located in at least three countries
including the U.S and possibly including developing countries.
See Risk Factors and Special ConsiderationsForeign
Securities.
The Fund may also purchase sponsored American Depository
Receipts (ADRs) or U.S. dollar-denominated
securities of foreign issuers. ADRs are receipts issued by
United States banks or trust companies in respect of securities
of foreign issuers held on deposit for use in the United States
securities markets.
Income Securities. Although it is the
Funds policy to invest in securities of companies in the
Utilities Industry to the extent attractive opportunities are
available, the Fund may also invest in income securities other
than Utilities Industry securities that are expected to
periodically accrue or generate income for their holders. Such
income securities include (i) fixed income securities such
as bonds, debentures, notes, stock, short-term discounted
Treasury Bills or certain securities of the U.S. government
sponsored instrumentalities, as well as money market mutual
funds that invest in those securities, which, in the absence of
an applicable exemptive order, will not be affiliated with the
Investment Adviser, and (ii) common and preferred stocks of
issuers that have historically paid periodic dividends. Fixed
income securities obligate the issuer to pay to the holder of
the security a specified return, which may be either fixed or
reset periodically in accordance with the terms of
17
the security. Fixed income securities generally are senior to an
issuers common stock and their holders generally are
entitled to receive amounts due before any distributions are
made to common stockholders. Common stocks, on the other hand,
generally do not obligate an issuer to make periodic
distributions to holders.
The market value of fixed income securities, especially those
that provide a fixed rate of return, may be expected to rise and
fall inversely with interest rates and in general is affected by
the credit rating of the issuer, the issuers performance
and perceptions of the issuer in the market place. The market
value of callable or redeemable fixed income securities may also
be affected by the issuers call and redemption rights. In
addition, it is possible that the issuer of fixed income
securities may not be able to meet its interest or principal
obligations to holders. Further, holders of non-convertible
fixed income securities do not participate in any capital
appreciation of the issuer.
The Fund may also invest in obligations of government sponsored
instrumentalities. Unlike
non-U.S. government
securities, obligations of certain agencies and
instrumentalities of the U.S. government, such as the
Government National Mortgage Association, are supported by the
full faith and credit of the U.S. government;
others, such as those of the Export-Import Bank of the U.S., are
supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase
the agencys obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by
the credit of the instrumentality. No assurance can be given
that the U.S. government would provide financial support to
U.S. government sponsored instrumentalities if it is not
obligated to do so by law. Although the Fund may invest in all
types of obligations of agencies and instrumentalities of the
U.S. government, the Fund currently intends to invest only
in obligations that are supported by the full faith and
credit of the U.S. government.
The Fund also may invest in common stock of issuers that have
historically paid periodic dividends or otherwise made
distributions to common stockholders. Unlike fixed income
securities, dividend payments generally are not guaranteed and
so may be discontinued by the issuer at its discretion or
because of the issuers inability to satisfy its
liabilities. Further, an issuers history of paying
dividends does not guarantee that it will continue to pay
dividends in the future. In addition to dividends, under certain
circumstances the holders of common stock may benefit from the
capital appreciation of the issuer.
Risk Arbitrage. Subject to the Funds
other policies including investing at least 50% of its assets in
the Utilities Industry, the Fund may invest without limit in
securities pursuant to risk arbitrage strategies or
in other investment funds managed pursuant to such strategies.
Risk arbitrage investments are made in securities of companies
for which a tender or exchange offer has been made or announced
and in securities of companies for which a merger,
consolidation, liquidation or reorganization proposal has been
announced if, in the judgment of the Investment Adviser, there
is a reasonable prospect of total return significantly greater
than the brokerage and other transaction expenses involved. Risk
arbitrage strategies attempt to exploit merger activity to
capture the spread between current market values of securities
and their values after successful completion of a merger,
restructuring or similar corporate transaction. Transactions
associated with risk arbitrage strategies typically involve the
purchases or sales of securities in connection with announced
corporate actions which may include, but are not limited to,
mergers, consolidations, acquisitions, transfers of assets,
tender offers, exchange offers, re-capitalizations,
liquidations, divestitures, spin-offs and similar transactions.
In general, securities which are the subject of such an offer or
proposal sell at a premium to their historic market price
immediately prior to the announcement of the offer or may trade
at a discount or premium to what the stated or appraised value
of the security would be if the contemplated transaction were
approved or consummated.
Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved;
significantly undervalues the securities, assets or cash to be
received by shareholders as a result of the contemplated
transaction; or fails adequately to recognize the possibility
that the offer or
18
proposal may be replaced or superseded by an offer or proposal
of greater value. The evaluation of such contingencies requires
unusually broad knowledge and experience on the part of the
Investment Adviser which must appraise not only the value of the
issuer and its component businesses as well as the assets or
securities to be received as a result of the contemplated
transaction but also the financial resources and business
motivation behind the offer
and/or the
dynamics and business climate when the offer or proposal is in
process. Since such investments are ordinarily short-term in
nature, they will tend to increase the turnover ratio of the
Fund, thereby increasing its brokerage and other transaction
expenses. Risk arbitrage strategies may also involve short
selling, options hedging and other arbitrage techniques to
capture price differentials. See Risk Factors and Special
ConsiderationsRisk Arbitrage.
Foreign Currency Exchange Contracts. Subject
to guidelines of the Board, the Fund may enter into foreign
currency exchange contracts to protect the value of its
portfolio against uncertainty in the level of future currency
exchange rates. The Fund may enter into such contracts on a
spot, i.e., cash, basis at the rate then prevailing in the
currency exchange market or on a forward basis, by entering into
a forward contract to purchase or sell currency. A forward
contract on foreign currency is an obligation to purchase or
sell a specific currency at a future date, which may be any
fixed number of days agreed upon by the parties from the date of
the contract at a price set on the date of the contract. The
Fund expects to invest in forward currency contracts for hedging
or currency risk management purposes and not in order to
speculate on currency exchange rate movements. The Fund will
only enter into forward currency contracts with parties which it
believes to be creditworthy.
Restricted and Illiquid Securities. Subject to
the Funds other policies including investing at least 50%
of its assets in the Utilities Industry, the Fund may invest
without limit in securities for which there is no readily
available trading market or are otherwise illiquid. Illiquid
securities may include securities legally restricted as to
resale, such as commercial paper issued pursuant to
Section 4(2) of the Securities Act, and securities eligible
for resale pursuant to Rule 144A thereunder.
Section 4(2) and Rule 144A securities may, however, be
treated as liquid by the Investment Adviser pursuant to
procedures adopted by the Board, which require consideration of
factors such as trading activity, availability of market
quotations and number of dealers willing to purchase the
security. If the Fund invests in Rule 144A securities, the
level of portfolio illiquidity may be increased to the extent
that eligible buyers become uninterested in purchasing such
securities.
It may be more difficult to sell such securities at an
attractive price until such time as such securities may be sold
publicly. Where registration is desired, a considerable period
may elapse between a decision to sell the securities and the
time when registration is complete. Thus, the Fund may not be
able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund may also acquire
securities with contractual restrictions on the resale of such
securities. Such restrictions might prevent their sale at a time
when such sale would otherwise be desirable.
Leverage. As provided in the 1940 Act and
subject to certain exceptions, the Fund may issue senior
securities (which may be stock, such as preferred shares, or
securities representing debt) so long as its total assets
(including such senior security), less certain ordinary course
liabilities, exceed 200% of the sum of any preferred shares and
debt outstanding and 300% of the amount of any debt outstanding.
Any such senior securities may be convertible in accordance with
SEC staff guidelines, which may permit the Fund to obtain
leverage at more attractive rates.
The issuance of senior securities would leverage the common
shares. Although the timing and other terms of the offering of
senior securities and the terms of the senior securities would
be determined by the Funds Board, the Fund expects to
primarily invest the proceeds of any senior securities offering
in dividend paying or income producing equity or debt
securities. See Use of Proceeds.
The use of leverage magnifies the impact in changes in net asset
value. For example, a fund that uses 33% leverage will show a
1.5% increase or decrease in net asset value for each 1%
increase or decrease in the value of its total assets other than
leverage. The concept of leveraging is based on the premise that
so long as the cost of the leverage on the assets to be obtained
by the leverage is lower than the return earned by the
19
Fund on such leveraged assets, the common shareholders will
benefit from the incremental return. Should the differential
between the return produced by the underlying assets and the
cost of leverage narrow, the incremental return will be reduced.
Furthermore, if the cost of the leverage on the leveraged assets
exceeds the return earned by the Fund on such leveraged assets,
the net asset value of the Fund will be diminished. The use of
leverage generally increases the volatility of returns to the
Fund. See Risk Factors and Special
ConsiderationsLeverage Risk.
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
Standard & Poors Rating Services
(S&P) or Caa by Moodys
Investors Service, Inc. (Moodys), or non-rated
securities of comparable quality. These debt securities are
predominantly speculative and involve major risk exposure to
adverse conditions. Debt securities that are not rated or rated
lower than BBB by S&P or lower than
Baa by Moodys (or unrated securities of
comparable quality) are 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 organizations, are outweighed by large
uncertainties or major risk exposures to adverse conditions and
(ii) are predominantly speculative with respect to the
issuers capacity to pay interest and repay principal in
accordance with the terms of the obligation. The market values
of certain of these securities also tend to be more sensitive to
individual corporate developments and changes in economic
conditions than 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 issuers operating history, financial
resources and its sensitivity to economic conditions and trends,
the market support for the facility financed by the issue, the
perceived ability and integrity of the issuers management
and regulatory matters.
In addition, the market value of securities in lower rated
categories is more volatile than that of higher quality
securities, and the markets in which such lower rated or unrated
securities are traded are more limited than those in which
higher rated securities are traded. The existence of limited
markets may make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing its portfolio
and calculating its net asset value. Moreover, the lack of a
liquid trading market may restrict the availability of
securities for the Fund to purchase and may also have the effect
of limiting the ability of the Fund to sell securities at their
fair value to respond to changes in the economy or the financial
markets.
Lower-rated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption
(often a feature of fixed income securities), the Fund may have
to replace the security with a lower yielding security,
resulting in a decreased return for investors. Also, as the
principal value of bonds moves inversely with movements in
interest rates, in the event of rising interest rates the value
of the securities held by the Fund may decline proportionately
more than a portfolio consisting of higher rated securities.
Investments in zero coupon bonds may be more speculative and
subject to greater fluctuations in value due to changes in
interest rates than bonds that pay interest currently. Interest
rates are at historical lows and, therefore, it is likely that
they will rise in the future.
As part of its investments in lower rated securities (i.e.,
subject to the 10% cap), the Fund may invest without limit in
securities of issuers in default. The Fund will make an
investment in securities of issuers in default only when the
Investment Adviser believes that such issuers will honor their
obligations or emerge from bankruptcy protection and the value
of these securities will appreciate. By investing in securities
of issuers in default, the Fund bears the risk that these
issuers will not continue to honor their obligations or emerge
from bankruptcy protection or that the value of the securities
will not appreciate.
20
In addition to using recognized rating agencies and other
sources, the Investment Adviser also performs its own analysis
of issues in seeking investments that it believes to be
underrated (and thus higher-yielding) in light of the financial
condition of the issuer. Its analysis of issuers may include,
among other things, current and anticipated cash flow and
borrowing requirements, value of assets in relation to
historical cost, strength of management, responsiveness to
business conditions, credit standing and current anticipated
results of operations. In selecting investments for the Fund,
the Investment Adviser may also consider general business
conditions, anticipated changes in interest rates and the
outlook for specific industries.
Subsequent to its purchase by the Fund, an issue of securities
may cease to be rated or its rating may be reduced. In addition,
it is possible that statistical rating agencies might change
their ratings of a particular issue to reflect subsequent events
on a timely basis. Moreover, such ratings do not assess the risk
of a decline in market value. None of these events will require
the sale of the securities by the Fund, although the Investment
Adviser will consider these events in determining whether the
Fund should continue to hold the securities.
Fixed-income securities, including lower rated securities and
comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the
securities from their holders, such as the Fund. If an issuer
exercises these rights during periods of declining interest
rates, the Fund may have to replace the security with a lower
yielding security, thus resulting in a decreased return for the
Fund.
The market for lower rated and comparable unrated securities has
at various times, particularly during times of economic
recession, experienced substantial reductions in market value
and liquidity. Past recessions have adversely affected the
ability of certain issuers of such securities to repay principal
and pay interest thereon. The market for those securities could
react in a similar fashion in the event of any future economic
recession.
Options. The Fund may purchase or sell, i.e.,
write, options on securities, securities indices and foreign
currencies which are listed on a national securities exchange or
in the
over-the-counter
(OTC) market, as a means of achieving additional
return or of hedging the value of the Funds portfolio. A
call option is a contract that, in return for a premium, gives
the holder of the option the right to buy from the writer of the
call option the security or currency underlying the option at a
specified exercise price at any time during the term of the
option. The writer of the call option has the obligation, upon
exercise of the option, to deliver the underlying security or
currency upon payment of the exercise price during the option
period. A put option is the reverse of a call option, giving the
holder the right, in return for a premium, to sell the
underlying security to the writer, at a specified price, and
obligating the writer to purchase the underlying security from
the holder at that price. The Fund may purchase call or put
options as long as the aggregate initial margins and premiums,
measured at the time of such investment, do not exceed 5% of the
fair market value of the Funds total assets. There is no
limit on the amount of options the Fund may write (sell).
If the Fund has written an option, it may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the
option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the
holder of an option it may liquidate its position by effecting a
closing sale transaction. This is accomplished by selling an
option of the same series as the option previously purchased.
There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option or is less than the
premium paid to purchase the option. Since call option prices
generally reflect increases in the price of the underlying
security, any loss resulting from the repurchase of a call
option may also be wholly or partially offset by unrealized
appreciation of the underlying security. Other principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price and
price volatility of the underlying security and the time
remaining until the
21
expiration date. Gains and losses on investments in options
depend, in part, on the ability of the Investment Adviser to
predict correctly the effect of these factors. The use of
options cannot serve as a complete hedge since the price
movement of securities underlying the options will not
necessarily follow the price movements of the portfolio
securities subject to the hedge.
An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series or
in a private transaction. Although the Fund will generally
purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any
particular option. In such event, it might not be possible to
effect closing transactions in particular options, so that the
Fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise
of call options and upon the subsequent disposition of
underlying securities for the exercise of put options.
Although the Investment Adviser will attempt to take appropriate
measures to minimize the risks relating to the Funds
writing of put and call options, there can be no assurance that
the Fund will succeed in any option-writing program it
undertakes.
Futures Contracts and Options on Futures. The
Fund may purchase and sell financial futures contracts and
options thereon which are traded on a commodities exchange or
board of trade for certain hedging, yield enhancement and risk
management purposes. A financial futures contract is an
agreement to purchase or sell an agreed amount of securities or
currencies at a set price for delivery in the future. These
futures contracts and related options may be on debt securities,
financial indices, securities indices, U.S. government
securities and foreign currencies. The Investment Adviser has
claimed an exclusion from the definition of the term
commodity pool operator under the Commodity Exchange
Act and therefore is not subject to registration under the
Commodity Exchange Act. Accordingly, the Funds investments
in derivative instruments described in this Prospectus and the
SAI are not limited by or subject to regulation under the
Commodity Exchange Act or otherwise regulated by the Commodity
Futures Trading Commission (CFTC). Nonetheless, the
Funds aggregate initial margins and premiums with respect
to futures contracts, measured at the time of such investment,
will not exceed 5% of the fair market value of the Funds
total assets.
When Issued, Delayed Delivery Securities and Forward
Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities, including on
a when issued or delayed delivery basis,
in excess of customary settlement periods for the type of
security involved. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization
or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the
time of the commitment, with payment and delivery taking place
in the future, generally a month or more after the date of the
commitment. While it will only enter into a forward commitment
with the intention of actually acquiring the security, the Fund
may sell the security before the settlement date if it is deemed
advisable.
Securities purchased under a forward commitment are subject to
market fluctuation, and no interest (or dividends) accrues to
the Fund prior to the settlement date. The Fund will segregate
with its custodian cash or liquid securities in an aggregate
amount at least equal to the amount of its outstanding forward
commitments.
Short Sales. The Fund may make short sales of
securities. A short sale is a transaction in which the Fund
sells a security it does not own in anticipation that the market
price of that security will decline. The market value of the
securities sold short of any one issuer will not exceed either
10% of the Funds total assets or 5% of such issuers
voting securities. The Fund also will not make a short sale, if,
after giving effect to such sale, the market value of all
securities sold short exceeds 25% of the value of its assets or
the Funds 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.
22
The Fund expects to make short sales both to obtain capital
gains from anticipated declines in securities and as a form of
hedging to offset potential declines in long positions in the
same or similar securities. The short sale of a security is
considered a speculative investment technique. Short sales
against the box may be subject to special tax rules,
one of the effects of which may be to accelerate income to the
Fund.
When the Fund makes a short sale, it must borrow the security
sold short and deliver it to the broker-dealer through which it
made the short sale in order to satisfy its obligation to
deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities and is often
obligated to pay over any payments received on such borrowed
securities.
If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if
the price declines, the Fund will realize a capital gain. Any
gain will be decreased, and any loss will be increased, by the
transaction costs incurred by the Fund, including the costs
associated with providing collateral to the broker-dealer
(usually cash, U.S. government securities or other highly
liquid debt securities) and the maintenance of collateral with
its custodian. Although the Funds gain is limited to the
price at which it sold the security short, its potential loss is
theoretically unlimited.
Repurchase Agreements. Repurchase agreements
may be seen as loans by the Fund collateralized by underlying
debt securities. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying debt obligation
for a relatively short period (usually not more than one week)
subject to an obligation of the seller to repurchase, and the
Fund to resell, the obligation at an agreed price and time. This
arrangement results in a fixed rate of return to the Fund that
is not subject to market fluctuations during the holding period.
The Fund bears a risk of loss in the event that the other party
to a repurchase agreement defaults on its obligations and the
Fund is delayed in or prevented from exercising its rights to
dispose of the collateral securities, including the risk of a
possible decline in the value of the underlying securities
during the period in which it seeks to assert these rights. The
Investment Adviser, acting under the supervision of the Board of
the Fund, reviews the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to
evaluate these risks and monitors on an ongoing basis the value
of the securities subject to repurchase agreements to ensure
that the value is maintained at the required level. The Fund
will not enter into repurchase agreements with the Investment
Adviser or any of its affiliates.
Swaps. The Fund may enter into total rate of
return, credit default or other types of swaps and related
derivatives for various purposes, including to gain economic
exposure to an asset or group of assets that may be difficult or
impractical to acquire or for hedging and risk management. These
transactions generally provide for the transfer from one
counterparty to another of certain risks inherent in the
ownership of a financial asset such as a common stock or debt
instrument. Such risks include, among other things, the risk of
default and insolvency of the obligor of such asset, the risk
that the credit of the obligor or the underlying collateral will
decline or the risk that the common stock of the underlying
issuer will decline in value. The transfer of risk pursuant to a
derivative of this type may be complete or partial, and may be
for the life of the related asset or for a shorter period. These
derivatives may be used as a risk management tool for a pool of
financial assets, providing the Fund with the opportunity to
gain or reduce exposure to one or more reference securities or
other financial assets (each, a Reference Asset)
without actually owning or selling such assets in order, for
example, to increase or reduce a concentration risk or to
diversify a portfolio. Conversely, these derivatives may be used
by the Fund to reduce exposure to an owned asset without
selling it.
Because the Fund would not own the Reference Assets, the Fund
may not have any voting rights with respect to the Reference
Assets, and in such cases all decisions related to the obligors
or issuers of the Reference Assets, including whether to
exercise certain remedies, will be controlled by the swap
counterparties.
Total rate of return swaps and similar derivatives are subject
to many risks, including the possibility that the market will
move in a manner or direction that would have resulted in gain
for the Fund had the swap or other derivative not been utilized
(in which case it would have been had the Fund not engaged in
the transactions), nearly unlimited exposure to changes in the
value of the Reference Assets, total loss to the Fund
23
of the entire notional amount of the swap, the risk of imperfect
correlation between the risk sought to be hedged and the
derivative transactions utilized, the possible inability of the
counterparty to fulfill its obligations under the swap and
potential illiquidity of the instrument utilized, which may make
it difficult for the Fund to close out or unwind one or more
transactions.
Total rate of return swaps and related derivatives are a
relatively recent development in the financial markets.
Consequently, there are certain legal, tax and market
uncertainties that present risks in entering into such
arrangements. There is currently little or no case law or
litigation characterizing total rate of return swaps or related
derivatives, interpreting their provisions, or characterizing
their tax treatment. In addition, additional regulations and
laws may apply to these types of derivatives that have not
previously been applied. There can be no assurance that future
decisions construing similar provisions to those in any swap
agreement or other related documents or additional regulations
and laws will not have an adverse effect on the Fund that
utilizes these instruments. The Fund will monitor these risks
and seek to utilize these instruments in a manner that does not
lead to undue risk regarding the tax or other structural
elements of the Fund. The Fund will not invest in these types of
instruments if the Reference Assets are commodities except for
bona fide hedging or risk management purposes.
Convertible Securities. A convertible security
is a bond, debenture, note, stock or other similar security that
may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different
issuer within a particular period of time at a specified price
or formula. Before conversion, convertible securities have
characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stream of income with generally
higher yields than those of common stock of the same or similar
issuers. Convertible securities are senior in rank to common
stock in a corporations capital structure and, therefore,
generally entail less risk than the corporations common
stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible
security sells above its value as a fixed income security. See
Risk Factors and Special ConsiderationsDilution Risk
for Convertible Securities.
Temporary Defensive Investments. Although
under normal market conditions at least 80% of the Funds
assets will consist of common stock and other debt or equity
securities of foreign and domestic companies involved in the
Utilities Industry and securities of companies in other
industries that are expected to periodically generate or accrue
income, when a temporary defensive posture is believed by the
Investment Adviser to be warranted (temporary defensive
periods), the Fund may without limitation hold cash or
invest its assets in money market instruments and repurchase
agreements in respect of those instruments. The money market
instruments in which the Fund may invest are obligations of the
U.S. government, its agencies or instrumentalities;
commercial paper rated
A-1 or
higher by S&P or Prime-1 by Moodys; and certificates
of deposit and bankers acceptances issued by domestic
branches of U.S. banks that are members of the FDIC. During
temporary defensive periods, the Fund may also invest to the
extent permitted by applicable law in shares of money market
mutual funds, which, under current law, in the absence of an
exemptive order will not be affiliated with the Investment
Adviser. Money market mutual funds are investment companies and
the investments in those companies by the Fund are in some cases
subject to certain fundamental investment restrictions and
applicable law. See Investment Restrictions. As a
shareholder in a mutual fund, the Fund will bear its ratable
share of its expenses, including management fees, and will
remain subject to payment of the fees to the Investment Adviser,
with respect to assets so invested. See Management of the
FundGeneral. The Fund may find it more difficult to
achieve the long-term growth of capital component of its
investment objective during temporary defensive periods.
Loans of Portfolio Securities. To increase
income, the Fund may lend its portfolio securities to securities
broker-dealers or financial institutions if the loan is
collateralized in accordance with applicable regulatory
requirements.
If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates and the Fund could
use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over the
value of the collateral. As with any extension of credit, there
are risks of delay in
24
recovery and in some cases even loss of rights in collateral
should the borrower of the securities violate the terms of the
loan or fail financially. There can be no assurance that
borrowers will not fail financially. On termination of the loan,
the borrower is required to return the securities to the Fund,
and any gain or loss in the market price during the loan would
inure to the Fund. If the other party to the loan petitions for
bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. As
a result, under extreme circumstances, there may be a
restriction on the Funds ability to sell the collateral
and the Fund would suffer a loss. See Investment Objective
and PoliciesLoans of Portfolio Securities in the SAI.
Portfolio turnover generally involves expense to the Fund,
including brokerage commissions or dealer
mark-ups and
other transaction costs on the sale of securities and
reinvestment in other securities. The portfolio turnover rate is
computed by dividing the lesser of the amount of the securities
purchased or securities sold by the average monthly value of
securities owned during the year (excluding securities whose
maturities at acquisition were one year or less). Higher
portfolio turnover may decrease the after-tax return to
individual investors in the Fund to the extent it results in a
decrease of the long-term capital gains portion of distributions
to shareholders. The Funds portfolio turnover rates for
the fiscal years ended December 31, 2009 and
December 31, 2010 was 9.5% and 7.8%, respectively.
25
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following risk factors and special
considerations associated with investing in the Fund:
Industry
Risks
Under normal market conditions, the Fund will invest 80% or more
of its assets in foreign and domestic companies involved in the
Utilities Industry, and in debt or equity securities of
companies in other industries that are expected to periodically
accrue or generate income for their holders. In addition under
normal market conditions, at least 50% of the Funds assets
will consist of debt or equity of securities of domestic and
foreign companies involved to a substantial extent (i.e. at
least 50% of the assets, gross income or net profits of a
company is committed to or derived from) in the Utilities
Industry. As a result of this policy of concentrating its
investments in a particular industry, the net asset value of the
Fund will be more susceptible to factors affecting those
particular types of companies, including governmental
regulation, inflation, cost increases in fuel and other
operating expenses, technological innovations that may render
existing products and equipment obsolete, and increasing
interest rates resulting in high interest costs on borrowings
needed for product development, infrastructure and capital
construction programs, including costs associated with
compliance with environmental and other regulations.
Sector Risk. The Fund concentrates its
investments in the Utilities Industry. As a result, the
Funds investments may be subject to greater risk and
market fluctuation than a fund that had securities representing
a broader range of investment alternatives. The prices of equity
securities issued by certain types of utility companies may
change more in response to interest rate changes than the equity
securities of other companies. Generally, when interest rates go
up, the value of securities issued by these companies goes down.
Conversely, when interest rates go down, the value of securities
issued by these companies goes up. There is no guarantee that
this relationship will hold in the future.
Government Regulation. Companies in certain
sectors of the Utilities Industry (such as power generation and
distribution) are subject to extensive governmental regulatory
requirements. Certain of these regulations that are intended to
limit the concentration of ownership and control of companies in
these industries may prevent companies in which the Fund invests
from making certain investments that they would otherwise make.
Other regulations may cause Utilities Industry companies to
incur substantial additional costs or lengthy delays in
connection with the completion of capital investments or the
introduction of new products or services to market. There are
substantial differences between the regulatory practices and
policies in various jurisdictions, and any given regulatory
agency may make major shifts in policy from time to time. There
is no assurance that regulatory authorities will, in the future,
permit companies to implement rate increases or that such
increases will be adequate to permit the payment of dividends on
such issuers common stocks. Additionally, existing and
possible future regulatory legislation may make it even more
difficult for companies in the Utilities Industry to obtain
adequate relief from rate regulation.
Regulatory considerations limit the percentage of the shares of
a public utility held by a fund or by an adviser and its
affiliates on behalf of all their clients. Specifically, to
avoid regulation under the Public Utility Holding Company Act of
1935, the Fund along with other funds advised by the Investment
Adviser will not, in the aggregate, own more than 10% of the
voting securities of a public utility company. Also, various
types of ownership restrictions are imposed by the Federal
Communications Commission (FCC), on investment in
media companies and cellular licensees. These rules limit the
number of broadcast stations both locally and nationally that a
single entity is permitted to own, operate, or control and
prohibit ownership of certain competitive communications
providers in the same location. The FCC also applies limited
ownership restrictions on cellular licensees serving rural
areas. Attributable interests that may result from the role of
the Investment Adviser and its principals in connection with
other funds, managed accounts and companies may limit the
Funds ability to invest in certain mass media and cellular
companies. These limitations may unfavorably restrict the
ability of the Fund to make certain investments.
26
Deregulation. Changing regulation constitutes
one of the key industry-specific risks for the Fund, especially
with respect to its investments in traditionally regulated
public utilities and partially regulated utility or
telecommunications companies. Domestic and foreign regulators
may monitor and control such companies revenues and costs,
and therefore may limit utility profits and dividends paid to
investors, which could result in reduced income to the Fund.
Regulatory authorities also may restrict a companys access
to new markets, thereby diminishing the companys long-term
prospects. In some jurisdictions certain portions of various
utilities functions have been deregulated. Deregulation may
eliminate restrictions on profits and dividends of companies,
but may also subject these companies to greater risks of loss.
Thus, deregulation could have a positive or negative impact on
the Fund. The Investment Adviser believes that certain Utilities
Industry companies fundamentals should continue to improve
as the industry undergoes deregulation. In recent years, changes
in regulation in the United States increasingly have allowed
companies in the Utilities Industry to provide services and
products outside their traditional geographic areas and lines of
business, creating new areas of competition within these
industries. However, a number of companies have failed in their
efforts to take advantage of the deregulated environment and are
seeking to refocus in their primary business. Nonetheless,
because of trends toward deregulation and the evolution of
independent producers as well as new entrants to the field of
telecommunications, non-regulated providers of utility and
telecommunications services have become a significant part of
their respective industries. The emergence of competition and
deregulation may result in certain companies in the Utilities
Industry being able to earn more than their traditional
regulated rates of return, while others may be forced to defend
their core business from increased competition and may be less
profitable. Reduced profitability, as well as new uses of funds
(such as for expansion, operations or stock buybacks) could
result in cuts in dividend payout rates.
Environmental and Other Regulatory
Matters. Companies in the Utilities Industry in
which the Fund will invest may be subject to a number of host
country statutory and regulatory standards and required
approvals relating to energy, labor and environmental laws.
Certain permits and regulatory approvals may be required to be
obtained for certain investments by companies in which the Fund
will invest and failure by such companies to obtain such permits
and regulatory approvals could adversely affect the Funds
investment. Companies also face considerable costs associated
with environmental compliance, nuclear waste
clean-up and
safety regulation. Increasingly, regulators are calling upon
electric utilities to bear these added costs, and there is a
risk that these costs will not be fully recovered through an
increase in revenues.
The adoption by a host country of new laws, policies or
regulations or changes in the interpretation or application of
existing laws, policies and regulations that modify the present
regulatory environment could also have an adverse effect on the
Funds investments. Regulatory risk affects companies in
the Utilities Industry in part because governments may be party
to private Utilities Industry investments as lessors, customers,
regulators or partners. Moreover, for political reasons,
governments may control the prices at which companies in the
Utilities Industry can sell their products, which can adversely
affect the Funds investment in such a company.
Under the laws of certain countries that are host to Utilities
Industry companies in which the Fund may invest, such companies
may be required to comply with a number of statutes and
regulations during their operation pertaining to environmental
controls or restrictions, and the storage, handling,
transportation and disposal of hazardous and toxic material,
waste or other substances. Compliance with such requirements may
be costly and may materially affect the profitability of such
companies. Further, failure by such a company to comply with any
such statutes or regulations could have adverse effects on its
business results and prospects, which could have negative
consequences for investors such as the Fund.
Foreign Utility Companies. Foreign companies
in the Utilities Industry are also subject to regulation,
although such regulation may or may not be comparable to
regulation in the United States. Foreign companies in the
Utilities Industry may be more heavily regulated by their
respective governments than companies in the United States and,
as in the United States, generally are required to seek
government approval for rate increases. In addition, many
foreign utilities use fuels that may cause more pollution than
those used in the United States, which may require such
utilities to invest in pollution control equipment to meet any
proposed pollution restrictions. Foreign regulatory systems vary
from country to country and may evolve in ways
27
different from regulation in the United States. Additionally,
because the effectiveness of the judicial systems in
non-U.S. countries
varies, the Fund or companies in which it may invest may have
difficulty in successfully pursuing claims in the courts of such
countries.
Financing. At certain times, companies in the
Utilities Industry encounter difficulties in obtaining financing
for product development, infrastructure and construction
programs. Issuers experiencing such difficulties may also
experience lower profitability, which can result in reduced
income to the Fund. Historically, companies in the Utilities
Industry have also encountered such financing difficulties
during inflationary periods, although we cannot assure you that
such a relationship will continue and that companies in the
Utilities Industry will not encounter financing difficulties
during non-inflationary periods.
Equipment and Supplies. Companies in the
Utilities Industry may face the risk of lengthy delays and
increased costs associated with the design, development,
construction, licensing and operation of their facilities or
sale of their products. Moreover, technological innovations may
render existing plants, equipment or products obsolete.
Increased costs and a reduction in the availability of fuel
(such as oil, coal, nuclear or natural gas) also may adversely
affect the profitability of utility companies. Electric
utilities may be burdened by unexpected increases in fuel and
other operating costs. They may also be negatively affected when
long-term interest rates rise. Long-term borrowings are used to
finance most utility investments, and rising interest rates lead
to higher financing costs and reduced earnings. Investments in
certain kinds of utility companies are also subject to certain
additional risks.
Electric. Certain of the issuers of securities
held in the Funds portfolio may own or operate nuclear
generating facilities. Governmental authorities may from time to
time review existing policies and impose additional requirements
governing the licensing, construction and operation of nuclear
power plants. Prolonged changes in climatic conditions can also
have a significant impact on both the revenues of an electric
and gas utility as well as its expenses.
The construction and operation of nuclear power facilities are
subject to increased scrutiny by, and evolving regulations of,
the Nuclear Regulatory Commission and state agencies having
comparable jurisdiction. Increased scrutiny might result in
higher operating costs and higher capital expenditures, with the
risk that the regulators may disallow inclusion of these costs
in rate authorizations or the risk that a company may not be
permitted to operate or complete construction of a facility. In
addition, operators of nuclear power plants may be subject to
significant costs for disposal of nuclear fuel and for
decommissioning such plants.
The rating agencies are taking a closer look at the business
profile of utilities. Ratings for companies are expected to be
affected to a greater extent in the future by how their asset
base is utilized. Electric utility companies that focus more on
the generation of electricity may be assigned less favorable
ratings as this business is expected to be competitive and the
least regulated. On the other hand, companies that focus on
transmission and distribution, which is expected to be the least
competitive and the more regulated part of the business, may see
higher ratings given the greater predictability of cash flow.
Several states have enacted enabling deregulation legislation.
The introduction of competition into the industry as a result of
deregulation may result in lower revenue, lower credit ratings,
increased default risk and lower electric utility security
prices. Such increased competition may also cause long-term
contracts, which electric utilities previously entered into to
buy power, to become stranded assets, which have no
economic value. Any loss associated with such contracts must be
absorbed by ratepayers and investors. In addition, in
anticipation of increasing competition, some electric utilities
have acquired electric utilities overseas to diversify, enhance
earnings and gain experience in operating in a deregulated
environment. In some instances, such acquisitions have involved
significant borrowings, which have burdened the acquirers
balance sheet. There is no assurance that current deregulation
proposals will be adopted. However, deregulation in any form
could significantly impact the electric utilities industry.
Following deregulation of the energy markets in certain states,
a number of companies have engaged in energy trading and
incurred substantial losses. Certain of these energy trading
businesses have been accused of
28
employing improper accounting practices and have been required
to make significant restatements of their financial results. In
addition, several energy companies have been accused of
attempting to manipulate the price and availability of energy in
certain states.
Telecommunications. The telecommunications
industry today includes both traditional telephone companies
with a history of broad market coverage and highly regulated
businesses and cable companies, which began as small, lightly
regulated businesses focused on limited markets. Today these two
historically different businesses are converging in an industry
which is trending toward larger, competitive, national and
international markets with an emphasis on deregulation.
Companies that distribute telephone services and provide access
to the telephone networks still comprise the greatest portion of
this segment, but non-regulated activities such as cellular
telephone services, paging, data processing, equipment
retailing, computer software and hardware services are becoming
increasingly significant components as well. The presence of
unregulated companies in this industry and the entry of
traditional telephone companies into unregulated or less
regulated businesses provide significant investment
opportunities with companies which may increase their earnings
at faster rates than had been allowed in traditional regulated
businesses. Still, increasing competition, technological
innovations and other structural changes could adversely affect
the profitability of such utilities and the growth rate of their
dividends. Given mergers, certain marketing tests currently
underway and proposed legislation and enforcement changes, it is
likely that both traditional telephone companies and cable
companies will soon provide a greatly expanded range of utility
services, including two-way video and informational services to
residential, corporate and governmental customers.
In February 1996, the Telecommunications Act of 1996 (the
Act) became law. The Act removed regulatory
restrictions on entry that prevented local and long-distance
telephone companies and cable television companies from
competing against one another. The Act also removed most cable
rate controls and allows broadcasters to own more radio and
television stations. Litigation concerning the constitutionality
of certain major provisions of the Act has slowed the
implementation of such provisions.
Gas. Gas transmission companies and gas
distribution companies are also undergoing significant changes.
In the United States, interstate transmission companies are
regulated by the Federal Energy Regulatory Commission, which is
reducing its regulation of the industry. Many companies have
diversified into oil and gas exploration and development, making
returns more sensitive to energy prices. In the recent decade,
gas utility companies have been adversely affected by
disruptions in the oil industry and have also been affected by
increased concentration and competition. Prolonged changes in
climatic conditions can also have a significant impact on both
the revenues and expenses of a gas utility.
Water. In the case of the water utility
sector, the industry is highly fragmented, and most water supply
companies find themselves in mature markets, although upgrading
of fresh water and waste water systems is an expanding business.
There can be no assurance that the positive developments noted
above, including those relating to privatization and changing
regulation, will occur or that risk factors other than those
noted above will not develop in the future.
Leveraged Capital Structures. It is expected
that Utilities Industry companies in which the Fund will invest
may employ considerable leverage, a significant portion of which
may be at floating interest rates. As a result, a Utilities
Industry company may be subject to increased exposure to adverse
economic factors such as a significant rise in interest rates, a
severe downturn in the economy or deterioration in the condition
of such company or its industry.
Special
Risk to Holders of Common Shares
Leverage Risk. The Fund currently does not use
financial leverage for investment purposes. However, if the Fund
implemented a leveraged capital structure in the future, such a
structure would create special risks not associated with
unleveraged funds that have a similar investment objective and
policies. These include the possibility of greater loss and the
likelihood of higher volatility of the net asset value of the
Fund and the
29
asset coverage for the preferred shares. Such volatility may
increase the likelihood of the Fund having to sell investments
in order to meet its obligations to make distributions on the
preferred shares or principal or interest payments on debt
securities, or to redeem preferred shares or repay debt, when it
may be disadvantageous to do so. The use of leverage magnifies
both the favorable and unfavorable effects of price movements in
the investments made by the Fund. To the extent the Fund is
leveraged in its investment operations, the Fund will be subject
to substantial risk of loss. The Fund cannot assure that
borrowings or the issuance of preferred shares will result in a
higher yield or return to the holders of the common shares.
Also, if the Fund utilizes leverage, a decline in net asset
value could affect the ability of the Fund to make common share
distributions and such a failure to make distributions could
result in the Fund ceasing to qualify as a regulated investment
company under the Code.
Any decline in the net asset value of the Funds
investments would be borne entirely by the holders of common
shares. Therefore, if the market value of the Funds
portfolio declines, the leverage will result in a greater
decrease in net asset value to the holders of common shares than
if the Fund were not leveraged. This greater net asset value
decrease will also tend to cause a greater decline in the market
price for the common shares. In such a case, the Fund might be
in danger of failing to maintain the required asset coverage of
its borrowings or preferred shares or of losing its ratings on
its borrowings or preferred shares or, in an extreme case, the
Funds current investment income might not be sufficient to
meet the interest or dividend requirements on its borrowings or
preferred shares. In order to counteract such an event, the Fund
might need to liquidate investments in order to fund a
redemption of some or all of the preferred shares.
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Preferred Share and Note Risk. The issuance of
preferred shares or notes causes the net asset value and market
value of the common shares to become more volatile. If the
dividend rate on the preferred shares or the interest rate on
the notes approaches the net rate of return on the Funds
investment portfolio, the benefit of leverage to the holders of
the common shares would be reduced. If the dividend rate on the
preferred shares or the interest rate on the notes plus the
management fee annual rate of 1.00% exceeds the net rate of
return on the Funds portfolio, the leverage will result in
a lower rate of return to the holders of common shares than if
the Fund had not issued preferred shares or notes. If the Fund
has insufficient investment income and gains, all or a portion
of the distributions to preferred shareholders or interest
payments to note holders would come from the common
shareholders capital. Such distributions and interest
payments reduce the net assets attributable to common
shareholders.
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In addition, the Fund would pay (and the holders of common
shares will bear) all costs and expenses relating to the
issuance and ongoing maintenance of the preferred shares or
notes, including the advisory fees on the incremental assets
attributable to the preferred shares or notes.
Holders of preferred shares may have different interests than
holders of common shares and may at times have disproportionate
influence over the Funds affairs. Holders of preferred
shares, voting separately as a single class, would have the
right to elect two members of the Board of Trustees at all times
and in the event dividends become two full years in arrears
would have the right to elect a majority of the Trustees until
such arrearage is completely eliminated. In addition, preferred
shareholders have class voting rights on certain matters,
including changes in fundamental investment restrictions and
conversion of the fund to open-end status, and accordingly can
veto any such changes.
Restrictions imposed on the declarations and payment of
dividends or other distributions to the holders of the
Funds common shares and preferred shares, both by the 1940
Act and by requirements imposed by rating agencies, might impair
the Funds ability to maintain its qualification as a
regulated investment company for federal income tax purposes.
While the Fund intends to redeem its preferred shares or notes
to the extent necessary to enable the Fund to distribute its
income as required to maintain its qualification as a regulated
investment company under the Code, there can be no assurance
that such actions can be effected in time to meet the Code
requirements.
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Portfolio Guidelines of Rating Agencies for Preferred Shares
and/or
Credit Facility. In order to obtain and maintain
attractive credit quality ratings for preferred shares or
borrowings, the Fund must comply with investment quality,
diversification and other guidelines established by the relevant
rating agencies.
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30
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These guidelines could affect portfolio decisions and may be
more stringent than those imposed by the 1940 Act. In the event
that a rating on the Funds preferred shares or notes is
lowered or withdrawn by the relevant rating agency, the Fund may
also be required to redeem all or part of its outstanding
preferred shares or notes, and the common shares of the Fund
will lose the potential benefits associated with a leveraged
capital structure.
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Impact on Common Shares. The following table
is furnished in response to requirements of the SEC. It is
designed to illustrate the effect of leverage on common share
total return, assuming investment portfolio total returns
(comprised of net investment income of the Fund, realized gains
or losses of the Fund and changes in the value of the securities
held in the Funds portfolio) of -10%, -5%, 0%, 5% and 10%.
These assumed investment portfolio returns are hypothetical
figures and are not necessarily indicative of the investment
portfolio returns experienced or expected to be experienced by
the Fund. See Risks. The table further reflects
leverage representing 15% of the Funds total assets, the
Funds current projected blended annual average leverage
dividend or interest rate of 6.00%, a management fee at an
annual rate of 0.70% of the liquidation preference of any
outstanding preferred shares and estimated annual incremental
expenses attributable to any outstanding preferred shares of
0.02% of the Funds net assets attributable to common
shares.
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Assumed Portfolio Total Return (Net of Expenses)
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(10
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)%
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(5
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)%
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0
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%
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5
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%
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10
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%
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Common Share Total Return
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(12.97
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)%
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(7.08
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)%
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(1.20
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)%
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4.69
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%
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10.58
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%
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Common share total return is composed of two elementsthe
common share distributions paid by the Fund (the amount of which
is largely determined by the taxable income of the Fund
(including realized gains or losses) after paying interest on
any debt
and/or
dividends on any preferred shares) and unrealized gains or
losses on the value of the securities the Fund owns. As required
by SEC rules, the table assumes that the Fund is more likely to
suffer capital losses than to enjoy total return. For example,
to assume a total return of 0% the Fund must assume that the
income it receives on its investments is entirely offset by
expenses and losses in the value of those investments.
Special
Risks to Holders of Fixed Rate Preferred Shares
Illiquidity Prior to Exchange Listing. Prior
to the offering, there will be no public market for any series
of Fixed Rate Preferred Shares. In the event any series of Fixed
Rate Preferred Shares are issued, prior application will have
been made to list such shares on a national securities exchange,
which will likely be the NYSE Amex. However, during an initial
period, which is not expected to exceed 30 days after the
date of its initial issuance, such shares may not be listed on
any securities exchange. During such period, the underwriters
may make a market in such shares, though they will have no
obligation to do so. Consequently, an investment in such shares
may be illiquid during such period.
Market Price Fluctuation. Shares of Fixed Rate
Preferred may trade at a premium to or discount from liquidation
value for various reasons, including changes in interest rates.
Special
Risks for Holders of Variable Rate Preferred Shares
Auction Risk. In the event any Variable Rate
Preferred Shares are issued, you may not be able to sell your
Variable Rate Preferred Shares at an auction if the auction
fails, i.e., if more Variable Rate Preferred Shares are offered
for sale than there are buyers for those shares. Also, if you
place an order (a hold order) at an auction to retain Variable
Rate Preferred Shares only at a specified rate that exceeds the
rate set at the auction, you will not retain your Variable Rate
Preferred Shares. 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. Moreover, the dividend period may be
changed, subject to certain conditions and with notice to the
holders of the Variable Rate Preferred Shares, which could also
affect the liquidity of your investment. Since 2008, most
auction-rate preferred share auctions have been unable to hold
successful auctions and holders of such shares have suffered
reduced liquidity. There can be no assurance that liquidity will
improve.
31
Secondary Market Risk. In the event any
Variable Rate Preferred Shares are issued, if you try to sell
your Variable Rate Preferred Shares between auctions, you may
not be able to sell them for their liquidation preference per
share or such amount 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
Variable Rate Preferred Shares are not required to maintain this
market, and the Fund is not required to redeem Variable Rate
Preferred Shares if either an auction or an attempted secondary
market sale fails because of a lack of buyers. The Variable Rate
Preferred Shares will not be registered on a stock exchange. If
you sell your Variable Rate Preferred Shares 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.
Special
Risks to Holders of Notes
An investment in our notes is subject to special risks. There
may not be an established market for our notes. To the extent
that our notes trade, they may trade at a price either higher or
lower than their principal amount depending on interest rates,
the rating (if any) on such notes and other factors.
Special
Risk to Holders of Subscription Rights
There is a risk that changes in market conditions may result in
the underlying common or preferred shares purchaseable upon
exercise of the subscription rights being less attractive to
investors at the conclusion of the subscription period. This may
reduce or eliminate the value of the subscription rights.
Investors who receive subscription rights may find that there is
no market to sell rights they do not wish to exercise. If
investors exercise only a portion of the rights, the number of
common or preferred shares issued may be reduced, and the common
or preferred shares may trade at less favorable prices than
larger offerings for similar securities.
Tax
Risk
We cannot assure you what percentage of the distributions paid
on the common shares, if any, will consist of tax-advantaged
qualified dividend income or long-term capital gains or what the
tax rates on various types of income will be in future years.
The favorable rates on qualifying dividends and capital gains
are currently scheduled to expire for income received or gains
realized in taxable years beginning after December 31,
2012. See Taxation.
Foreign
Securities Risk
The Fund may invest without limitation in securities of foreign
issuers and will generally be invested in securities of issuers
located in at least three countries including the
U.S. 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 the same
accounting, auditing and financial standards and requirements as
those applicable to U.S. companies. Foreign securities
exchanges, brokers and listed companies may be subject to less
government supervision and regulation than exists in the 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
32
different nations and by exchange control regulations. Foreign
markets also have different clearance and settlement procedures
that could cause the Fund to encounter difficulties in
purchasing and selling securities on such markets and may result
in the Fund missing attractive investment opportunities or
experiencing loss. In addition, a portfolio that includes
foreign securities can expect to have a higher expense ratio
because of the increased transaction costs on
non-U.S. securities
markets and the increased costs of maintaining the custody of
foreign securities.
Investments in foreign securities, especially in emerging market
countries, will expose the Fund to the direct or indirect
consequences of political, social or economic changes in the
countries that issue the securities or in which the issuers are
located. Certain countries in which the Fund may invest,
especially emerging market countries, have historically
experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate fluctuations,
large amounts of external debt, balance of payments and trade
difficulties and extreme poverty and unemployment. Many of these
countries are also characterized by political uncertainty and
instability. The cost of servicing external debt will generally
be adversely affected by rising international interest rates
because many external debt obligations bear interest at rates
which are adjusted based upon international interest rates.
Investing in securities of companies in emerging markets may
entail special risks relating to potential political and
economic instability and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions
on foreign investment, the lack of hedging instruments and
restrictions on repatriation of capital invested. Emerging
securities markets are substantially smaller, less developed,
less liquid and more volatile than the major securities markets.
The limited size of emerging securities markets and limited
trading value compared to the volume of trading in
U.S. securities could cause prices to be erratic for
reasons apart from factors that affect the quality of the
securities. For example, limited market size may cause prices to
be unduly influenced by traders who control large positions.
Adverse publicity and investors perceptions, whether or
not based on fundamental analysis, may decrease the value and
liquidity of portfolio securities, especially in these markets.
Many emerging market countries have experienced substantial, and
in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates and
corresponding currency devaluations have had and may continue to
have negative effects on the economies and securities markets of
certain emerging market countries. Typically, the Fund will not
hold any foreign securities of emerging market issuers and, if
it does, such securities will not comprise more than 10% of the
Funds managed assets.
The Fund also may purchase sponsored ADRs or
U.S. dollar-denominated securities of foreign issuers. ADRs
are receipts issued by United States banks or trust companies in
respect of securities of foreign issuers held on deposit for use
in the United States securities markets. While ADRs may not
necessarily be denominated in the same currency as the
securities into which they may be converted, many of the risks
associated with foreign securities may also apply to ADRs. In
addition, the underlying issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts,
are under no obligation to distribute shareholder communications
to the holders of such receipts, or to pass through to them any
voting rights with respect to the deposited securities.
Foreign
Currency Risk
The Fund expects to invest in companies whose securities are
denominated in currencies other than U.S. dollars or have
operations outside of the U.S. In such instances, the Fund
will be exposed to currency risk, including the risk of
fluctuations in the exchange rate between U.S. dollars (in
which the Funds shares are denominated) and such foreign
currencies, the risk of currency devaluations and the risks of
non-exchangeability and blockage.
As
non-U.S. securities
may be purchased with and payable in currencies of countries
other than the U.S. dollar, the value of these assets
measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control
regulations. Fluctuations in currency rates may adversely affect
the ability of the Investment Adviser to acquire such securities
at advantageous prices and may also adversely affect the
performance of such assets.
33
Certain
non-U.S. currencies,
primarily in developing countries, have been devalued in the
past and might face devaluation in the future. Currency
devaluations generally have a significant and adverse impact on
the devaluing countrys economy in the short and
intermediate term and on the financial condition and results of
companies operations in that country. Currency
devaluations may also be accompanied by significant declines in
the values and liquidity of equity and debt securities of
affected governmental and private sector entities generally. To
the extent that affected companies have obligations denominated
in currencies other than the devalued currency, those companies
may also have difficulty in meeting those obligations under such
circumstances, which in turn could have an adverse effect upon
the value of the Funds investments in such companies.
There can be no assurance that current or future developments
with respect to foreign currency devaluations will not impair
the Funds investment flexibility, its ability to achieve
its investment objective or the value of certain of its foreign
currency denominated investments.
Equity
Risk
A principal risk of investing in the Fund is equity risk, which
is the risk that the securities held by the Fund will fall in
market value due to adverse market and economic conditions,
perceptions regarding the industries in which the issuers of
securities held by the Fund participate, and the particular
circumstances and performance of particular companies whose
securities the Fund holds. An investment in the Fund represents
an indirect investment in the securities owned by the Fund,
which are for the most part traded on securities exchanges or in
the
over-the-counter
markets. The market value of these securities, like other market
investments, may move up or down, sometimes rapidly and
unpredictably. The net asset value of the Fund may at any point
in time be worth less than the amount at the time the
shareholder invested in the Fund, even after taking into account
any reinvestment of distributions.
Dependence
on Key Personnel
Mario J. Gabelli serves as the Funds portfolio manager.
The Investment Adviser is dependent upon the expertise of
Mr. Mario J. Gabelli in providing advisory services with
respect to the Funds investments. If the Investment
Adviser were to lose the services of Mr. Gabelli, its
ability to service the Fund could be adversely affected. There
can be no assurance that a suitable replacement could be found
for Mr. Gabelli in the event of his death, resignation,
retirement or inability to act on behalf of the Investment
Adviser.
Market
Discount Risk
Whether investors will realize gains or losses upon the sale of
common shares of the Fund will depend upon the market price of
the shares at the time of sale, which may be less or more than
the Funds net asset value per share. Since the market
price of the common shares will be affected by such factors as
the Funds dividend and distribution levels (which are in
turn affected by expenses), dividend and distribution stability,
net asset value, market liquidity, the relative demand for and
supply of the shares in the market, general market and economic
conditions and other factors beyond the control of the Fund, we
cannot predict whether the common shares will trade at, below or
above net asset value or at, below or above the public offering
price. Common shares of closed-end funds often trade at a
discount to their net asset values and the Funds common
shares may trade at such a discount. This risk may be greater
for investors expecting to sell their common shares of the Fund
soon after completion of the public offering. The common shares
of the Fund are designed primarily for long-term investors, and
investors in the shares should not view the Fund as a vehicle
for trading purposes.
Long-term
Objective; Not a Complete Investment Program
The Fund is intended for investors seeking a consistent level of
after-tax total return consisting of income (with a current
emphasis on qualifying dividends) and long-term capital gains.
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
34
account the Funds investment objective as well as the
shareholders other investments when considering an
investment in the Fund.
Common
Shares Distribution Policy Risk
Pursuant to its adopted distribution policy, the Fund intends to
make monthly distributions on its common shares. To the extent
its total monthly distributions for a year exceed its net
investment company taxable income and net realized capital gain
for that year, the excess would generally constitute a return of
capital. Return of capital distributions are generally tax-free
up to the amount of a shareholders tax basis in the shares
after which they are treated as capital gains. See
Taxation. In addition, such excess distributions may
have the effect of decreasing the Funds total assets and
may increase the Funds expense ratio as the Funds
fixed expenses may become a larger percentage of the Funds
average net assets. In order to make such distributions, the
Fund might have to sell a portion of its investment portfolio at
a time when independent investment judgment may not dictate such
action.
Management
Risk
The Fund is subject to management risk because it is an actively
managed portfolio. The Investment Adviser will apply investment
techniques and risk analyses in making investment decisions for
the Fund, but there can be no guarantee that these will produce
the desired results.
Distribution
Risk for Equity Income Portfolio Securities
In selecting equity income securities in which the Fund will
invest, the Investment Adviser will consider the issuers
history of making regular periodic distributions (i.e.,
dividends) to its equity holders. An issuers history of
paying dividends, however, does not guarantee that the issuer
will continue to pay dividends in the future. The dividend
income stream associated with equity income securities generally
is not guaranteed and will be subordinate to payment obligations
of the issuer on its debt and other liabilities. Accordingly, in
the event the issuer does not realize sufficient income in a
particular period both to service its liabilities and to pay
dividends on its equity securities, it may forgo paying
dividends on its equity securities. In addition, because in most
instances issuers are not obligated to make periodic
distributions to the holders of their equity securities, such
distributions or dividends generally may be discontinued at the
issuers discretion.
Special
Risks Related to Investments in Preferred Securities
There are special risks associated with the Funds
investing in preferred securities, including:
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Deferral. Preferred securities may include
provisions that permit the issuer, at its discretion, to defer
dividends or distributions for a stated period without any
adverse consequences to the issuer. If the Fund owns a preferred
security that is deferring its dividends or distributions, the
Fund may be required to report income for tax purposes although
it has not yet received such income.
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Non-Cumulative Dividends. Some preferred
securities are non-cumulative, meaning that the dividends do not
accumulate and need not ever be paid. A portion of the portfolio
may include investments in non-cumulative preferred securities,
whereby the issuer does not have an obligation to make up any
arrearages to its shareholders. Should an issuer of a
non-cumulative preferred security held by the Fund determine not
to pay dividends or distributions on such security, the
Funds return from that security may be adversely affected.
There is no assurance that dividends or distributions on
non-cumulative preferred securities in which the Fund invests
will be declared or otherwise made payable.
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Subordination. Preferred securities are
subordinated to bonds and other debt instruments in an
issuers capital structure in terms of priority to
corporate income and liquidation payments, and therefore will be
subject to greater credit risk than more senior debt security
instruments.
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Liquidity. Preferred securities may be
substantially less liquid than many other securities, such as
common stocks or U.S. government securities.
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Limited Voting Rights. Generally, preferred
security holders (such as the Fund) have no voting rights with
respect to the issuing company unless preferred dividends have
been in arrears for a specified number of periods, at which time
the preferred security holders may be entitled to elect a number
of trustees to the issuers board. Generally, once all the
arrearages have been paid, the preferred security holders no
longer have voting rights.
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Special Redemption Rights. In certain
varying circumstances, an issuer of preferred securities may
redeem the securities prior to a specified date. For instance,
for certain types of preferred securities, a redemption may be
triggered by a change in federal income tax or securities laws.
A redemption by the issuer may negatively impact the return of
the security held by the Fund.
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Income
Risk
The income investors in the Fund receive is based primarily on
dividends and interest the Fund earns from its investments,
which can vary widely over the short and long-term. If
prevailing market interest rates decrease, distribution rates of
the Funds preferred shares and any bond holdings could
drop as well. The Funds income also would likely be
affected adversely when prevailing short-term interest rates
increase while the Fund is utilizing leverage.
Inflation
Risk
Inflation risk is the risk that the value of assets or income
from investments will be worth less in the future as inflation
decreases the value of money. As inflation increases, the real
value of the Funds shares and distributions thereon can
decline. In addition, during any periods of rising inflation,
dividend or interest rates of any variable rate preferred shares
or debt securities issued by the Fund would likely increase,
which would tend to further reduce returns to common
shareholders.
Dilution
Risk for Convertible Securities
In the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Funds
holding may occur in the event the underlying stock is
subdivided, additional equity securities are issued for below
market value, a stock dividend is declared or the issuer enters
into another type of corporate transaction that has a similar
effect.
Value
Investing Risk
The Fund invests in dividend-paying common and preferred stocks
in the Utilities Industry that the Investment Adviser believes
are undervalued or inexpensive relative to other investments.
These types of securities may present risks in addition to the
general risks associated with investing in common and preferred
stocks. These securities generally are selected on the basis of
an issuers fundamentals relative to current market price.
Such securities are subject to the risk of mis-estimation of
certain fundamental factors. In addition, during certain time
periods market dynamics may strongly favor growth
stocks of issuers that do not display strong fundamentals
relative to market price based upon positive price momentum and
other factors. Disciplined adherence to a value
investment mandate during such periods can result in significant
underperformance relative to overall market indices and other
managed investment vehicles that pursue growth style investments
and/or
flexible equity style mandates.
Non-Diversified
Status
The Fund is classified as a non-diversified
investment company under the 1940 Act, which means the Fund is
not limited by the 1940 Act in the proportion of its assets that
may be invested in the securities of a single issuer. As a
non-diversified investment company, the Fund may invest in the
securities of individual issuers to a greater degree than a
diversified investment company. As a result, the Fund may be
more vulnerable to events affecting a single issuer and
therefore, subject to greater volatility than a fund that is
36
more broadly diversified. Accordingly, an investment in the Fund
may present greater risk to an investor than an investment in a
diversified company.
Illiquid
Securities
The Fund has no limit on the amount of its net assets it may
invest in unregistered or otherwise illiquid investments.
Unregistered securities are securities that cannot be sold
publicly in the United States without registration under the
Securities Act. Unregistered securities generally can be resold
only in privately negotiated transactions with a limited number
of purchasers or in a public offering registered under the
Securities Act. Considerable delay could be encountered in
either event and, unless otherwise contractually provided for,
the Funds proceeds upon sale may be reduced by the costs
of registration or underwriting discounts. The difficulties and
delays associated with such transactions could result in the
Funds inability to realize a favorable price upon
disposition of unregistered securities, and at times might make
disposition of such securities impossible.
Risk
Arbitrage
The Fund may invest in securities pursuant to risk
arbitrage strategies or in other investment funds managed
pursuant to such strategies. Risk arbitrage strategies attempt
to exploit merger activity to capture the spread between current
market values of securities and their values after successful
completion of a merger, restructuring or similar corporate
transaction. A merger or other restructuring or tender or
exchange offer anticipated by the Fund and in which it holds an
arbitrage position may not be completed on the terms
contemplated or within the time frame anticipated, resulting in
losses to the Fund. Such losses would be magnified to the extent
that the Fund uses leverage to increase its stake in an
arbitrage position.
Lower
Rated Securities
The Fund may invest up to 10% of its total assets in
nonconvertible fixed-income securities rated in the lower rating
categories of recognized statistical rating agencies or unrated
securities of comparable quality, and an unlimited percentage of
it assets in convertible bonds of such quality. These high yield
securities, also sometimes referred to as junk
bonds, generally pay a premium above the yields of
U.S. government securities or debt securities of investment
grade issuers because they are subject to greater risks than
these securities. These risks, which reflect their speculative
character, include the following:
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greater volatility;
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greater credit risk and risk of default;
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potentially greater sensitivity to general economic or industry
conditions;
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potential lack of attractive resale opportunities
(illiquidity); and
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additional expenses to seek recovery from issuers who default.
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In addition, the prices of these lower grade securities are more
sensitive to negative developments, such as a decline in the
issuers revenues or a general economic downturn, than are
the prices of higher grade securities. Lower grade securities
tend to be less liquid than investment grade securities. The
market value of lower grade securities may be more volatile than
the market value of investment grade securities and generally
tends to reflect the markets perception of the
creditworthiness of the issuer and short-term market
developments to a greater extent than investment grade
securities, which primarily reflect fluctuations in general
levels of interest rates.
Ratings are relative and subjective and not absolute standards
of quality. Securities ratings are based largely on the
issuers historical financial condition and the rating
agencies analysis at the time of rating. Consequently, the
rating assigned to any particular security is not necessarily a
reflection of the issuers current financial condition.
37
As a part of its investments in lower grade securities, the Fund
may invest in securities of issuers in default. The Fund will
invest in securities of issuers in default only when the
Investment Adviser believes that such issuers will honor their
obligations, emerge from bankruptcy protection and the value of
these securities will appreciate. By investing in the securities
of issuers in default, the Fund bears the risk that these
issuers will not continue to honor their obligations or emerge
from bankruptcy protection or that the value of these securities
will not otherwise appreciate.
For a further description of lower grade securities and the
risks associated therewith, see Investment Objectives and
PoliciesCertain Investment PracticesLower Rated
Securities. For a description of the ratings categories of
certain recognized statistical ratings agencies, see
Appendix A to this prospectus.
Loans of
Portfolio Securities
Consistent with applicable regulatory requirements and the
Funds investment restrictions, the Fund may lend its
portfolio securities to securities broker-dealers or financial
institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described in the SAI),
and are at all times secured by cash or cash equivalents, which
are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value,
determined daily, of the loaned securities. The advantage of
such loans is that the Fund continues to receive the income on
the loaned securities while at the same time earns interest on
the cash amounts deposited as collateral, which will be invested
in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for
sale. The Funds loans of portfolio securities will be
collateralized in accordance with applicable regulatory
requirements. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in the
securities loaned if the borrower of the securities violates the
terms of the loan or fails financially.
For a further description of such loans of portfolio securities,
see Investment Objective and PoliciesAdditional
Investment PoliciesLoans of Portfolio Securities in
the SAI.
Market
Disruption and Geopolitical Risk
The terrorist attacks on domestic U.S. targets on
September 11, 2001, the wars in Iraq and Afghanistan and
other geopolitical events have led to, and may in the future
lead to, increased short-term market volatility and may have
long-term effects on U.S. and world economies and markets.
The nature, scope and duration of the war and occupation cannot
be predicted with any certainty. Similar events in the future or
other disruptions of financial markets could affect interest
rates, securities exchanges, auctions, secondary trading,
ratings, credit risk, inflation, energy prices and other factors
relating to the common shares.
Recent
Economic Events
While the U.S. and global markets had experienced extreme
volatility and disruption for an extended period of time, fiscal
year 2010 and the first quarter of 2011 witnessed more
stabilized economic activity as expectations for an economic
recovery increased. However, risks to a robust resumption of
growth persist: a weak consumer weighed down by too much debt
and increasing joblessness, the growing size of the federal
budget deficit and national debt, and the threat of inflation. A
return to unfavorable economic conditions could impair the
Funds ability to execute its investment strategies.
2012 U.S.
Federal Budget
The proposed U.S. federal budget for fiscal year 2012 calls
for the elimination of approximately $40 billion in tax
incentives widely used by oil, gas and coal companies and the
imposition of new fees on certain energy producers. The
elimination of such tax incentives and imposition of such fees
could adversely affect Natural Resources Companies in which the
Fund invests
and/or the
natural resources sector generally.
38
Government
Intervention in Financial Markets Risk
The recent instability in the financial markets has led the
U.S. government and foreign governments to take a number of
unprecedented actions designed to support certain financial
institutions and segments of the financial markets that have
experienced extreme volatility, and in some cases a lack of
liquidity. U.S. federal and state governments and foreign
governments, their regulatory agencies or self regulatory
organizations may take additional actions that affect the
regulation of the securities in which the Fund invests, or the
issuers of such securities, in ways that are unforeseeable.
Issuers of corporate securities might seek protection under the
bankruptcy laws. Legislation or regulation may also change the
way in which the Fund itself is regulated. Such legislation or
regulation could limit or preclude the Funds ability to
achieve its investment objectives. The Investment Adviser will
monitor developments and seek to manage the Funds
portfolio in a manner consistent with achieving the Funds
investment objectives, but there can be no assurance that it
will be successful in doing so. See Risk Factors and
Special ConsiderationsGovernment Intervention in Financial
Markets Risk.
Anti-Takeover
Provisions of the Funds Governing Documents
The Funds Governing Documents include provisions that
could limit the ability of other entities or persons to acquire
control of the Fund or convert the Fund to an open-end fund. See
Anti-Takeover Provisions of the Funds Governing
Documents.
Status as
a Regulated Investment Company
The Fund has qualified, and intends to remain qualified, for
federal income tax purposes as a regulated investment company
under Subchapter M of the Code. Qualification requires, among
other things, compliance by the Fund with certain distribution
requirements. Statutory limitations on distributions on the
common shares if the Fund fails to satisfy the 1940 Acts
asset coverage requirements could jeopardize the Funds
ability to meet such distribution requirements. The Fund
presently intends, however, to purchase or redeem preferred
shares to the extent necessary in order to maintain compliance
with such asset coverage requirements. See Taxation
for a more complete discussion of these and other federal income
tax considerations.
HOW THE
FUND MANAGES RISK
Investment
Restrictions
The Fund has adopted certain investment limitations designed to
limit investment risk and maintain portfolio diversification.
These limitations are fundamental and may not be changed without
the approval of the holders of a majority, as defined in the
1940 Act, of the outstanding common shares and preferred shares
voting together as a single class. See Investment
Restrictions in the SAI for a complete list of the
fundamental investment policies of the Fund. The Fund may become
subject to rating agency guidelines that are more limiting than
its current investment restrictions in order to obtain and
maintain a desired rating on its preferred shares.
Interest
Rate Transactions
The Fund may enter into interest rate swap or cap transactions
to manage its borrowing costs, as well as to increase income.
The use of such swaps is a highly specialized activity that
involves investment techniques and risks different from those
associated with ordinary portfolio security transactions.
The Fund may enter into interest rate swap or cap transactions
in relation to all or a portion of its Variable Rate Preferred
Shares in order to manage the impact on its portfolio of changes
in the dividend rate of such shares. Through these transactions,
the Fund may, for example, obtain the equivalent of a fixed rate
39
for such Variable Rate Preferred Shares that is lower than the
Fund would have to pay if it issued Fixed Rate Preferred Shares.
In an interest rate swap, the Fund would agree to pay to the
other party to the interest rate swap (which is known as the
counterparty) periodically a fixed rate payment in
exchange for the counterparty agreeing to pay to the Fund
periodically a variable rate payment that is intended to
approximate the Funds variable rate payment obligation on
its Variable Rate Preferred Shares. In an interest rate cap, the
Fund would pay a premium to the counterparty to the interest
rate cap and, to the extent that a specified variable rate index
exceeds a predetermined fixed rate, would receive from the
counterparty payments of the difference based on the notional
amount of such cap. Interest rate swap and cap transactions
introduce additional risk because the Fund would remain
obligated to pay preferred share dividends or distributions when
due in accordance with the Statement of Preferences of the
relevant series of the Variable Rate Preferred Shares even if
the counterparty defaulted. Depending on the general state of
short-term interest rates and the returns on the Funds
portfolio securities at that point in time, such a default could
negatively affect the Funds ability to make dividend or
distribution payments on the Variable Rate Preferred Shares. In
addition, at the time an interest rate swap or cap transaction
reaches its scheduled termination date, there is a risk that the
Fund will not be able to obtain a replacement transaction or
that the terms of the replacement will not be as favorable as on
the expiring transaction. If this occurs, it could have a
negative impact on the Funds ability to make dividend or
distribution payments on the Variable Rate Preferred Shares. To
the extent there is a decline in interest rates, the value of
the interest rate swap or cap could decline, resulting in a
decline in the asset coverage for the Variable Rate Preferred
Shares. A sudden and dramatic decline in interest rates may
result in a significant decline in the asset coverage. Under the
Statement of Preferences for each series of the preferred
shares, if the Fund fails to maintain the required asset
coverage on the outstanding preferred shares or fails to comply
with other covenants, the Fund may be required to redeem some or
all of these shares. The Fund generally may redeem any series of
Variable Rate Preferred Shares, in whole or in part, at its
option at any time (usually on a dividend or distribution
payment date), other than during a non-call period. Such
redemption would likely result in the Fund seeking to terminate
early all or a portion of any swap or cap transactions. Early
termination of a swap could result in a termination payment by
the Fund to the counterparty, while early termination of a cap
could result in a termination payment to the Fund.
The Fund has and may continue to enter into equity contract for
difference swap transactions, for the purpose of increasing the
income of the Fund. In an equity contract for difference swap, a
set of future cash flows is exchanged between two
counterparties. One of these cash flow streams will typically be
based on a reference interest rate combined with the performance
of a notional value of shares of a stock. The other will be
based on the performance of the shares of a stock. Depending on
the general state of short-term interest rates and the returns
on the Funds portfolio securities at the time a swap
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.
The Fund will usually enter into swaps or caps on a net basis;
that is, the two payment streams will be netted out in a cash
settlement on the payment date or dates specified in the
instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund intends to
segregate cash or liquid securities having a value at least
equal to the value of the Funds net payment obligations
under any swap transaction, marked to market daily. The Fund
will monitor any such swap with a view to ensuring that the Fund
remains in compliance with all applicable regulatory investment
policy and tax requirements.
40
MANAGEMENT
OF THE FUND
General
The Funds Board (who, with its officers, are described in
the SAI) has overall responsibility for the management of the
Fund. The Board decides upon matters of general policy and
reviews the actions of the Investment Adviser, Gabelli Funds,
LLC, located at One Corporate Center, Rye, New York
10580-1422,
and the
Sub-Administrator
(as defined below). Pursuant to an investment advisory agreement
with the Fund, the Investment Adviser, under the supervision of
the Funds Board, provides a continuous investment program
for the Funds portfolio; provides investment research and
makes and executes recommendations for the purchase and sale of
securities; and provides all facilities and personnel, including
officers required for its administrative management and pays the
compensation of all officers and Trustees of the Fund who are
its affiliates. As compensation for its services and the related
expenses borne by the Investment Adviser, the Fund pays the
Investment Adviser a fee, computed daily and payable monthly,
equal, on an annual basis, to 1.00% of the Funds average
weekly total assets. This fee will be reduced each year
following the fifth anniversary of the investment advisory
agreement by 10 basis points until the eighth anniversary,
after which time the Investment Adviser will be compensated at
an annual rate of .50% of the Funds average weekly total
assets. The Funds total assets for purposes of calculating
the level of the management fee will typically include assets
attributable to any outstanding senior securities, such as
preferred shares or notes.
The
Investment Adviser
Gabelli Funds, LLC serves as the Funds Investment Adviser
pursuant to the Investment Advisory Agreement with the Fund. The
Investment Adviser is a New York limited liability company with
principal offices located at One Corporate Center, Rye, New York
10580-1422
and is registered under the Investment Advisers Act of 1940, as
amended. The Investment Adviser was organized in 1999 and is the
successor to Gabelli Funds, Inc., which was organized in 1980.
As of March 31, 2011, the Investment Adviser acts as a
registered investment adviser to 26 management investment
companies with aggregate net assets of $20.1 billion. The
Investment Adviser, together with the other affiliated
investment advisers noted below, had assets under management
totaling approximately $35.4 billion as of March 31,
2011. GAMCO Asset Management Inc. (GAMCO), 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
$14.7 billion under management as of March 31, 2011.
Gabelli Securities, Inc., an affiliate of the Investment
Adviser, acts as investment adviser for investment partnerships
and entities having aggregate assets of approximately
$547 million under management as of March 31, 2011.
Teton Advisors, Inc., an affiliate of the Investment Adviser,
acts as investment manager to The GAMCO Westwood Funds and
separately managed accounts having aggregate assets of
approximately $983.1 million under management as of
March 31, 2011.
The Investment Adviser is a wholly-owned subsidiary of GAMCO
Investors, Inc., a New York corporation, whose Class A
Common Stock is traded on the NYSE under the symbol
GBL. Mr. Mario J. Gabelli is a
controlling person of the Investment Adviser on the
basis of his indirect ownership of a majority of the stock of
GGCP, Inc., which owns a majority of the capital stock of GAMCO
Investors, Inc.
Payment
of Expenses
The Investment Adviser is obligated to pay expenses associated
with providing the services contemplated by the Investment
Advisory Agreement including compensation of and office space
for its officers and employees connected with investment and
economic research, trading and investment management and
administration of the Fund (but excluding costs associated with
the calculation of the net asset value and allocated costs of
the chief compliance officer function and officers of the Fund
that are employed by the Fund and are not employed by the
Investment Adviser although such officers may receive
incentive-based variable compensation from affiliates of the
Investment Adviser), as well as the fees of all Trustees of the
Fund who are officers or employees of the Investment Adviser or
its affiliates.
41
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 thing,
expenses for legal and the Independent Registered Public
Accounting Firms services, stock exchange listing fees,
costs of printing proxies, share certificates and shareholder
reports, charges to the Funds custodian, charges of the
transfer agent and distribution disbursing agent, SEC fees and
expenses of Trustees who are not officers or employees of the
Investment Adviser or its affiliates, accounting and printing
costs, the Funds pro rata portion of membership fees in
trade organizations, the Funds pro rata portion of the
Chief Compliance Officers compensation, fidelity bond
coverage for the Funds officers and employees, Trustees
and officers liability policy, interest, brokerage costs, taxes,
expenses of qualifying the Fund for sale in various states,
expenses of personnel performing shareholder servicing
functions, litigation and other extraordinary or non-recurring
expenses and other expenses properly payable by the Fund.
The Investment Adviser is responsible for administration of the
Fund and currently utilizes and pays the fees of a third party
sub-administrator.
See Management of the FundGeneral.
A discussion regarding the basis for the Boards approval
of the continuation of the investment advisory contract of the
Fund will be available in the Funds semi-annual report to
shareholders dated June 30, 2011.
Selection
of Securities Brokers
The Advisory Agreement contains provisions relating to the
selection of securities brokers to effect the portfolio
transactions of the Fund. Under those provisions, the Investment
Adviser may (i) direct Fund portfolio brokerage to
Gabelli & Company, Inc. or other broker-dealer
affiliates of the Investment Adviser and (ii) pay
commissions to brokers other than Gabelli & Company,
Inc. that are higher than might be charged by another qualified
broker to obtain brokerage
and/or
research services considered by the Investment Adviser to be
useful or desirable for its investment management of the Fund
and/or its
other investment advisory accounts or those of any investment
adviser affiliated with it. The SAI contains further information
about the Advisory Agreement, including a more complete
description of the investment advisory and expense arrangements,
exculpatory and brokerage provisions, as well as information on
the brokerage practices of the Fund.
Portfolio
Manager
Mr. Mario J. Gabelli, CFA, is currently and has been
responsible for the
day-to-day
management of the Fund since its inception. Mr. Gabelli has
served as Chairman and Chief Executive Officer of GAMCO
Investors, Inc. and its predecessors since 1976.
Mr. Gabelli is the Chief Investment OfficerValue
Products for the Investment Adviser and GAMCO Asset Management
Inc. Mr. Gabelli serves as portfolio manager for several
funds in the Gabelli fund family and is a director of several
funds in the Gabelli fund family. Mr. Gabelli is also the
Chief Executive Officer and a director of GGCP, Inc., a private
company owning the majority of the shares of GAMCO Investors,
Inc.
The SAI provides additional information about the Portfolio
Managers compensation, other accounts managed by the
Portfolio Manager and the Portfolio Managers ownership of
securities in the Fund.
Non-Resident
Trustees
Mario dUrso, a Trustee of the Fund, resides outside the
U.S. and all or a significant portion of his assets are
located outside the U.S. This Trustee does not have an
authorized agent in the U.S. to receive service of process.
As a result, it may not be possible for investors to effect
service of process within the U.S. or to enforce against
this non-resident Trustee in U.S. courts judgments
predicated upon civil liability provisions of
U.S. securities laws. It may also not be possible to
enforce against this non-resident Trustee in foreign courts
judgments of U.S. courts or liabilities in original actions
predicated upon civil liability provisions of the U.S.
42
Sub-Administrator
The Investment Adviser has entered into a
sub-administration
agreement with BNY Mellon Investment Services (U.S.) Inc. (the
Sub-Administrator)
pursuant to which the
Sub-Administrator
provides certain administrative services necessary for the
Funds operations that do not include the investment and
portfolio management services provided by the Investment
Adviser. For these services and the related expenses borne by
the
Sub-Administrator,
the Investment Adviser pays a prorated monthly fee at the annual
rate of 0.0275% of the first $10 billion of the aggregate
average net assets of the Fund and all other funds advised by
the Investment Adviser and Gabelli Advisers, Inc. and
administered by the
Sub-Administrator,
0.0125% of the aggregate average net assets exceeding
$10 billion and 0.01% of the aggregate average net assets
in excess of $15 billion. The
Sub-Administrator
has its principal office at 760 Moore Road, King of Prussia,
Pennsylvania 19406.
Regulatory
Matters
On April 24, 2008, the Investment Adviser entered into a
settlement with the SEC to resolve an inquiry regarding prior
frequent trading activity in shares of the GAMCO Global Growth
Fund (the Global Growth Fund) by one investor who
was banned from the Global Growth Fund in August 2002. In the
administrative settlement order, the SEC found that the
Investment Adviser had willfully violated Section 206(2) of
the Advisers Act Section 17(d) of the 1940 Act and
Rule 17d-1
thereunder, and had willfully aided and abetted and caused
violations of Section 12(d)(1)(B)(i) of the 1940 Act. Under
the terms of the settlement, the Investment Adviser, while
neither admitting nor denying the SECs findings and
allegations, paid $16 million (which included a
$5 million civil monetary penalty), approximately
$12.8 million of which is in the process of being paid to
shareholders of the Global Growth Fund in accordance with a plan
developed by an independent distribution consultant and approved
by the independent directors of the Global Growth Fund and
acceptable to the staff of the SEC, and agreed to cease and
desist from future violations of the above-referenced federal
securities laws and rule. The SEC order also noted the
cooperation that the Investment Adviser had given the staff of
the SEC during its inquiry. The settlement did not have a
material adverse impact on the Investment Adviser. On the same
day, the SEC filed a civil action against the Executive Vice
President and Chief Operating Officer of the Investment Adviser,
alleging violations of certain federal securities laws arising
from the same matter. The officer is also an officer of the
Fund, the Global Growth Fund and other funds in the
Gabelli/GAMCO fund complex. The officer denied the allegations
and is continuing in his positions with the Investment Adviser
and the funds. The court dismissed certain claims and found that
the SEC was not entitled to pursue various remedies against the
officer while leaving one remedy in the event the SEC were able
to prove violations of law. The court subsequently dismissed
without prejudice the remaining remedy against the officer,
which allowed the SEC to appeal the courts rulings. On
October 29, 2010, the SEC filed its appeal with the
U.S. Court of Appeals for the Second Circuit regarding the
lower courts orders. The Investment Adviser currently
expects that any resolution of the action against the officer
will not have a material adverse impact on the Investment
Adviser or its ability to fulfill its obligations under the
Advisory Agreement.
PORTFOLIO
TRANSACTIONS
Principal transactions are not entered into with affiliates of
the Fund. However, Gabelli & Company, Inc., an
affiliate of the Investment Adviser, may execute portfolio
transactions on stock exchanges and in the
over-the-counter
markets on an agency basis and receive a stated commission
therefore. For a more detailed discussion of the Funds
brokerage allocation practices, see Portfolio
Transactions in the SAI.
DIVIDENDS
AND DISTRIBUTIONS
The Board has adopted a dividend policy, which may be changed at
any time, to pay monthly distributions on its common shares
equal to an annual rate of 6% of the initial public offering
price of $20.00 per share. The Board has also determined to pay
distributions on an annual basis equal to any realized income
43
in excess of the monthly distributions as may be necessary to
distribute substantially all of the Funds taxable income
for that year. The Funds distribution policy permits
holders of common shares to realize a predictable, but not
assured, level of cash flow and some liquidity periodically with
respect to their common shares without having to sell shares. To
avoid paying income tax at the corporate level, the Fund expects
to distribute substantially all of its net investment company
taxable income and net capital gain, although the Fund may
retain for reinvestment, and pay the resulting federal income
taxes on its net capital gain, if any, each year. To the extent
the Funds total monthly distributions for a year
distributions to common shareholders and the amount of
distributions on any preferred shares issued by the Fund exceed
its net investment company taxable income (interest, dividends
and net short-term capital gains in excess of expenses) and net
realized long-term capital gain for that year, the excess would
generally constitute a tax-free return of capital up to the
amount of a shareholders tax basis in the common shares.
Any distributions to the holders of common or preferred shares
which (based upon the Funds full year performance)
constitute a tax-free return of capital will reduce a
shareholders tax basis in the common shares, thereby
increasing such shareholders potential taxable gain or
reducing his or her potential taxable loss on the sale of the
common shares. Any amounts distributed to a shareholder in
excess of the basis in the common shares will generally be
taxable to the shareholder as capital gain. Distributions that
constitute a return of capital should not be considered as
dividend yield or the total return from an investment in the
Fund. See Taxation. Quarterly distribution notices
provided by the Fund to its shareholders will describe the
portion of the monthly distributions which, in the Funds
current good faith judgment, constitutes capital gain,
investment company taxable income or a return of capital. A
portion of the Funds common share distributions for the
years ending December 31, 2010, December 31, 2009,
December 31, 2008, and December 31, 2004 have included
a return of capital. For the fiscal year ended December 31,
2010, the Fund made distributions of $1.20 per common share,
$0.51 of which constituted a return of capital. The final
determination of the source of such distributions for federal
income tax purposes will be made shortly after year end based on
the Funds actual net investment company taxable income and
net capital gain for the year and will be communicated to
shareholders promptly.
In the event the Fund distributes amounts in excess of its
investment company taxable income and net capital gain, such
distributions will decrease the Funds total assets and,
therefore, have the likely effect of increasing the Funds
expense ratio as the Funds fixed expenses will become a
larger percentage of the Funds average net assets. In
addition, in order to make such distributions, the Fund may have
to sell a portion of its investment portfolio at a time when
independent investment judgment may not dictate such action.
The Fund, along with other closed-end registered investment
companies advised by the Investment Adviser, has obtained an
exemption from Section 19(b) of the 1940 Act and
Rule 19b-1
thereunder permitting it to make periodic distributions of
long-term capital gains provided that any distribution policy of
the Fund with respect to its common shares calls for periodic
distributions in an amount equal to a fixed percentage of the
Funds average net asset value over a specified period of
time or market price per common share at or about the time of
distribution or payment of a fixed dollar amount. The exemption
also permits the Fund to make distributions with respect to its
preferred shares in accordance with such shares terms. See
Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan.
AUTOMATIC
DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN
Under the Funds automatic dividend reinvestment and
voluntary cash purchase plan (the Plan), a
shareholder whose common shares are registered in his or her own
name will have all distributions reinvested automatically by
Computershare, which is agent under the Plan, unless the
shareholder elects to receive cash. Distributions with respect
to shares registered in the name of a broker-dealer or other
nominee (that is, in street name) will be reinvested
by the broker or nominee in additional shares under the Plan,
unless the service is not provided by the broker or nominee or
the shareholder elects to receive distributions in cash. Where
distributions consist of a return of capital, reinvestment in
shares of the Fund will constitute a reinvestment of the
shareholders capital and not a reinvestment of any Fund
profits received by the shareholder. Investors who own common
shares registered in street name should consult their
broker-dealers
44
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 Computershare as
dividend disbursing agent.
Enrollment
in the Plan
It is the policy of the Fund to automatically reinvest dividends
payable to common shareholders. As a registered
shareholder, you automatically become a participant in the
Funds Plan. The Plan authorizes the Fund to credit common
shares to participants upon an income dividend or a capital
gains distribution regardless of whether the shares are trading
at a discount or a premium to net asset value. All distributions
to shareholders whose shares are registered in their own names
will be automatically reinvested pursuant to the Plan in
additional shares of the Fund. Plan participants may send their
stock certificates to Computershare to be held in their dividend
reinvestment account. Registered shareholders wishing to receive
their distributions in cash must submit this request in writing
to:
The Gabelli
Global Utility & Income Trust
c/o Computershare
P.O. Box 43010
Providence, RI
02940-3010
Shareholders requesting this cash election must include the
shareholders name and address as they appear on the share
certificate. Shareholders with additional questions regarding
the Plan, or requesting a copy of the terms of the Plan may
contact Computershare at
(800) 336-6983.
If your shares are held in the name of a broker, bank, or
nominee, you should contact such institution. If such
institution is not participating in the Plan, your account will
be credited with a cash dividend. In order to participate in the
Plan through such institution, it may be necessary for you to
have your shares taken out of street name and
re-registered in your own name. Once registered in your own
name, your dividends will be automatically reinvested. Certain
brokers participate in the Plan. Shareholders holding shares in
street name at participating institutions will have
distributions automatically reinvested. Shareholders wishing a
cash dividend at such institution must contact their broker to
make this change.
The number of common shares distributed to participants in the
Plan in lieu of cash dividends is determined in the following
manner. Under the Plan, whenever the market price of the
Funds common shares is equal to or exceeds net asset value
at the time shares are valued for purposes of determining the
number of shares equivalent to the cash dividends or capital
gains distribution, participants are issued common shares valued
at the greater of (i) the net asset value as most recently
determined or (ii) 95% of the then current market price of
the Funds common shares. The valuation date is the
dividend or distribution payment date or, if that date is not a
NYSE Amex trading day, the next trading day. If the net asset
value of the common shares at the time of valuation exceeds the
market price of the common shares, participants will receive
shares from the Fund valued at market price. If the Fund should
declare a dividend or capital gains distribution payable only in
cash, Computershare will buy common shares in the open market,
or on the NYSE Amex or elsewhere, for the participants
accounts, except that Computershare 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 shares exceeds the
then current net asset value.
The automatic reinvestment of dividends and capital gains
distributions will not relieve participants of any income tax
which may be payable on such distributions. A participant in the
Plan will be treated for federal income tax purposes as having
received, on a dividend payment date, a dividend or distribution
in an amount equal to the cash the participant could have
received instead of shares.
45
Voluntary
Cash Purchase Plan
The Voluntary Cash Purchase Plan is yet another vehicle for our
shareholders to increase their investment in the Fund. In order
to participate in the Voluntary Cash Purchase Plan, shareholders
must have their shares registered in their own name.
Participants in the Voluntary Cash Purchase Plan have the option
of making additional cash payments to Computershare for
investments in the Funds common shares at the then current
market price. Shareholders may send an amount from $250 to
$10,000. Computershare will use these funds to purchase shares
in the open market on or about the 1st and 15th of
each month. Computershare will charge each shareholder who
participates $0.75, plus a pro rata share of the brokerage
commissions. Brokerage charges for such purchases are expected
to be less than the usual brokerage charge for such
transactions. It is suggested that any voluntary cash payments
be sent to Computershare, P.O. Box 43010, Providence,
RI
02940-3010
such that Computershare receives such payments approximately
10 days before the 1st and 15th of the month.
Funds not received at least five days before the investment date
shall be held for investment until the next purchase date. A
payment may be withdrawn without charge if notice is received by
Computershare at least 48 hours before such payment is to
be invested.
Shareholders wishing to liquidate shares held at
Computershare must do so in writing or by telephone. Please
submit your request to the above mentioned address or telephone
number. Include in your request your name, address and account
number. The cost to liquidate shares is $2.50 per transaction as
well as the brokerage commission incurred. Brokerage charges are
expected to be less than the usual brokerage charge for such
transactions.
For more information regarding the Automatic Dividend
Reinvestment Plan and Voluntary Cash Purchase Plan, brochures
are available by calling
(914) 921-5070
or by writing directly to the Fund.
The Fund reserves the right to amend or terminate the Plans 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 the Plan at least 90 days before the
record date for such dividend or distribution. The Plan also may
be amended or terminated by Computershare on at least
90 days written notice to participants in the Plan.
DESCRIPTION
OF THE SECURITIES
The following is a brief description of the terms of the
common and preferred shares, notes, and subscription rights.
This description does not purport to be complete and is
qualified by reference to the Funds Agreement and
Declaration of Trust and its By-Laws. For complete terms of the
common and preferred shares, please refer to the actual terms of
such series, which are set forth in the Governing Documents. For
complete terms of the notes, please refer to the actual terms of
such notes, which will be set forth in an Indenture relating to
such notes (the Indenture.) For complete terms of
the subscription rights, please refer to the actual terms of
such subscription rights which will be set forth in the
subscription rights agreement relating to such subscription
rights (the Subscription Rights Agreement).
Common
Shares
The Fund is an unincorporated statutory trust organized under
the laws of Delaware pursuant to a Certificate of Trust dated as
of March 8, 2004. The Fund is authorized to issue an
unlimited number of common shares of beneficial interest, par
value $.001 per share. Each common share has one vote and, when
issued and paid for in accordance with the terms of this
offering, will be fully paid and non-assessable. Though the Fund
expects to pay distributions monthly on the common shares, it is
not obligated to do so. All common shares are equal as to
distributions, assets and voting privileges and have no
conversion, preemptive or other subscription rights. The Fund
will send annual and semi-annual reports, including financial
statements, to all holders of its shares. In the event of
liquidation, each of the Funds common shares is entitled
to its proportion of the Funds assets after payment of
debts and expenses and the amounts payable to holders of the
Funds preferred shares ranking senior to the Funds
common shares as described below.
46
Any additional offerings of shares will require approval by the
Funds Board. Any additional offering of common shares will
be subject to the requirements of the 1940 Act, which provides
that common shares may not be issued at a price below the then
current net asset value, exclusive of sales load, except in
connection with an offering to existing holders of common shares
or with the consent of a majority of the Funds outstanding
voting securities.
The Funds outstanding common shares are listed and traded
on the NYSE Amex under the symbol GLU. The average
weekly trading volume of the common shares on the NYSE Amex
during the period from January 1, 2010 through
December 31, 2010 was 39,627 shares. The average
weekly trading volume of common shares on the NYSE Amex during
the period January 1, 2011 through June 30, 2011 was
29,471 shares.
Unlike open-end funds, closed-end funds like the Fund do not
continuously offer shares and do not provide daily redemptions.
Rather, if a shareholder determines to buy additional common
shares or sell shares already held, the shareholder may do so by
trading through a broker on the NYSE Amex or otherwise.
Shares of closed-end investment companies often trade on an
exchange at prices lower than net asset value. Because the
market value of the common shares may be influenced by such
factors as dividend and distribution levels (which are in turn
affected by expenses), dividend and distribution stability, net
asset value, market liquidity, relative demand for and supply of
such shares in the market, unrealized gains, general market and
economic conditions and other factors beyond the control of the
Fund, the Fund cannot assure you that common shares will trade
at a price equal to or higher than net asset value in the
future. The common shares are designed primarily for long-term
investors and you should not purchase the common shares if you
intend to sell them soon after purchase.
The Funds common shareholders vote as a single class to
elect the Funds Board and on additional matters with
respect to which the 1940 Act, the Governing Documents or
resolutions adopted by the Trustees provide for a vote of the
Funds common shareholders. See Anti-Takeover
Provisions of the Funds Governing Documents.
The Fund is a closed-end, non-diversified, management investment
company and as such its shareholders do not, and will not, have
the right to require the Fund to repurchase their shares. The
Fund, however, may repurchase its common shares from time to
time as and when it deems such a repurchase advisable, subject
to maintaining required asset coverage for each series of
outstanding preferred shares. The Board has authorized such
repurchases to be made when the Funds common shares are
trading at a discount from net asset value of 10% or more (or
such other percentage as the Board of the Fund may determine
from time to time). Pursuant to the 1940 Act, the Fund may
repurchase its common shares on a securities exchange (provided
that the Fund has informed its shareholders within the preceding
six months of its intention to repurchase such shares) or
pursuant to tenders and may also repurchase shares privately if
the Fund meets certain conditions regarding, among other things,
distribution of net income for the preceding fiscal year, status
of the seller, price paid, brokerage commissions, prior notice
to shareholders of an intention to purchase shares and
purchasing in a manner and on a basis that does not discriminate
unfairly against the other shareholders through their interest
in the Fund.
When the Fund repurchases its common shares for a price below
net asset value, the net asset value of the common shares that
remain outstanding will be enhanced, but this does not
necessarily mean that the market price of the outstanding common
shares will be affected, either positively or negatively. The
repurchase of common shares will reduce the total assets of the
Fund available for investment and may increase the Funds
expense ratio. Through December 31, 2010, the Fund has not
repurchased its common shares under this authorization.
Book-Entry. The common shares will initially
be held in the name of Cede & Co. as nominee for the
Depository Trust Company (DTC). The Fund will
treat Cede & Co. as the holder of record of the common
shares for all purposes. In accordance with the procedures of
DTC, however, purchasers of common shares
47
will be deemed the beneficial owners of shares purchased for
purposes of distributions, voting and liquidation rights.
Purchasers of common shares may obtain registered certificates
by contacting the Transfer Agent.
Preferred
Shares
The Agreement and Declaration of Trust provides that the
Funds Board may authorize and issue senior securities with
rights as determined by the Board, by action of the Board
without the approval of the holders of the common shares.
Holders of common shares have no preemptive right to purchase
any senior securities that might be issued.
Currently an unlimited number of the Funds shares have
been classified by the Board as preferred shares, par value
$0.001 per share. The terms of such preferred shares may be
fixed by the Board and would materially limit
and/or
qualify the rights of holders of the Funds common shares.
If the Fund issues preferred shares, it will pay dividends to
the holders of the preferred shares at either a fixed rate or a
rate that will be reset frequently based on short-term interest
rates, as described in a Prospectus Supplement accompanying each
preferred share offering.
Redemption, Purchase and Sale of Preferred Shares By the
Trust. The terms of any preferred shares are
expected to provide that (i) they are redeemable by the
Fund at any time in whole or in part at the original purchase
price per share plus accumulated dividends per share,
(ii) the Fund may tender for or purchase preferred shares
and (iii) the Fund may subsequently resell any shares so
tendered for or purchased. Any redemption or purchase of
preferred shares by the Fund will reduce the leverage applicable
to the common shares, while any resale of preferred shares by
the Fund will increase that leverage.
Rating Agency Guidelines. Upon issuance, it is
expected that the preferred shares will be rated Aaa
by Moodys
and/or
AAA by S&P. The Fund is required under
Moodys and S&P guidelines to maintain assets having
in the aggregate a discounted value at least equal to the Basic
Maintenance Amount (as defined below) for its outstanding
preferred shares with respect to the separate guidelines
Moodys and S&P has each established for determining
discounted value. To the extent any particular portfolio holding
does not satisfy the applicable rating agencys guidelines,
all or a portion of such holdings value will not be
included in the calculation of discounted value (as defined by
such rating agency). The Moodys and S&P guidelines
also impose certain diversification requirements and industry
concentration limitations on the Funds 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 any preferred
shares then outstanding plus (to the extent not included in the
liquidation preference of such preferred shares) an amount equal
to the aggregate accumulated but unpaid distributions (whether
or not earned or declared) in respect of such preferred shares,
(b) the total principal of any debt (plus accrued and
projected interest), (c) certain Fund expenses and
(d) certain other current liabilities (excluding any unmade
distributions on the Funds common shares) less
(ii) the Funds (a) cash and (b) assets
consisting of indebtedness which (y) mature prior to or on
the date of redemption or repurchase of the preferred shares and
are U.S. government securities or evidences of indebtedness
rated at least Aaa,
P-1,
VMIG-1 or MIG-1 by Moodys or
AAA, SP-1+ or
A-1+
by S&P, and (z) is held by the Fund for distributions,
the redemption or repurchase of preferred shares or the
Funds liabilities.
If the Fund does not cure in a timely manner 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 preferred
shares at the request of the Fund, the Fund may, and in certain
circumstances will be required to, mandatorily redeem preferred
shares, 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 Moodys and S&P. Failure to adopt any such
modifications, however, may result in a change in the relevant
rating agencys ratings or a withdrawal of such ratings
altogether. In addition, any rating agency providing a rating
for the preferred shares at the request of the Fund may, at any
time, change
48
or withdraw any such rating. The Board, without further action
by the shareholders, may amend, alter, add to or repeal certain
of the definitions and related provisions that have been adopted
by the Fund pursuant to the rating agency guidelines if the
Board determines that such modification is necessary to prevent
a reduction in rating of the preferred shares by Moodys
and S&P, as the case may be, is in the best interests of
the holders of common shares and is not adverse to the holders
of preferred shares in view of advice to the Fund by
Moodys and S&P (or such other rating agency then
rating the preferred shares at the request of the Fund) that
such modification would not adversely affect, as the case may
be, its then current rating of the preferred shares.
The Board may amend the Statement of Preferences definition of
Maximum Rate (the maximum rate as
defined below under Maximum Rate) to increase
the percentage amount by which the applicable reference rate is
multiplied or to increase the applicable spread to which the
reference rate is added to determine the maximum rate without
the vote or consent of the holders of the preferred shares or
any other shareholder of the Fund, but only after consultation
with the broker-dealers and with confirmation from each
applicable rating agency that the Fund could meet applicable
rating agency asset coverage tests immediately following any
such increase.
As described by Moodys and S&P, the ratings assigned
to each series of preferred shares are assessments of the
capacity and willingness of the Fund to pay the obligations of
each such series. The ratings on these series of preferred
shares are not recommendations to purchase, hold or sell shares
of any 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 preferred shares will be able to sell such shares on
an exchange, in an auction or otherwise. The ratings are based
on current information furnished to Moodys and S&P 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 apply to each series of preferred
shares only so long as such rating agency is rating such series
at the request of the Fund. The Fund pays fees to Moodys
and S&P for rating the preferred shares.
Asset Maintenance Requirements. In addition to
the requirements summarized under Rating Agency
Guidelines above, the Fund must also satisfy asset
maintenance requirements under the 1940 Act with respect to its
preferred shares. Under the 1940 Act, debt or additional
preferred shares may be issued only if immediately after such
issuance the value of the Funds total assets (less
ordinary course liabilities) is at least 300% of the amount of
any debt outstanding and at least 200% of the amount of any
preferred shares and debt outstanding.
The Fund will be required under the Statement of Preferences of
each series of preferred shares 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 debt or stock, including any outstanding preferred
shares. If the Fund fails to maintain the asset coverage
required under the 1940 Act on such dates and such failure is
not cured within 60 calendar days, the Fund may, and in certain
circumstances will be required to, mandatorily redeem shares of
preferred sufficient to satisfy such asset coverage. See
Redemption below.
Distributions. In connection with the offering
of one or more series of preferred shares, an accompanying
Prospectus Supplement will specify whether dividends on such
preferred shares will be based on a fixed or variable rate. If
such Prospectus Supplement specifies that dividends will be paid
at a fixed rate, holders of such Fixed Rate Preferred Shares
will be entitled to receive, out of funds legally available
therefore, cumulative cash distributions, at an annual rate set
forth in the applicable Prospectus Supplement, payable with such
frequency as set forth in the applicable Prospectus Supplement.
Such distributions will accumulate from the date on which such
shares are issued.
49
In the alternative, the Prospectus Supplement may state that the
holders of one or more series of Variable Rate Preferred Shares
are entitled to receive cash distributions at annual rates
stated as a percentage of liquidation preference, that will vary
from dividend period to dividend period. The liquidation
preference per share and the dividend rate for the initial
dividend period for any such series of preferred shares will be
the rate set forth in the Prospectus Supplement for such series.
For subsequent dividend periods, each such series of preferred
shares will pay distributions based on a rate set at an auction,
normally held weekly, but not in excess of a 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, distributions 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 under Designation
of Special Dividend Periods.
Distribution Payments. Except as described
below, the dividend payment date for a series of Variable Rate
Preferred Shares 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.
If a dividend payment date for a series of Variable Rate
Preferred Shares is not a business day because the NYSE Amex is
closed for business for more than three consecutive business
days due to an act of God, natural disaster, act of war, civil
or military disturbance, act of terrorism, sabotage, riots or a
loss or malfunction of utilities or communications services, or
the dividend payable on such date can not be paid for any such
reason, then:
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the dividend payment date for the affected dividend period will
be the next business day on which the Fund and its paying agent,
if any, are able to cause the distributions to be paid using
their reasonable best efforts;
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the affected dividend period will end on the day it would have
ended had such event not occurred and the dividend payment date
had remained the scheduled date; and
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the next dividend period will begin and end on the dates on
which it would have begun and ended had such event not occurred
and the dividend payment date remained the scheduled date.
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Determination of Dividend Rates. The Fund
computes the distributions per share for a series of Variable
Rate Preferred Shares 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 the liquidation preference per share of such
series to arrive at the distribution per share.
Maximum Rate. The dividend rate for a series
of Variable Rate Preferred Shares that results from an auction
for such shares will not be greater than the applicable
maximum rate. The maximum rate for any standard
dividend period will be the greater of the applicable percentage
of the reference rate or the reference rate plus the applicable
spread. The reference rate will be the applicable LIBOR Rate (as
defined below) for a dividend period of fewer than 365 days
or the Treasury Index Rate (as defined below) for a dividend
period of 365 days or more. The applicable percentage and
the applicable spread will be determined based on the lower of
the credit ratings assigned to such series of preferred shares
by Moodys and S&P on the auction date for such period
(as set forth in the table below). If Moodys
and/or
S&P do not make such rating available, the rate will be
determined by reference to equivalent ratings issued by a
substitute rating agency. In the case of a special dividend
period, (1) the Fund will communicate the maximum
applicable rate in a notice of special rate period for such
dividend payment period, (2) the applicable percentage and
applicable spread will be determined on the date two business
days before the first day of such special dividend period and
(3) the reference rate will be the applicable LIBOR Rate
for a dividend period of fewer than 365 days or the
Treasury Index Rate for a dividend period of 365 days or
more.
50
The LIBOR Rate, as described in greater detail in
the Statement of Preferences, is the applicable London
Inter-Bank Offered Rate for deposits in U.S. dollars for
the period most closely approximating the applicable dividend
period for the preferred shares.
The Treasury Index Rate, as described in greater
detail in the Statement of Preferences, is the average yield to
maturity for certain U.S. Treasury securities having
substantially the same length to maturity as the applicable
dividend period for the preferred shares.
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Credit Ratings
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Applicable
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Applicable
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Moodys
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S&P
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Percentage
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Spread
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Aaa
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AAA
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150%
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1.50%
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Aa3 to Aa1
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AAto AA+
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250%
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2.50%
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A3 to A1
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Ato A+
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350%
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3.50%
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Baa1 or lower
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BBB+ or lower
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550%
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5.50%
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Assuming the Fund maintains an AAA
and/or
Aaa rating on the preferred shares, the practical
effect of the different methods used to determine the maximum
rate is shown in the table below:
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Method Used to
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Maximum Applicable
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Maximum Applicable
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Determine the
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Rate Using the
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Rate Using the
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Maximum Applicable
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Reference Rate
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Applicable Percentage
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Applicable Spread
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Rate
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1%
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1.50%
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2.50%
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Spread
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2%
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3.00%
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3.50%
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Spread
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3%
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4.50%
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4.50%
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Either
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4%
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6.00%
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5.50%
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Percentage
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5%
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7.50%
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6.50%
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Percentage
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6%
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9.00%
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7.50%
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Percentage
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There is no minimum dividend rate in respect of any dividend
period.
Effect of Failure to Pay Distributions in a Timely
Manner. If the Fund fails to pay the paying agent
the full amount of any distribution or redemption price, as
applicable, for a series of Variable Rate Preferred Shares in a
timely manner, the dividend rate for the dividend period
following such a failure to pay (such period referred to as the
default period) and any subsequent dividend period for which
such default is continuing will be the default rate. In the
event that 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 is 550% of the applicable LIBOR Rate for a
dividend period of 364 days or fewer and 550% of the
applicable Treasury Index Rate for a dividend period of longer
than 364 days.
Designation of Special Dividend Periods. The
Fund may instruct the auction agent to hold auctions more or
less frequently than weekly and may designate dividend periods
longer or shorter than one week. The Fund may do this if, for
example, the Fund expects that short-term rates might increase
or market conditions otherwise change, in an effort to optimize
the potential benefit of the Funds leverage for holders of
its common shares. The Fund does not currently expect to hold
auctions and pay distributions less frequently than weekly or
establish dividend periods longer or shorter than one week. If
the Fund designates a special dividend period, changes in
interest rates could affect the price received if preferred
shares are sold in the secondary market.
Any designation of a special dividend period for a series of
Variable Rate Preferred Shares will be effective only if
(i) notice thereof has been given as provided for in the
Governing Documents, (ii) any failure to pay in a timely
manner to the auction agent the full amount of any distribution
on, or the redemption price of, any preferred shares has been
cured as provided for in the Governing Documents, (iii) the
auction
51
immediately preceding the special dividend period was not a
failed auction, (iv) if the Fund has mailed a notice of
redemption with respect to any preferred shares, the Fund has
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, and the
Fund has provided notice of such designation and a Basic
Maintenance Report to each rating agency then rating the
preferred shares at the request of the Fund.
The dividend payment date for any such special dividend period
will be set out in the notice designating the special dividend
period. In addition, for special dividend periods of at least
91 days, dividend payment dates will occur on the first
business day of each calendar month within such dividend period
and on the business day following the last day of such dividend
period.
Before the Fund designates a special dividend period:
(i) at least seven business days (or two business days in
the event the duration of the dividend period prior to such
special dividend period is less than eight days) and not more
than 30 business days before the first day of the proposed
special dividend period, the Fund will issue a press release
stating its intention to designate a special dividend period and
inform the auction agent of the proposed special dividend period
by telephonic or other means and confirm it in writing promptly
thereafter and (ii) the Fund must inform the auction agent
of the proposed special dividend period by 3:00 p.m., New
York City time on the second business day before the first day
of the proposed special dividend period.
Book Entry. Shares of Fixed Rate Preferred
sold through this offering 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 such shares for
all purposes. In accordance with the procedures of DTC, however,
purchasers of Fixed Rate Preferred Shares will be deemed the
beneficial owners of shares purchased for purposes of dividends,
voting and liquidation rights.
Shares of Variable Rate Preferred will initially be held by the
auction agent as custodian for Cede & Co., in whose
name the shares of Variable Rate Preferred Shares will be
registered. The Fund will treat Cede & Co. as the
holder of record of the shares for all purposes.
Restrictions
on Dividends and Other Distributions for the Preferred
Shares
So long as any preferred shares are outstanding, the Fund may
not pay any dividend or distribution (other than a dividend or
distribution paid in common shares or in options, warrants or
rights to subscribe for or purchase common shares) in respect of
the common shares or call for redemption, redeem, purchase or
otherwise acquire for consideration any common shares (except by
conversion into or exchange for shares of the Fund ranking
junior to the preferred shares as to the payment of dividends or
distributions and the distribution of assets upon liquidation),
unless:
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the Fund has declared and paid (or provided to the relevant
dividend paying agent) all cumulative distributions on the
Funds outstanding preferred shares due on or prior to the
date of such common shares dividend or distribution;
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the Fund has redeemed the full number of shares of preferred to
be redeemed pursuant to any mandatory redemption provision in
the Funds Governing Documents; and
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after making the distribution, the Fund meets applicable asset
coverage requirements described under Preferred
SharesRating Agency Guidelines and Preferred
SharesAsset Maintenance Requirements.
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No full distribution will be declared or made on any series of
preferred shares for any dividend period, or part thereof,
unless full cumulative distributions due through the most recent
dividend payment dates therefore for all outstanding series of
preferred shares of the Fund ranking on a parity with such
series as to distributions have been or contemporaneously are
declared and made. If full cumulative distributions due have not
been made on all outstanding preferred shares of the Fund
ranking on a parity with such series of
52
preferred shares as to the payment of distributions, any
distributions being paid on the preferred shares will be paid as
nearly pro rata as possible in proportion to the respective
amounts of distributions accumulated but unmade on each such
series of preferred shares on the relevant dividend payment
date. The Funds obligation to make distributions on the
preferred shares will be subordinate to its obligations to pay
interest and principal, when due, on any senior securities
representing debt.
Redemption
Mandatory Redemption Relating to Asset Coverage
Requirements. The Fund may, at its option,
consistent with its Governing Documents and the 1940 Act, and in
certain circumstances will be required to, mandatorily redeem
preferred shares in the event that:
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the Fund fails to maintain the asset coverage requirements
specified under the 1940 Act on a quarterly valuation date and
such failure is not cured on or before 60 days, in the case
of the Fixed Rate Preferred Shares, or 10 business days, in the
case of the Variable Rate Preferred Shares, following such
failure; or
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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.
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The redemption price for preferred shares subject to mandatory
redemption will be the liquidation preference, as stated in the
Statement of Preferences of each existing series of preferred
shares or the Prospectus Supplement accompanying the issuance of
any series of preferred shares, plus an amount equal to any
accumulated but unpaid distributions (whether or not earned or
declared) to the date fixed for redemption, plus (in the case of
preferred shares having a dividend period of more than one year)
any applicable redemption premium determined by the Board and
included in the Statement of Preferences.
The number of shares of preferred shares that will be redeemed
in the case of a mandatory redemption will equal the minimum
number of outstanding shares of preferred shares, the redemption
of which, if such redemption had occurred immediately prior to
the opening of business on the applicable cure date, would have
resulted in the relevant asset coverage requirement having been
met or, if the required asset coverage cannot be so restored,
all of the shares of preferred shares. In the event that shares
of preferred shares are redeemed due to a failure to satisfy the
1940 Act asset coverage requirements, the Fund may, but is not
required to, redeem a sufficient number of shares of preferred
shares so that the Funds assets exceed the asset coverage
requirements under the 1940 Act after the redemption by 10%
(that is, 220% asset coverage). In the event that shares of
preferred shares are redeemed due to a failure to satisfy
applicable rating agency guidelines, the Fund may, but is not
required to, redeem a sufficient number of shares of preferred
shares so that the Funds discounted portfolio value (as
determined in accordance with the applicable rating agency
guidelines) after redemption exceeds the asset coverage
requirements of each applicable rating agency by up to 10% (that
is, 110% rating agency asset coverage).
If the Fund does not have funds legally available for the
redemption of, or is otherwise unable to redeem, all the
preferred shares to be redeemed on any redemption date, the Fund
will redeem on such redemption date that number of shares for
which it has legally available funds, or is otherwise able to
redeem, from the holders whose shares are to be redeemed ratably
on the basis of the redemption price of such shares, and the
remainder of those shares to be redeemed will be redeemed on the
earliest practicable date on which the Fund will have funds
legally available for the redemption of, or is otherwise able to
redeem, such shares upon written notice of redemption.
If fewer than all of the Funds outstanding preferred
shares are to be redeemed, the Fund, at its discretion and
subject to the limitations of the Governing Documents, the 1940
Act, and applicable law, will select the one or more series of
preferred from which shares will be redeemed and the amount of
preferred to be redeemed from each such series. If fewer than
all shares of a series of preferred are to be redeemed, such
redemption will be made as among the holders of that series pro
rata in accordance with the respective
53
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
preferred held by any holder are to be redeemed, the notice of
redemption mailed to such holder will specify the number of
shares to be redeemed from such holder, which may be expressed
as a percentage of shares held on the applicable record date.
Optional Redemption of Fixed Rate Preferred
Shares. Shares of Fixed Rate Preferred are not
subject to optional redemption by the Fund until the date, if
any, specified in the applicable Prospectus or Prospectus
Supplement, unless such redemption is necessary, in the judgment
of the Fund, to maintain the Funds status as a regulated
investment company under the Code. Commencing on such date and
thereafter, the Fund may at any time redeem such Fixed Rate
Preferred Shares in whole or in part for cash at a redemption
price per share equal to the liquidation preference per share
plus accumulated and unpaid distributions (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 Governing Documents, the 1940 Act and applicable law.
Optional Redemption of Variable Rate Preferred
Shares. The Fund generally may redeem Variable
Rate Preferred Shares, in whole or in part, at its option at any
time (usually on a dividend or distribution payment date), other
than during a non-call period. The Fund may designate a non-call
period during a dividend period of more than seven days. In the
case of such preferred shares having a dividend period of one
year or less, the redemption price per share will equal the
liquidation preference plus an amount equal to any accumulated
but unpaid distributions thereon (whether or not earned or
declared) to the redemption date, and in the case of such
preferred shares having a dividend period of more than one year,
the redemption price per share will equal the liquidation
preference 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 limitations of the Governing Documents, the 1940 Act and
applicable law.
Redemption Procedures. A notice of
redemption with respect to an optional redemption will be given
to the holders of record of preferred shares selected for
redemption not less than 15 days (subject to NYSE Amex
requirements), in the case of Fixed Rate Preferred Shares, and
not less than seven days, in the case of Variable Rate Preferred
Shares, nor, in both cases, more than 40 days prior to the
date fixed for redemption. Preferred shareholders may receive
shorter notice in the event of a mandatory redemption. Each
notice of redemption will state (i) the redemption date,
(ii) the number or percentage of shares of preferred shares
to be redeemed (which may be expressed as a percentage of such
shares outstanding), (iii) the CUSIP number(s) of such
shares, (iv) the redemption price (specifying the amount of
accumulated distributions to be included therein), (v) the
place or places where such shares are to be redeemed,
(vi) that distributions on the shares to be redeemed will
cease to accumulate on such redemption date, (vii) the
provision of the Statement of Preferences under which the
redemption is being made and (viii) any conditions
precedent to such redemption. No defect in the notice of
redemption or in the mailing thereof will affect the validity of
the redemption proceedings, except as required by applicable law.
The holders of preferred shares, whether subject to a variable
or fixed rate, will not have the right to redeem any of their
shares at their option.
Liquidation
Rights
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Fund, the holders of preferred
shares then outstanding will be entitled to receive a
preferential liquidating distribution, which is expected to
equal the original purchase price per preferred share plus
accumulated and unpaid dividends, whether or not declared,
before any distribution of assets is made to holders of common
shares. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of
preferred shares will not be entitled to any further
participation in any distribution of assets by the Fund.
54
Voting
Rights
Except as otherwise stated in this Prospectus, specified in the
Funds Governing Documents or resolved by the Board or as
otherwise required by applicable law, holders of preferred
shares shall be entitled to one vote per share held on each
matter submitted to a vote of the shareholders of the Fund and
will vote together with holders of common shares and of any
other preferred shares then outstanding as a single class.
In connection with the election of the Funds Trustees,
holders of the outstanding preferred shares, voting together as
a single class, will be entitled at all times to elect two of
the Funds Trustees, and the remaining Trustees will be
elected by holders of common shares and holders of preferred
shares, voting together as a single class. In addition, if
(i) at any time dividends and distributions on outstanding
shares of preferred shares are unpaid in an amount equal to at
least two full years dividends and distributions thereon
and sufficient cash or specified securities have not been
deposited with the applicable paying agent for the payment of
such accumulated dividends and distributions or (ii) at any
time holders of any other series of preferred shares are
entitled to elect a majority of the Trustees of the Fund under
the 1940 Act or the applicable Statement of Preferences creating
such shares, then the number of Trustees constituting the Board
automatically will be increased by the smallest number that,
when added to the two Trustees elected exclusively by the
holders of preferred shares as described above, would then
constitute a simple majority of the Board as so increased by
such smallest number. Such additional Trustees will be elected
by the holders of the outstanding preferred shares, voting
together as a single class, at a special meeting of shareholders
which will be called as soon as practicable and will be held not
less than ten nor more than twenty days after the mailing date
of the meeting notice. If the Fund fails to send such meeting
notice or to call such a special meeting, the meeting may be
called by any preferred shareholder on like notice. The terms of
office of the persons who are Trustees at the time of that
election will continue. If the Fund thereafter pays, or declares
and sets apart for payment in full, all dividends and
distributions payable on all outstanding preferred shares for
all past dividend periods or the holders of other series of
preferred shares are no longer entitled to elect such additional
Trustees, the additional voting rights of the holders of the
preferred shares as described above will cease, and the terms of
office of all of the additional Trustees elected by the holders
of the preferred shares (but not of the Trustees with respect to
whose election the holders of common shares were entitled to
vote or the two Trustees the holders of preferred shares have
the right to elect as a separate class in any event) will
terminate automatically.
So long as shares of 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
outstanding at the time, and present and voting on such matter,
voting separately as one class, amend, alter or repeal the
provisions of the Funds Governing Documents whether by
merger, consolidation or otherwise, so as to materially
adversely affect any of the rights, preferences or powers
expressly set forth in the Governing Documents with respect to
such shares of preferred, unless the Fund obtains written
confirmation from Moodys, S&P or any such other
rating agency then rating the preferred shares that such
amendment, alteration or repeal would not impair the rating then
assigned by such rating agency to the preferred shares, in which
case the vote or consent of the holders of the preferred shares
is not required. Also, to the extent permitted under the 1940
Act, in the event shares of more than one series of preferred
shares are outstanding, the Fund will not approve any of the
actions set forth in the preceding sentence which materially
adversely affect the rights, preferences or powers expressly set
forth in the Governing Documents with respect to such shares of
a series of preferred shares differently than those of a holder
of shares of any other series of preferred without the
affirmative vote of the holders of at least a majority of the
shares of preferred 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). For purposes of this
paragraph, no matter shall be deemed to adversely affect any
right, preference or power unless such matter (i) adversely
alters or abolishes any preferential right of such series;
(ii) creates, adversely alters or abolishes any right in
respect of redemption of such series; or (iii) creates or
adversely alters (other than to abolish) any restriction on
transfer applicable to such series.
55
Under the Governing Documents and applicable provisions of the
1940 Act, the affirmative vote of a majority of the votes
entitled to be cast by holders of outstanding shares of the
preferred, voting together as a single class, will be required
to approve any plan of reorganization adversely affecting the
preferred shares. The approval of 66?% of each class, voting
separately, of the Funds outstanding voting shares is
required to authorize the conversion of the Fund from a
closed-end to an open-end investment company. The approval of a
majority (as that term is defined in the 1940 Act) of the
Funds outstanding preferred shares and a majority (as that
term is defined in the 1940 Act) of the Funds outstanding
voting securities are required to approve any action requiring a
vote of security holders under Section 13(a) of the 1940
Act (other than a conversion of the Fund from a closed-end to an
open-end investment company), including, among other things,
changes in the Funds investment objectives or changes in
the investment restrictions described as fundamental policies
under Investment Objectives and Policies in this
Prospectus and the SAI, How the Fund Manages
RiskInvestment Restrictions in this Prospectus and
Investment Restrictions in the SAI. For purposes of
this paragraph, except as otherwise required under the 1940 Act,
the majority of the outstanding preferred shares means, in
accordance with Section 2(a)(42) of the 1940 Act, the vote,
at the annual or a special meeting of the shareholders of the
Fund duly called (i) of 66?% or more of the shares of
preferred shares present at such meeting, if the holders of more
than 50% of the outstanding shares of preferred shares are
present or represented by proxy, or (ii) more than 50% of
the outstanding shares of preferred shares, whichever is less.
The class vote of holders of preferred shares described above in
each case will be in addition to a separate vote of the
requisite percentage of common shares, and any other preferred
shares, 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 without further action by the shareholders if the Board
determines that such modification is necessary to prevent a
reduction in rating of the shares of preferred shares by
Moodys
and/or
S&P (or such other rating agency then rating the preferred
shares at the request of the Fund), as the case may be, or is in
the best interests of the holders of common shares and is not
adverse to the holders of preferred shares in view of advice to
the Fund by the relevant rating agencies that such modification
would not adversely affect its then current rating of the
preferred shares.
The foregoing voting provisions will not apply to any series of
preferred shares 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 preferred shares will have no preemptive rights or
rights to cumulative voting.
Limitation
on Issuance of Preferred Shares
So long as the Fund has preferred shares outstanding, subject to
receipt of approval from the rating agencies of each series of
preferred shares outstanding, and subject to compliance with the
Funds investment objectives, policies and restrictions,
the Fund may issue and sell shares of one or more other series
of additional preferred shares provided that the Fund will,
immediately after giving effect to the issuance of such
additional preferred shares and to its receipt and application
of the proceeds thereof (including, without limitation, to the
redemption of preferred shares to be redeemed out of such
proceeds), have an asset coverage for all senior
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 preferred shares of the Fund then outstanding and all
indebtedness of the Fund constituting senior securities and no
such additional preferred shares will have any preference or
priority over any other preferred shares of the Fund upon the
distribution of the assets of the Fund or in respect of the
payment of dividends or distributions.
The Fund will consider from time to time whether to offer
additional preferred shares or securities representing
indebtedness and may issue such additional securities if the
Board concludes that such an offering would be consistent with
the Funds Governing Documents and applicable law, and in
the best interest of existing common shareholders.
56
Notes
General. Under applicable state law and our
Agreement and Declaration of Trust, we may borrow money without
prior approval of holders of common and preferred shares. We may
issue debt securities, including notes, or other evidence of
indebtedness and may secure any such notes or borrowings by
mortgaging, pledging or otherwise subjecting as security our
assets to the extent permitted by the 1940 Act or rating agency
guidelines. Any borrowings, including without limitation the
notes, will rank senior to the preferred shares and the common
shares.
Under the 1940 Act, we may only issue one class of senior
securities representing indebtedness, which in the aggregate
must have asset coverage immediately after the time of issuance
of at least 300%. So long as notes are outstanding, additional
debt securities must rank on a parity with notes with respect to
the payment of interest and upon the distribution of our assets.
A prospectus supplement relating to any notes will include
specific terms relating to the offering. The terms to be stated
in a prospectus supplement will include the following:
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the form and title of the security;
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the aggregate principal amount of the securities;
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the interest rate of the securities;
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whether the interest rate for the securities will be determined
by auction or remarketing;
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the maturity dates on which the principal of the securities will
be payable;
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the frequency with which auctions or remarketings, if any, will
be held;
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any changes to or additional events of default or covenants;
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any minimum period prior to which the securities may not be
called;
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any optional or mandatory call or redemption provisions;
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the credit rating of the notes; and
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any other terms of the securities.
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Interest. The prospectus supplement will
describe the interest payment provisions relating to notes.
Interest on notes will be payable when due as described in the
related prospectus supplement. If we do not pay interest when
due, it will trigger an event of default and we will be
restricted from declaring dividends and making other
distributions with respect to our common shares and preferred
shares.
Limitations. Under the requirements of the
1940 Act, immediately after issuing any senior securities
representing indebtedness, we must have an asset coverage of at
least 300%. Asset coverage means the ratio which the value of
our total assets, less all liabilities and indebtedness not
represented by senior securities, bears to the aggregate amount
of senior securities representing indebtedness. Other types of
borrowings also may result in our being subject to similar
covenants in credit agreements.
Events
of Default and Acceleration of Maturity of Notes.
Unless stated otherwise in the related prospectus supplement,
any one of the following events will constitute an event
of default for that series under the Indenture relating to
the notes:
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default in the payment of any interest upon a series of notes
when it becomes due and payable and the continuance of such
default for 30 days;
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default in the payment of the principal of, or premium on, a
series of notes at its stated maturity;
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57
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default in the performance, or breach, of any covenant or
warranty of ours in the Indenture, and continuance of such
default or breach for a period of 90 days after written
notice has been given to us by the trustee;
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certain voluntary or involuntary proceedings involving us and
relating to bankruptcy, insolvency or other similar laws;
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if, on the last business day of each of twenty-four consecutive
calendar months, the notes have a 1940 Act asset coverage of
less than 100%; or
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any other event of default provided with respect to
a series, including a default in the payment of any redemption
price payable on the redemption date.
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Upon the occurrence and continuance of an event of default, the
holders of a majority in principal amount of a series of
outstanding notes or the trustee will be able to declare the
principal amount of that series of notes immediately due and
payable upon written notice to us. A default that relates only
to one series of notes does not affect any other series and the
holders of such other series of notes will not be entitled to
receive notice of such a default under the Indenture. Upon an
event of default relating to bankruptcy, insolvency or other
similar laws, acceleration of maturity will occur automatically
with respect to all series. At any time after a declaration of
acceleration with respect to a series of notes has been made,
and before a judgment or decree for payment of the money due has
been obtained, the holders of a majority in principal amount of
the outstanding notes of that series, by written notice to us
and the trustee, may rescind and annul the declaration of
acceleration and its consequences if all events of default with
respect to that series of notes, other than the non-payment of
the principal of that series of notes which has become due
solely by such declaration of acceleration, have been cured or
waived and other conditions have been met.
Liquidation Rights. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case
or proceeding in connection therewith, relative to us or to our
creditors, as such, or to our assets, or (b) any
liquidation, dissolution or other winding up of us, whether
voluntary or involuntary and whether or not involving insolvency
or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of
ours, then (after any payments with respect to any secured
creditor of ours outstanding at such time) and in any such event
the holders of notes shall be entitled to receive payment in
full of all amounts due or to become due on or in respect of all
notes (including any interest accruing thereon after the
commencement of any such case or proceeding), or provision shall
be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of the notes,
before the holders of any of our common or preferred shares are
entitled to receive any payment on account of any redemption
proceeds, liquidation preference or dividends from such shares.
The holders of notes shall be entitled to receive, for
application to the payment thereof, any payment or distribution
of any kind or character, whether in cash, property or
securities, including any such payment or distribution which may
be payable or deliverable by reason of the payment of any other
indebtedness of ours being subordinated to the payment of the
notes, which may be payable or deliverable in respect of the
notes in any such case, proceeding, dissolution, liquidation or
other winding up event.
Unsecured creditors of ours may include, without limitation,
service providers including our Investment Adviser, custodian,
administrator, auction agent, broker-dealers and the trustee,
pursuant to the terms of various contracts with us. Secured
creditors of ours may include without limitation parties
entering into any interest rate swap, floor or cap transactions,
or other similar transactions with us that create liens,
pledges, charges, security interests, security agreements or
other encumbrances on our assets.
A consolidation, reorganization or merger of us with or into any
other company, or a sale, lease or exchange of all or
substantially all of our assets in consideration for the
issuance of equity securities of another company shall not be
deemed to be a liquidation, dissolution or winding up of us.
Voting Rights. The notes have no voting
rights, except as mentioned below and to the extent required by
law or as otherwise provided in the Indenture relating to the
acceleration of maturity upon the occurrence and continuance of
an event of default. In connection with the notes or other
borrowings (if any), the 1940 Act
58
does in certain circumstances grant to the note holders or
lenders certain voting rights in the event of default in the
payment of interest on or repayment of principal. In the event
the Fund fails to maintain 100% asset coverage of any notes
outstanding, the holders of the notes will have the right to
elect a majority of the Funds Trustees.
Market. Our notes are not likely to be listed
on an exchange or automated quotation system. The details on how
to buy and sell such notes, along with the other terms of the
notes, will be described in a prospectus supplement. We cannot
assure you that any market will exist for our notes or if a
market does exist, whether it will provide holders with
liquidity.
Book-Entry, Delivery and Form. Unless
otherwise stated in the related prospectus supplement, the notes
will be issued in book-entry form and will be represented by one
or more notes in registered global form. The global notes will
be deposited with the trustee as custodian for DTC and
registered in the name of Cede & Co., as nominee of
DTC. DTC will maintain the notes in designated denominations
through its book-entry facilities.
Under the terms of the Indenture, we and the trustee may treat
the persons in whose names any notes, including the global
notes, are registered as the owners thereof for the purpose of
receiving payments and for any and all other purposes
whatsoever. Therefore, so long as DTC or its nominee is the
registered owner of the global notes, DTC or such nominee will
be considered the sole holder of outstanding notes under the
Indenture. We or the trustee may give effect to any written
certification, proxy or other authorization furnished by DTC or
its nominee.
A global note may not be transferred except as a whole by DTC,
its successors or their respective nominees. Interests of
beneficial owners in the global note may be transferred or
exchanged for definitive securities in accordance with the rules
and procedures of DTC. In addition, a global note may be
exchangeable for notes in definitive form if:
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DTC notifies us that it is unwilling or unable to continue as a
depository and we do not appoint a successor within 60 days;
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we, at our option, notify the trustee in writing that we elect
to cause the issuance of notes in definitive form under the
Indenture; or
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an event of default has occurred and is continuing.
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In each instance, upon surrender by DTC or its nominee of the
global note, notes in definitive form will be issued to each
person that DTC or its nominee identifies as being the
beneficial owner of the related notes.
Under the Indenture, the holder of any global note may grant
proxies and otherwise authorize any person, including its
participants and persons who may hold interests through DTC
participants, to take any action which a holder is entitled to
take under the Indenture.
Trustee, Transfer Agent, Registrar, Paying Agent and
Redemption Agent. Information regarding the
trustee under the Indenture, which may also act as transfer
agent, registrar, paying agent and redemption agent with respect
to our notes, will be set forth in the Prospectus Supplement.
Subscription
Rights
General. We may issue subscription rights to
holders of our common or preferred shares to purchase common or
preferred shares. Subscription rights may be issued
independently or together with any other offered security and
may or may not be transferable by the person purchasing or
receiving the subscription rights. In connection with a
subscription rights offering to holders of our common or
preferred shares, we would distribute certificates evidencing
the subscription rights and a prospectus supplement to our
common or preferred shareholders as of the record date that we
set for determining the shareholders eligible to receive
subscription rights in such subscription rights offering.
59
The applicable prospectus supplement would describe the
following terms of subscription rights in respect of which this
prospectus is being delivered:
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the period of time the offering would remain open (which will be
open a minimum number of days such that all record holders would
be eligible to participate in the offering and will not be open
longer than 120 days);
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the title of such subscription rights;
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the exercise price for such subscription rights (or method of
calculation thereof);
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the number of such subscription rights issued in respect of each
common share;
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the number of rights required to purchase a single preferred
share;
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the extent to which such subscription rights are transferable
and the market on which they may be traded if they are
transferable;
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if applicable, a discussion of the material U.S. federal
income tax considerations applicable to the issuance or exercise
of such subscription rights;
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the date on which the right to exercise such subscription rights
will commence, and the date on which such right will expire
(subject to any extension);
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the extent to which such subscription rights include an
over-subscription privilege with respect to unsubscribed
securities and the terms of such over-subscription privilege;
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any termination right we may have in connection with such
subscription rights offering; and
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any other terms of such subscription rights, including exercise,
settlement and other procedures and limitations relating to the
transfer and exercise of such subscription rights.
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Exercise of Subscription Rights. Each
subscription right would entitle the holder of the subscription
right to purchase for cash such number of shares at such
exercise price as in each case is set forth in, or be
determinable as set forth in the prospectus supplement relating
to the subscription rights offered thereby. Subscription rights
would be exercisable at any time up to the close of business on
the expiration date for such subscription rights set forth in
the prospectus supplement. After the close of business on the
expiration date, all unexercised subscription rights would
become void.
Upon expiration of the rights offering and the receipt of
payment and the subscription rights certificate properly
completed and duly executed at the corporate trust office of the
subscription rights agent or any other office indicated in the
prospectus supplement we would issue, as soon as practicable,
the shares purchased as a result of such exercise. To the extent
permissible under applicable law, we may determine to offer any
unsubscribed offered securities directly to persons other than
shareholders, to or through agents, underwriters or dealers or
through a combination of such methods, as set forth in the
applicable prospectus supplement.
Outstanding
Securities
The following information regarding the Funds authorized
shares is as of June 30, 2011.
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Amount
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Outstanding
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Amount Held
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Exclusive of
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Amount
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by Fund or
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Amount Held
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Title of Class
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Authorized
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for its Account
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by Fund
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Common Shares
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Unlimited
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3,073,974
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60
ANTI-TAKEOVER
PROVISIONS OF THE FUNDS GOVERNING DOCUMENTS
The Fund presently has provisions in its Governing Documents
which could have the effect of limiting, in each case,
(i) the ability of other entities or persons to acquire
control of the Fund, (ii) the Funds freedom to engage
in certain transactions or (iii) the ability of the
Funds Trustees or shareholders to amend the Governing
Documents or effectuate changes in the Funds management.
These provisions of the Governing Documents of the Fund may be
regarded as anti-takeover provisions. The Board of
the Fund is divided into three classes, each having a term of no
more than three years (except, to ensure that the term of a
class of the Funds Trustees expires each year, one class
of the Funds Trustees will serve an initial one-year term
and three-year terms thereafter and another class of its
Trustees will serve an initial two-year term and three-year
terms thereafter). Each year the term of one class of Trustees
will expire. Accordingly, only those Trustees in one class may
be changed in any one year, and it would require a minimum of
two years to change a majority of the Board. Such system of
electing Trustees may have the effect of maintaining the
continuity of management and, thus, make it more difficult for
the shareholders of the Fund to change the majority of Trustees.
See Management of the FundTrustees and
Officers in the SAI. A Trustee of the Fund may be removed
with or without cause by two-thirds of the remaining trustees
and, with cause, by
662/3%
of the votes entitled to be cast for the election of such
Trustees. Special voting requirements of 75% of the outstanding
voting shares (in addition to any required class votes) apply to
certain mergers or a sale of all or substantially all of the
Funds assets, liquidation, conversion of the Fund into an
open-end fund or interval fund and amendments to several
provisions of the Declaration of Trust, including the foregoing
provisions. In addition, after completion of the offering, 80%
of the holders of the outstanding voting securities of the Fund
voting as a class is generally required in order to authorize
any of the following transactions:
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merger or consolidation of the Fund with or into any other
entity;
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issuance of any securities of the Fund to any person or entity
for cash, other than pursuant to the Dividend and Reinvestment
Plan or any offering if such person or entity acquires no
greater percentage of the securities offered than the percentage
beneficially owned by such person or entity immediately prior to
such offering or, in the case of a class or series not then
beneficially owned by such person or entity, the percentage of
common shares beneficially owned by such person or entity
immediately prior to such offering;
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sale, lease or exchange of all or any substantial part of the
assets of the Fund to any entity or person (except assets having
an aggregate fair market value of less than $5,000,000);
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sale, lease or exchange to the Fund, in exchange for securities
of the Fund, of any assets of any entity or person (except
assets having an aggregate fair market value of less than
$5,000,000); or
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the purchase of the Funds common shares by the Fund from
any person or entity other than pursuant to a tender offer
equally available to other shareholders in which such person or
entity tenders no greater percentage of common shares than are
tendered by all other shareholders;
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if such person or entity is directly, or indirectly through
affiliates, the beneficial owner of more than 5% of the
outstanding shares of the Fund. However, such vote would not be
required when, under certain conditions, the Board approves the
transaction. In addition, shareholders have no authority to
adopt, amend or repeal By-Laws. The Trustees have authority to
adopt, amend and. repeal By-Laws consistent with the Declaration
of Trust (including to require approval by the holders of a
majority of the outstanding shares for the election of
Trustees). Reference is made to the Governing Documents of the
Fund, on file with the Securities and Exchange Commission, for
the full text of these provisions.
The provisions of the Governing Documents described above could
have the effect of depriving the owners of shares in the Fund of
opportunities to sell their shares at a premium over prevailing
market prices, by discouraging a third party from seeking to
obtain control of the Fund in a tender offer or similar
transaction. The overall effect of the provisions is to render
more difficult the accomplishment of a merger or the assumption
of control by a principal shareholder. For the full text of
these provisions see Additional Information.
61
CLOSED-END
FUND STRUCTURE
The Fund is a non-diversified, closed-end management investment
company (commonly referred to as a closed-end fund). Closed-end
funds differ from open-end funds (which are generally referred
to as mutual funds) in that closed-end funds generally list
their shares for trading on a stock exchange and do not redeem
their shares at the request of the shareholder. This means that
if you wish to sell your shares of a closed-end fund you must
trade them on the market like any other stock at the prevailing
market price at that time. In a mutual fund, if the shareholder
wishes to sell shares of the fund, the mutual fund will redeem
or buy back the shares at net asset value. Also,
mutual funds generally offer new shares on a continuous basis to
investors, and closed-end funds generally do not. The continuous
inflows and outflows of assets in a mutual fund can make it
difficult to manage the funds investments. By comparison,
closed-end funds are generally able to stay more fully invested
in securities that are consistent with their investment
objective, and also have greater flexibility to make certain
types of investments, and to use certain investment strategies,
such as financial leverage and investments in illiquid
securities.
Shares of closed-end funds often trade at a discount to their
net asset value. Because of this possibility and the recognition
that any such discount may not be in the interest of
shareholders, the Funds Board might consider from time to
time engaging in open-market repurchases, tender offers for
shares or other programs intended to reduce the discount. We
cannot guarantee or assure, however, that the Funds Board
will decide to engage in any of these actions. Nor is there any
guarantee or assurance that such actions, if undertaken, would
result in the shares trading at a price equal or close to net
asset value per share. The Board might also consider converting
the Fund to an open-end mutual fund, which would also require a
supermajority vote of the shareholders of the Fund. We cannot
assure you that the Fund will not trade at a discount.
REPURCHASE
OF COMMON SHARES
The Fund is a closed-end, non-diversified, management investment
company and as such its shareholders do not, and will not, have
the right to require the Fund to repurchase their shares. The
Fund, however, may repurchase its common shares from time to
time as and when it deems such a repurchase advisable. The Board
has authorized such repurchase to be made when the Funds
common shares are trading at a discount from net asset value of
10% or more (or such other percentage as the Board of the Fund
may determine from time to time). The Fund Manager has
discretion as to whether or not he wants to repurchase common
shares if they are trading at the required discount. Pursuant to
the 1940 Act, the Fund may repurchase its common shares on a
securities exchange (provided that the Fund has informed its
shareholders within the preceding six months of its intention to
repurchase such shares) or pursuant to tenders and may also
repurchase shares privately if the Fund meets certain conditions
regarding, among other things, distribution of net income for
the preceding fiscal year, status of the seller, price paid,
brokerage commission, prior notice to shareholders of an
intention to purchase shares and purchasing in a manner and on a
basis that does not discriminate unfairly against the other
shareholders through their interest in the Fund.
When the Fund repurchase its common shares for a price below net
asset value, the net asset value of the common shares that
remain outstanding shares will be enhanced, but this does not
necessarily mean that the market price of the outstanding common
shares will be affected, either positively or negatively. The
repurchase of common shares will reduce the total assets of the
Fund available for investment and may increase the Funds
expense ratio.
TAXATION
The following discussion is a brief summary of certain
U.S. federal income tax considerations affecting the Fund
and, as the case may be, its shareholders and noteholders who
purchase notes in this offering at the original issue price
equal to the face amount of the Notes. A more complete
discussion of the tax rules applicable to the Fund, its
shareholders and its noteholders can be found in the SAI that is
incorporated by reference into this prospectus. This discussion
assumes you are a U.S. person (as defined for
U.S. federal
62
income tax purposes) and that you hold your shares or notes as
capital assets (generally, for investment). The discussion is
based upon current provisions of the Internal Revenue Code of
1986, as amended (the Code), Treasury regulations,
judicial authorities, published positions of the Internal
Revenue Service (the IRS) and other applicable
authorities, all of which are subject to change or differing
interpretations, possibly with retroactive effect. No ruling has
been or will be sought from the IRS regarding any matter
discussed herein. Counsel to the Fund has not rendered and will
not render any legal opinion regarding any tax consequences
relating to the Fund or an investment in the Fund. No attempt is
made to present a detailed explanation of all U.S. federal,
state, local and foreign tax concerns affecting the Fund and its
shareholders and noteholders (including shareholders and
noteholders subject to special tax rules and shareholders owning
large positions in the Fund).
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 annually 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 from (a) dividends, interest (including tax-exempt
interest), payments with respect to certain securities loans,
and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including but
not limited to gain from options, futures and forward contracts)
derived with respect to its business of investing in such stock,
securities or currencies and (b) net income derived from
interests in certain publicly traded partnerships that are
treated as partnerships for U.S. federal income tax
purposes and that derive less than 90% of their gross income
from the items described in (a) above (each a
Qualified Publicly Traded Partnership); 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 Funds 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 Funds
total assets and not more than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the
value of the Funds total assets is invested in the
securities of (I) any one issuer (other than
U.S. government securities and the securities of other
regulated investment companies), (II) any two or more
issuers (other than regulated investment companies) that the
Fund controls and that are determined to be engaged in the same
business or similar or related trades or businesses or
(III) any one or more Qualified Publicly Traded
Partnerships.
As a regulated investment company, the Fund generally is not
subject to U.S. federal income tax on income and gains that
it distributes each taxable year to shareholders, provided that
it distributes at least 90% of the sum of the Funds
(i) investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net
short-term capital gain over net long-term capital loss and
other taxable income other than any net capital gain (as defined
below) reduced by deductible expenses) determined without regard
to the deduction for dividends and distributions paid and
(ii) net tax-exempt interest income (the excess of its
gross tax-exempt interest income over certain disallowed
deductions). The Fund intends to distribute at least annually
substantially all of such income. The Fund will be subject to
income tax at regular corporate rates on any investment company
taxable income and net capital gain that it does not distribute
to its shareholders.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a
nondeductible 4% federal 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) 98.2% of its capital gains in
excess of its
63
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 Funds fiscal
year), and (iii) certain undistributed amounts from
previous years on which the Fund paid no U.S. federal
income tax. While the Fund intends to distribute any income and
capital gains in the manner necessary to minimize imposition of
the 4% federal excise tax, there can be no assurance that
sufficient amounts of the Funds ordinary income and
capital gains will be distributed to avoid entirely the
imposition of the tax. In that event, the Fund will be liable
for the tax only on the amount by which it does not meet the
foregoing distribution requirement.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates
without any deduction for distributions to shareholders.
Taxation
of Shareholders
The Fund intends to take the position that under present law
both the fixed rate preferred shares and variable rate preferred
shares will constitute equity rather than debt of the Fund for
federal income tax purposes. It is possible, however, that the
Internal Revenue Service (the IRS) could take a
contrary position asserting, for example, that the fixed rate
preferred shares and variable rate preferred shares constitute
debt of the Fund. The Fund believes this position, if asserted,
would be unlikely to prevail. If that position were upheld
distributions on the fixed rate preferred shares and variable
rate preferred shares would be considered interest, taxable as
ordinary income regardless of the taxable income of the Fund.
The following discussion assumes the fixed rate preferred shares
and auction-rate preferred shares are treated as equity.
Distributions paid to you by the Fund from its investment
company taxable income, which includes the excess of net
short-term capital gains over net long-term capital losses
(together referred to hereinafter as ordinary income
dividends) are generally taxable to you as ordinary income
to the extent of the Funds earnings and profits. Provided
that certain holding period requirements (as described below)
and other requirements are met, such distributions (if properly
reported by the Fund) may qualify (i) for the dividends
received deduction in the case of corporate shareholders to the
extent that the Funds income consists of dividend income
from U.S. corporations, and (ii) in the case of
individual shareholders, for taxable years beginning on or
before December 31, 2012 (but not for taxable years
beginning thereafter, unless the relevant provisions are
extended by legislation), as qualified dividend income eligible
to be taxed at long-term capital gains rates to the extent that
the Fund receives qualified dividend income. Qualified dividend
income is, in general, dividend income from taxable domestic
corporations and certain qualified foreign corporations (e.g.,
generally, foreign corporations incorporated in a possession of
the United States or in certain countries with a qualifying
comprehensive tax treaty with the United States, or whose stock
with respect to which such dividend is paid is readily tradable
on an established securities market in the United States).
For the Fund to receive tax-advantaged qualified dividends, the
Fund must hold the otherwise qualified stock for more than
61 days during the
121-day
period beginning 60 days before the ex-dividend date (or,
in the case of preferred stock, more than 91 days during
the 181-day
period beginning 90 days before the ex-dividend date). The
ex-dividend date is the date which is established by
a stock exchange (usually two business days before the record
date) whereby the owner of a security at the commencement of
such date is entitled to receive the next issued dividend
payment for such security, even if the security is sold by such
owner on the ex-dividend date or thereafter. In addition, for
dividends to be tax-advantaged qualified dividends, the Fund
cannot have an option to sell or be under a contractual
obligation to sell (pursuant to a short sale or otherwise)
substantially identical stock or securities. Accordingly, the
Funds writing of call options may, depending on the terms
of the option, adversely impact the Funds ability to pay
tax-advantaged qualified dividends. For an individual
shareholder to be taxed at the rates applicable to
tax-advantaged qualified dividends on dividends received from
the Fund that are attributable to tax-advantaged qualified
dividends received by the Fund, the shareholder must hold its
common shares for more than 61 days during the
121-day
period beginning 60 days before the ex-dividend date for
the Funds common shares (or, in the case of preferred
stock, more than 91 days during the
181-day
period beginning 90 days before the ex-dividend date for
the Funds preferred shares). Consequently, short-term
investors in the Fund may not realize
64
the benefits of tax-advantaged qualified dividends. There can be
no assurance as to the portion of the Funds dividends that
will be tax-advantaged. The provisions of the Code applicable to
tax-advantaged qualified dividends are currently effective for
taxable years beginning on or before December 31, 2012 but
may be changed at any time, possibly with retroactive effect.
Thereafter, higher tax rates will apply unless further
legislative action is taken.
Distributions made to you from net capital gain, which is the
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 reported by the Fund, regardless of the length of time
you have owned Fund shares. The maximum U.S. federal income
tax rate on net long-term capital gain of individuals is
generally 15% for taxable years beginning before January 1,
2013.
Distributions in excess of the Funds current and
accumulated earnings and profits will first reduce the adjusted
tax basis of your shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to you (assuming
the shares are held as a capital asset). Generally, not later
than 60 days after the close of its taxable year, the Fund
will provide you with a written notice reporting the amount of
any qualified dividend income or capital gain dividends and
other distributions.
The sale or other disposition of shares of the Fund will
generally result in capital gain or loss to you, and will be
long-term capital gain or loss if the shares have been held for
more than one year at the time of sale and are a capital asset
in your hands. Any loss upon the sale or exchange of Fund shares
held for six months or less will be treated as long-term capital
loss to the extent of any capital gain dividends received
(including amounts credited as an undistributed capital gain
dividends) by you with respect to such Fund shares. A loss
realized on a sale or exchange of shares of the Fund will be
disallowed if other substantially identical shares are acquired
(whether through the automatic reinvestment of dividends or
otherwise) within a
61-day
period beginning 30 days before and ending 30 days
after the date of the sale or exchange of the shares. In such
case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss.
Dividends and other taxable distributions are taxable to you
even though they are reinvested in additional shares of the
Fund. Dividends and other distributions paid by the Fund are
generally treated as received by a shareholder at the time the
dividend or distribution is made. If, however, the Fund pays you
a dividend or makes a distribution in January that was declared
in the previous October, November or December and you were the
shareholder of record on a specified date in one of such months,
then such dividend or distribution will be treated for tax
purposes as being paid by the Fund and received by you on
December 31 of the year in which the dividend or distribution
was declared.
The Fund is required in certain circumstances to backup withhold
on taxable dividends or distributions and certain other payments
paid to non-corporate holders of the Funds shares who do
not furnish the Fund with their correct taxpayer identification
number (in the case of individuals, their social security
number) and certain certifications, or who are otherwise subject
to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld from payments made to you may be
refunded or credited against your U.S. federal income tax
liability, if any, provided that the required information is
furnished to the IRS.
Taxation
of Noteholders
This discussion assumes that the notes will not be issued with
original issue discount for U.S. federal income tax
purposes. Accordingly, noteholders will be required to include
payments of interest on the notes in their gross income in
accordance with their method of accounting for U.S. federal
income tax purposes.
Any gain or loss from the disposition of the notes will be
treated as capital gain for noteholders who hold the notes as
capital assets and as long-term capital gain or loss if the
notes have been held for more than one year as of the date of
disposition. However, a portion of such gain may be required to
be treated as ordinary income under special rules of the Code
governing the treatment of market discount. A noteholder who
acquires a note at a market discount (i.e., at a price less than
the principal amount or the adjusted issue
65
price as determined for tax purposes, if relevant), such
as a subsequent purchaser of the notes, will be required to
treat as ordinary income a portion of any gain realized upon a
disposition of the note equal to the amount of market discount
deemed to have been accrued as of the date of disposition unless
an election is made to include such discount in income on a
current basis. A noteholder who acquires a note at a market
discount and does not elect to include such discount in income
on a current basis will be required to defer deduction of a
portion of interest paid or accrued on debt incurred or continue
to purchase or carry the note until the noteholder disposes of
the note. These rules may have an effect on the price that can
be obtained upon the sale of a note. Amounts received upon a
sale or redemption of the notes will be subject to tax as
ordinary income to the extent of any accrued and unpaid interest
on the notes as of the date of redemption.
Noteholders may be subject to backup withholding with respect to
interest paid to non-corporate holders of the Funds notes
and amounts realized on the disposition of the Funds
notes, unless the noteholder furnishes the Fund with their
correct taxpayer identification number (in the case of
individuals, their social security number) and certain
certifications, or who are otherwise subject to backup
withholding. Backup withholding is not an additional tax. Any
amounts withheld from payments made to you may be refunded or
credited against your U.S. federal income tax liability, if
any, provided that the required information is furnished to the
IRS.
Taxation
of Subscription Rights
As described more fully below, the distribution of subscription
rights may be a taxable or non-taxable distribution. Subject to
certain exceptions (which may apply), distributions of
subscription rights to common shareholders are generally
non-taxable distributions and distributions of subscription
rights to preferred shareholders (subject to certain exceptions
not applicable to the Fund) are generally taxable distributions.
Holders
of Common Shares
The U.S. federal income tax consequences to a holder of
common shares on the receipt of subscription rights should, as a
general matter, be as follows:
If the subscription rights are offered to common shareholders,
the value of a subscription right will not be includible in the
income of such shareholders at the time the subscription right
is issued.
The basis of a subscription right issued to common shareholders
will be zero, and the basis of the share with respect to which
the subscription right was issued (the old share) will remain
unchanged, unless either (a) the fair market value of the
subscription right on the date of distribution is at least 15%
of the fair market value of the old share, or (b) such
shareholder affirmatively elects (in the manner set out in
Treasury regulations under the Code) to allocate to the
subscription right a portion of the basis of the old share. If
either (a) or (b) applies, a common shareholder must
allocate basis between the old share and the subscription right
in proportion to their fair market values on the date of
distribution.
The basis of a subscription right purchased in the market will
generally be its purchase price.
The holding period of a subscription right issued to a common
shareholder will include the holding period of the old share.
No loss will be recognized by a common shareholder if a
subscription right distributed to such shareholder expires
unexercised because the basis of the old share may be allocated
to a subscription right only if the subscription right is
exercised. If a subscription right that has been purchased in
the market expires unexercised, there will be a recognized loss
equal to the basis of the subscription right.
Any gain or loss on the sale of a subscription right will be a
capital gain or loss if the subscription right is held as a
capital asset (which in the case of subscription rights issued
to shareholders will depend on whether the old share is held as
a capital asset), and will be a long-term capital gain or loss
if the holding period is deemed to exceed one year. Capital
losses are deductible only to the extent of capital gains
(subject to an exception for individuals under which $3,000 of
capital losses may be offset against ordinary income).
66
No gain or loss will be recognized by a common shareholder upon
the exercise of a subscription right, and the basis of any
preferred share acquired upon exercise (the new preferred share)
will equal the sum of the basis, if any, of the subscription
right and the price of the subscription right for the new
preferred share. The holding period for the new preferred share
will begin on the date when the subscription right is exercised.
Holders
of Preferred Shares
The U.S. federal income tax consequences to a holder of
preferred shares on the receipt of subscription rights should,
as a general matter, be as follows:
As more fully described below, if the subscription rights are
offered to preferred shareholders, upon receipt of a
subscription right, a preferred shareholder generally will be
treated as receiving a taxable distribution in an amount equal
to the fair market value of the subscription right the preferred
shareholder receives.
To the extent that the distribution is made out of the
Funds earnings and profits, the subscription right will be
a taxable dividend to the preferred shareholder. If the amount
of the distribution received by the preferred shareholder
exceeds such shareholders proportionate share of the
Funds earnings and profits, the excess will reduce the
preferred shareholders tax basis in the preferred shares
with respect to which the subscription right was issued (the old
share). To the extent that the excess is greater than the
preferred shareholders tax basis in the old shares, such
excess will be treated as gain from the sale of the old shares.
If the preferred shareholder held the old shares for more than
one year, such gain will be treated as long-term capital gain.
A preferred shareholders tax basis in the subscription
rights received will equal the fair market value of the
subscription rights on the date of the distribution.
A preferred shareholder who allows the subscription rights
received to expire generally will recognize a short-term capital
loss. Capital losses are deductible only to the extent of
capital gains (subject to an exception for individuals under
which $3,000 of capital losses may be offset against ordinary
income).
A preferred shareholder who sells the subscription rights will
recognize a gain or loss equal to the difference between the
amount realized on the sale and the preferred shareholders
tax basis in the subscription rights as described above.
A preferred shareholder will not recognize any gain or loss upon
the exercise of the subscription rights received in the rights
offering. The tax basis of the shares acquired through exercise
of the subscription rights (the new shares) will equal the sum
of the subscription price for the new shares and the preferred
shareholders tax basis in the subscription rights as
described above. The holding period for the new shares acquired
through exercise of the subscription rights will begin on the
day following the date on which the subscription rights are
exercised.
Shareholders and noteholders are urged to consult their tax
advisers regarding specific questions as to U.S. federal,
foreign, state, local income or other taxes.
CUSTODIAN,
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust (the Custodian), located
at One Heritage Drive, Palmer 2N, North Quincy, Massachusetts
02171, serves as the custodian of the Funds assets
pursuant to a custody agreement. Under the custody agreement,
the custodian holds the Funds assets in compliance with
the 1940 Act. For its services, the Custodian will receive a
monthly fee based upon, among other things, the average value of
the total assets of the Fund, plus certain charges for
securities transactions.
Computershare, located at P.O. Box 43010, Providence,
Rhode Island 02940, serves as the Funds dividend
disbursing agent, as agent under the Funds Plan and as
transfer agent and registrar with respect to the common shares
of the Fund.
67
Computershare also serves as the Funds transfer agent,
registrar, dividend disbursing agent and redemption agent with
respect to the preferred shares.
PLAN OF
DISTRIBUTION
We may sell securities through underwriters or dealers, directly
to one or more purchasers, through agents, to or through
underwriters or dealers, or through a combination of any such
methods of sale. The applicable Prospectus Supplement will
identify any underwriter or agent involved in the offer and sale
of our securities, any sales loads, discounts, commissions, fees
or other compensation paid to any underwriter, dealer or agent,
the offering price, net proceeds and use of proceeds and the
terms of any sale.
The distribution of our securities may be effected from time to
time in one or more transactions at a fixed price or prices,
which may be changed, at prevailing market prices at the time of
sale, at prices related to such prevailing market prices, or at
negotiated prices, provided, however, that the offering price
per share in the case of common shares, must equal or exceed the
net asset value per share, exclusive of any underwriting
commissions or discounts, of our common shares.
We may sell our securities directly to, and solicit offers from,
institutional investors or others who may be deemed to be
underwriters as defined in the Securities Act for any resales of
the securities. In this case, no underwriters or agents would be
involved. We may use electronic media, including the Internet,
to sell offered securities directly.
In connection with the sale of our securities, underwriters or
agents may receive compensation from us in the form of
discounts, concessions or commissions. Underwriters may sell our
securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or
commissions from the underwriters
and/or
commissions from the purchasers for whom they may act as agents.
Underwriters, dealers and agents that participate in the
distribution of our securities may be deemed to be underwriters
under the Securities Act, and any discounts and commissions they
receive from us and any profit realized by them on the resale of
our securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or
agent will be identified and any such compensation received from
us will be described in the applicable Prospectus Supplement.
The maximum commission or discount to be received by any FINRA
member or independent broker-dealer will not exceed eight
percent. We will not pay any compensation to any underwriter or
agent in the form of warrants, options, consulting or
structuring fees or similar arrangements.
If a Prospectus Supplement so indicates, we may grant the
underwriters an option to purchase additional shares at the
public offering price, less the underwriting discounts and
commissions, within 45 days from the date of the Prospectus
Supplement, to cover any overallotments.
To facilitate an offering of securities in an underwritten
transaction and in accordance with industry practice, the
underwriters may engage in transactions that stabilize,
maintain, or otherwise affect the market price of the
securities. Those transactions may include overallotment,
entering stabilizing bids, effecting syndicate covering
transactions, and reclaiming selling concessions allowed to an
underwriter or a dealer.
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An overallotment in connection with an offering creates a short
position in the securities for the underwriters own
account.
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An underwriter may place a stabilizing bid to purchase the
shares for the purpose of pegging, fixing, or maintaining the
price of the securities.
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Underwriters may engage in syndicate covering transactions to
cover overallotments or to stabilize the price of the securities
subject to the offering by bidding for, and purchasing, the
securities or any other securities in the open market in order
to reduce a short position created in connection with the
offering.
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68
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The managing underwriter may impose a penalty bid on a syndicate
member to reclaim a selling concession in connection with an
offering when the securities originally sold by the syndicate
member are purchased in syndicate covering transactions or
otherwise.
|
Any of these activities may stabilize or maintain the market
price of the securities above independent market levels. The
underwriters are not required to engage in these activities, and
may end any of these activities at any time.
Any underwriters to whom the offered securities are sold for
offering and sale may make a market in the offered securities,
but the underwriters will not be obligated to do so and may
discontinue any market-making at any time without notice. The
offered securities may or may not be listed on a securities
exchange. We cannot assure you that there will be a liquid
trading market for the offered securities.
Any fixed rate preferred shares sold pursuant to a Prospectus
Supplement will likely be listed on NYSE Amex.
Under agreements into which we may enter, underwriters, dealers
and agents who participate in the distribution of our securities
may be entitled to indemnification by us against certain
liabilities, including liabilities under the Securities Act of
1933. Underwriters, dealers and agents may engage in
transactions with us, or perform services for us, in the
ordinary course of business.
If so indicated in the applicable Prospectus Supplement, we will
ourselves, or will authorize underwriters or other persons
acting as our agents to solicit offers by certain institutions
to purchase our securities from us pursuant to contracts
providing for payment and delivery on a future date.
Institutions with which such contacts may be made include
commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable
institutions and others, but in all cases such institutions must
be approved by us. The obligation of any purchaser under any
such contract will be subject to the condition that the purchase
of the securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such
purchaser is subject. The underwriters and such other agents
will not have any responsibility in respect of the validity or
performance of such contracts. Such contracts will be subject
only to those conditions set forth in the Prospectus Supplement,
and the Prospectus Supplement will set forth the commission
payable for solicitation of such contracts.
To the extent permitted under the 1940 Act and the rules and
regulations promulgated thereunder, the underwriters may from
time to time act as brokers or dealers and receive fees in
connection with the execution of our portfolio transactions
after the underwriters have ceased to be underwriters and,
subject to certain restrictions, each may act as a broker while
it is an underwriter.
A Prospectus and accompanying Prospectus Supplement in
electronic form may be made available on the websites maintained
by underwriters. The underwriters may agree to allocate a number
of securities for sale to their online brokerage account
holders. Such allocations of securities for Internet
distributions will be made on the same basis as other
allocations. In addition, securities may be sold by the
underwriters to securities dealers who resell securities to
online brokerage account holders.
In order to comply with the securities laws of certain states,
if applicable, our securities offered hereby will be sold in
such jurisdictions only through registered or licensed brokers
or dealers.
LEGAL
MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, 4 Times Square, New York, New York
10036 in connection with the offering of the Funds
securities.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
[ ]
serves as the Independent Registered Public Accounting Firm of
the Fund and audits the financial statements of the Fund.
[ ]
is located at
[ ].
69
ADDITIONAL
INFORMATION
The Fund is subject to the informational requirements of the
Securities Exchange Act of 1934 Act and the 1940 Act and in
accordance therewith files, or will file, 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 the 1934 Act and the 1940 Act
can be inspected and copied at the public reference facilities
maintained by the SEC, 100 F Street, N.E.,
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 Funds common shares are listed on the NYSE Amex.
Reports, proxy statements and other information concerning the
Fund and filed with the SEC by the Fund will be available for
inspection at the NYSE Amex, 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 and the
1940 Act. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits for
further information with respect to the Fund and the shares
offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise
filed with the 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
SECs web site
(http://www.sec.gov).
PRIVACY
PRINCIPLES OF THE FUND
The Fund is committed to maintaining the privacy of its
shareholders and to safeguarding their non-public personal
information. The following information is provided to help you
understand what personal information the Fund collects, how the
Fund protects that information and why, in certain cases, the
Fund may share information with select other parties.
Generally, the Fund does not receive any non-public personal
information relating to its shareholders, although certain
non-public personal information of its shareholders may become
available to the Fund. The Fund does not disclose any non-public
personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is
necessary in order to service shareholder accounts (for example,
to a transfer agent or third party administrator).
The Fund restricts access to non-public personal information
about its shareholders to employees of the Funds
Investment Adviser and its affiliates with a legitimate business
need for the information. The Fund maintains physical,
electronic and procedural safeguards designed to protect the
non-public personal information of its shareholders.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties
and other factors that may cause the actual results, levels of
activity, performance or achievements of the Fund to be
materially different from any future results, levels of
activity, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among
others, those listed under Risk Factors and Special
Considerations and elsewhere in this Prospectus. As a
result of the foregoing and other factors, no assurance can be
given as to the future results, levels of activity or
achievements, and neither the Fund nor any other person assumes
responsibility for the accuracy and completeness of such
statements.
70
TABLE OF
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
An SAI dated as of July 21, 2011, has been filed with the
SEC and is incorporated by reference in this Prospectus. An SAI
may be obtained without charge by writing to the Fund at its
address at One Corporate Center, Rye, New York
10580-1422
or by calling the Fund toll-free at (800) GABELLI
(422-3554).
The Table of Contents of the SAI is as follows:
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Page
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The Fund
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3
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Investment Objectives and Policies
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3
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Investment Restrictions
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11
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Management of the Fund
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12
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Portfolio Transactions
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23
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Portfolio Turnover
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24
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Auctions for Auction Rate Preferred Shares
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25
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Taxation
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27
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Net Asset Value
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36
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Beneficial Owners
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37
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General Information
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38
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71
APPENDIX A
CORPORATE
BOND RATINGS
MOODYS
INVESTORS SERVICE, INC.
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Aaa
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Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as gilt edge. Interest
payments are protected by a large or exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
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Aa
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Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may
be of greater amplitude or there may be other elements present
that make the long-term risk appear somewhat larger than in Aaa
Securities.
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A
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Bonds that are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
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Baa
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Bonds that are rated Baa are considered as medium-grade
obligations i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
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Ba
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Bonds that are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
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B
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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. Moodys applies
numerical modifiers (1, 2, and 3) with respect to the bonds
rated Aa through B. The modifier 1 indicates that the company
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the company ranks in the lower end of its generic
rating category.
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Caa
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Bonds that are rated Caa are of poor standing. These issues may
be in default or there may be present elements of danger with
respect to principal or interest.
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Ca
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Bonds that are rated Ca represent obligations that are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
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C
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Bonds that are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
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STANDARD &
POORS RATINGS SERVICES
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AAA
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This is the highest rating assigned by S&P to a debt
obligation and indicates an extremely strong capacity to pay
interest and repay principal.
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AA
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Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
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A
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Principal and interest payments on bonds in this category are
regarded as safe. Debt rated A has a strong capacity to pay
interest and repay principal although they are somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
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BBB
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This is the lowest investment grade. Debt rated BBB has an
adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
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A-1
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 I is reserved for income bonds on which
no interest is being paid and debt rated D is in payment default.
In July 1994, S&P initiated an r symbol to its
ratings. The r symbol is attached to derivatives,
hybrids and certain other obligations that S&P believes may
experience high variability in expected returns due to noncredit
risks created by the terms of the obligations.
AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major categories.
NR indicates that no public rating has been
requested, that there is insufficient information on which to
base a rating, or that S&P does not rate a particular type
of obligation as a matter of policy.
A-2
The Gabelli Global
Utility & Income Trust
Common Shares
Preferred Shares
Notes
Subscription Rights for Common
Shares
Subscription Rights for
Preferred Shares
PROSPECTUS
July 21, 2011
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PROSPECTUS
SUPPLEMENT
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Filed
Pursuant to Rule 497
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(To
Prospectus
dated ,
2011)
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Registration Statement No. 333-
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Shares
The Gabelli Global
Utility & Income Trust
Common Shares of Beneficial
Interest
We are offering for
sale shares
of our common shares. Our common shares are traded on the NYSE
Amex LLC (NYSE Amex) under the symbol
GLU. The last reported sale price for our common
shares
on ,
was $ per share.
You should review the information set forth under Risk
Factors and Special Considerations in the accompanying
Prospectus before investing in our common shares.
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Per Share
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Total(1)
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses, to us
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$
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$
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(1) |
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The aggregate expenses of the offering are estimated to be $ ,
which represents approximately $
per share. |
[The underwriters may also purchase up to an
additional
common shares from us at the public offering price, less
underwriting discounts and commissions, to cover
over-allotments, if any, within 30 days after the date of
this Prospectus Supplement. If the over-allotment option is
exercised in full, the total proceeds, before expenses, to the
Fund would be $ and the total
underwriting discounts and commissions would be $ . The common
shares will be ready for delivery on or
about ,
.]
You should read this Prospectus Supplement and the accompanying
Prospectus before deciding whether to invest in our common
shares and retain it for future reference. The Prospectus
Supplement and the accompanying Prospectus contain important
information about us. Material that has been incorporated by
reference and other information about us can be obtained from us
by calling 800-GABELLI
(422-3554)
or from the Securities and Exchange Commissions
(SEC) website
(http://www.sec.gov).
Neither the SEC nor any state securities commission has approved
or disapproved these securities or determined if this Prospectus
Supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
,
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. We have not 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. We are not making an offer to sell these securities
in any jurisdiction in which the offer or sale is not
permitted.
In this Prospectus Supplement and in the accompanying
Prospectus, unless otherwise indicated, Fund,
us, our and we refer to The
Gabelli Global Utility & Income Trust. This Prospectus
Supplement also includes trademarks owned by other persons.
P-1
TABLE OF
CONTENTS
Prospectus
Supplement
P-2
TABLE OF
FEES AND EXPENSES
The following tables are intended to assist you in understanding
the various costs and expenses directly or indirectly associated
with investing in our common shares as a percentage of net
assets attributable to common shares. Amounts are for the
current fiscal year after giving effect to anticipated net
proceeds of the offering, assuming that we incur the estimated
offering expenses, including preferred share offering expenses.
Shareholder
Transaction Expenses
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Sales Load (as a percentage of offering price)
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[ ]
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%
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Offering Expenses Borne by the Fund (as a percentage of offering
price)
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[ ]
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%
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Dividend Reinvestment Plan Fees
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None
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(1)
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Percentage of Net Assets
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Attributable to Common Shares
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Annual Expenses
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Management Fees
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% (2)
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Interest on Borrowed Funds
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None
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Other Expenses
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% (2)
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Total Annual Expenses
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% (2)
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(1) |
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Shareholders participating in the Funds Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plans would pay $0.75
plus their pro rata share of brokerage commissions per
transactions to purchase shares and $2.50 plus their pro rata
share of brokerage commissions per transaction to sell shares.
See Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plans. |
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(2) |
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The investment Advisers fee is
[ ]% annually of the Funds
average weekly net assets, plus assets attributable to any
outstanding senior securities, with no deduction for the
liquidation preference of any outstanding preferred shares or
the principal amount of any outstanding notes. Consequently, if
the fund has preferred shares or notes outstanding, the
investment management fees and other expenses as a percentage of
net assets attributable to common shares will be higher than if
the Fund does not utilize a leveraged capital structure.
Other Expenses are based on estimated amounts for
the current year assuming completion of the proposed issuances. |
Example
The following example illustrates the expenses you would pay on
a $1,000 investment in common shares, assuming a 5% annual
portfolio total return.*
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|
|
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|
|
|
|
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|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
|
Total Expenses Incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The example should not be considered a representation
of future expenses . The example assumes that the amounts
set forth in the Annual Expenses table are accurate and that all
distributions are reinvested at net asset value. Actual expenses
may be greater or less than those assumed. Moreover, the
Funds actual rate of return may be greater or less than
the hypothetical 5% return shown in the example.
USE OF
PROCEEDS
We estimate the total net proceeds of the offering to be
$ based on the public offering
price of $ per share and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
The Investment Adviser expects that it will initially invest the
proceeds of the offering in high-quality short-term debt
securities and instruments. The Investment Adviser anticipates
that the investment of the proceeds will be made in accordance
with the Funds investment objectives and policies as
appropriate investment opportunities are identified.
P-3
PRICE
RANGE OF COMMON SHARES
The following table sets forth for the quarters indicated, the
high and low sale prices on the NYSE Amex per share of our
common shares and the net asset value and the premium or
discount from net asset value per share at which the common
shares were trading, expressed as a percentage of net asset
value, at each of the high and low sale prices provided.
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Corresponding
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Net Asset
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Corresponding
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|
Value (NAV) Per
|
|
Premium or
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|
|
Market Price
|
|
Share
|
|
Discount as a % of NAV
|
Quarter Ended
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
March 31, 2006
|
|
$
|
18.90
|
|
|
$
|
17.60
|
|
|
$
|
21.03
|
|
|
$
|
20.49
|
|
|
|
−10.08
|
|
|
|
−14.14
|
|
June 30, 2006
|
|
|
18.46
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|
|
|
17.60
|
|
|
|
21.47
|
|
|
|
20.53
|
|
|
|
−14.00
|
|
|
|
−14.31
|
|
September 30, 2006
|
|
|
19.75
|
|
|
|
18.04
|
|
|
|
22.31
|
|
|
|
21.15
|
|
|
|
−11.45
|
|
|
|
−14.73
|
|
December 31, 2006
|
|
|
21.81
|
|
|
|
19.53
|
|
|
|
24.21
|
|
|
|
22.72
|
|
|
|
−9.89
|
|
|
|
−14.06
|
|
March 31, 2007
|
|
|
22.82
|
|
|
|
20.94
|
|
|
|
24.86
|
|
|
|
23.83
|
|
|
|
−8.21
|
|
|
|
−12.16
|
|
June 30, 2007
|
|
|
23.14
|
|
|
|
21.24
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|
|
|
25.74
|
|
|
|
24.47
|
|
|
|
−10.07
|
|
|
|
−13.18
|
|
September 30, 2007
|
|
|
21.98
|
|
|
|
18.90
|
|
|
|
25.18
|
|
|
|
23.21
|
|
|
|
−12.69
|
|
|
|
−18.56
|
|
December 31, 2007
|
|
|
23.10
|
|
|
|
21.70
|
|
|
|
25.37
|
|
|
|
25.25
|
|
|
|
−8.95
|
|
|
|
−14.09
|
|
March 31, 2008
|
|
|
23.23
|
|
|
|
20.30
|
|
|
|
25.13
|
|
|
|
22.76
|
|
|
|
−7.56
|
|
|
|
−10.81
|
|
June 30, 2008
|
|
|
21.67
|
|
|
|
20.03
|
|
|
|
24.00
|
|
|
|
23.10
|
|
|
|
−9.71
|
|
|
|
−13.29
|
|
September 30, 2008
|
|
|
20.77
|
|
|
|
15.65
|
|
|
|
23.05
|
|
|
|
20.56
|
|
|
|
−9.89
|
|
|
|
−23.88
|
|
December 31, 2008
|
|
|
17.15
|
|
|
|
13.30
|
|
|
|
20.50
|
|
|
|
16.72
|
|
|
|
−16.34
|
|
|
|
−20.46
|
|
March 31, 2009
|
|
|
16.90
|
|
|
|
10.66
|
|
|
|
18.67
|
|
|
|
14.12
|
|
|
|
−9.48
|
|
|
|
−24.50
|
|
June 30, 2009
|
|
|
16.45
|
|
|
|
13.38
|
|
|
|
17.52
|
|
|
|
15.87
|
|
|
|
−6.11
|
|
|
|
−15.69
|
|
September 30, 2009
|
|
|
18.00
|
|
|
|
16.01
|
|
|
|
19.21
|
|
|
|
16.98
|
|
|
|
−6.30
|
|
|
|
−5.71
|
|
December 31, 2009
|
|
|
20.64
|
|
|
|
17.70
|
|
|
|
19.88
|
|
|
|
18.43
|
|
|
|
−3.82
|
|
|
|
−3.96
|
|
March 31, 2010
|
|
|
20.85
|
|
|
|
17.91
|
|
|
|
20.06
|
|
|
|
18.54
|
|
|
|
−3.94
|
|
|
|
−3.40
|
|
June 30, 2010
|
|
|
20.72
|
|
|
|
17.55
|
|
|
|
19.93
|
|
|
|
18.60
|
|
|
|
−3.96
|
|
|
|
−5.65
|
|
September 30, 2010
|
|
|
20.19
|
|
|
|
18.27
|
|
|
|
20.17
|
|
|
|
18.05
|
|
|
|
0.99
|
|
|
|
−1.22
|
|
December 31, 2010
|
|
|
21.10
|
|
|
|
19.69
|
|
|
|
20.80
|
|
|
|
20.22
|
|
|
|
1.44
|
|
|
|
−2.62
|
|
March 31, 2011
|
|
|
20.67
|
|
|
|
19.26
|
|
|
|
21.39
|
|
|
|
20.25
|
|
|
|
−3.37
|
|
|
|
−4.89
|
|
The last reported price for our common shares
on ,
2011 was $ per share.
P-4
PLAN OF
DISTRIBUTION
[To be provided.]
LEGAL
MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, counsel
to the Fund in connection with the offering of the common shares.
P-5
The
Gabelli Global Utility & Income Trust
Common Shares
PROSPECTUS SUPPLEMENT
,
2011
|
|
PROSPECTUS
SUPPLEMENT
|
Filed
Pursuant to Rule 497
|
|
|
(To
Prospectus
dated ,
2011)
|
Registration Statement
No. 333-
|
Shares
[GRAPHIC OMITTED]
Series
Preferred Shares
We are offering for
sale shares
of our
Series
Preferred Shares, par value $0.001 per share. Our common shares
are traded on the NYSE Amex under the symbol GLU.
The last reported sale price for our common shares
on ,
was $ per share.
You should review the information set forth under Risk
Factors and Special Considerations in the accompanying
Prospectus before investing in our preferred shares.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to the Fund(1)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
The aggregate expenses of the offering (excluding underwriting
discount) are estimated to be $ . |
The Underwriters are expected to deliver the
Series
Preferred in book-entry form through the Depository
Trust Company on or
about .
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. The Fund has not authorized anyone to
provide you with different information. The Fund is not making
an offer to sell these securities in any state where the offer
or sale is not permitted. You should not assume that the
information contained in this Prospectus Supplement and the
accompanying Prospectus is accurate as of any date other than
the date of this Prospectus Supplement and the accompanying
Prospectus, respectively.
,
Q-1
TABLE OF
CONTENTS
Prospectus
Supplement
|
|
|
|
|
|
|
Page
|
|
|
|
|
Q-3
|
|
|
|
|
Q-4
|
|
|
|
|
Q-4
|
|
|
|
|
Q-4
|
|
|
|
|
Q-4
|
|
|
|
|
Q-4
|
|
|
|
|
Q-4
|
|
|
|
|
Q-4
|
|
Q-2
TERMS OF
THE
SERIES
PREFERRED SHARES
|
|
|
Dividend Rate |
|
The dividend rate [for the initial dividend
period](1)
will be %. |
|
Dividend Payment Rate |
|
[Dividends will be paid when, as and if declared
on , ,
and ,
commencing .(2)
The payment date for the initial dividend period will
be .(1)] |
|
[Regular Dividend Period |
|
Regular dividend periods will
be
days.(1)] |
|
[Regular Auction Date |
|
Auctions will be held
on
.(1)] |
|
Liquidation Preference |
|
$ per share |
|
[Non-Call Period |
|
The shares may not be called for redemption at the option of the
Fund prior
to .(2)] |
|
[Stock Exchange
Listing](2) |
|
|
|
Rating |
|
It is a condition of issuance that the preferred shares be rated
AAA by S&P and (1)Aaa by
Moodys. |
|
|
|
(1) |
|
Applicable only if the preferred shares being offered is Auction
Rate Preferred. |
|
(2) |
|
Applicable only if the preferred shares being offered is Fixed
Rate Preferred. |
Q-3
USE OF
PROCEEDS
We estimate the total net proceeds of the offering to be
$ , based on the public offering
price of $ per share and after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
The Investment Adviser expects that it will initially invest the
proceeds of the offering in high-quality short-term debt
securities and instruments. The Investment Adviser anticipates
that the investment of the proceeds will be made in accordance
with the Funds investment objectives and policies as
appropriate investment opportunities are identified, which is
expected to be substantially completed within three months;
however, changes in market conditions could result in the
Funds anticipated investment period extending to as long
as six months.
CAPITALIZATION
[To Come]
ASSET
COVERAGE RATIO
[To Come]
SPECIAL
CHARACTERISTICS AND RISKS OF THE
SERIES PREFERRED
[To Come]
TAXATION
[To Come]
UNDERWRITING
[To Come]
LEGAL
MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, counsel
to the Fund in connection with the offering of the preferred
shares.
Q-4
The
Gabelli Global Utility & Income Trust
Preferred Shares
PROSPECTUS SUPPLEMENT
, 2011
|
|
PROSPECTUS
SUPPLEMENT
|
Filed
Pursuant to Rule 497
|
|
|
(To
Prospectus
dated ,
20 )
|
Registration Statement
No. 333-
|
[GRAPHIC
OMITTED]
Notes [Specify
Title]
We are offering for
sale
promissory notes. Our common shares are traded on the NYSE Amex
under the symbol GLU. The last reported sale price
for our common shares
on ,
was $ per share. You should review
the information set forth under Risk Factors and Special
Considerations in the accompanying Prospectus before
investing in our notes.
|
|
|
|
|
|
|
|
|
|
|
Per Note
|
|
Total(1)
|
|
Public offering price
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
The aggregate expenses of the offering are estimated to be
$ , which represents approximately
$ per note. |
The notes will be ready for delivery on or
about , .
You should read this Prospectus Supplement and the accompanying
Prospectus before deciding whether to invest in our notes and
retain it for future reference. The Prospectus Supplement and
the accompanying Prospectus contain important information about
us. Material that has been incorporated by reference and other
information about us can be obtained from us by calling
800-GABELLI
(422-3554)
or from the Securities and Exchange Commissions
(SEC) website
(http://www.sec.gov).
Neither the SEC nor any state securities commission has approved
or disapproved these securities or determined if this Prospectus
Supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
,
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. We have not 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. We are not making an offer to sell these securities
in any jurisdiction in which the offer or sale is not
permitted.
In this Prospectus Supplement and in the accompanying
Prospectus, unless otherwise indicated, Fund,
us, our and we refer to The
Gabelli Global Utility & Income Trust. This Prospectus
Supplement also includes trademarks owned by other persons.
R-1
TABLE OF
CONTENTS
Prospectus
Supplement
|
|
|
|
|
|
|
Page
|
|
|
|
|
R-3
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
|
|
|
R-4
|
|
R-2
TERMS OF
THE NOTES
|
|
|
Principal Amount |
|
The principal amount of the notes is
$ in the aggregate. |
|
Maturity |
|
The principal amount of the notes will become due and payable
on , . |
|
Interest Rate |
|
The interest rate will be %. |
|
Frequency of payment |
|
Interest will be
paid
commencing . |
|
Prepayment Protections |
|
|
|
[Stock Exchange Listing] |
|
|
|
Rating |
|
It is a condition of issuance that the notes be
rated[ ]
by
[ ]. |
R-3
USE OF
PROCEEDS
We estimate the total net proceeds of the offering to be
$ , based on the public offering
price of $ per note and after
deduction of the underwriting discounts and commissions and
estimated offering expenses payable by us.
The Investment Adviser expects that it will initially invest the
proceeds of the offering in high-quality short-term income
securities and instruments. The Investment Adviser anticipates
that the investment of the proceeds will be made in accordance
with the Funds investment objective and policies as
appropriate investment opportunities are identified, which is
expected to be substantially completed within three months;
however, changes in market conditions could result in the
Funds anticipated investment period extending to as long
as six months.
CAPITALIZATION
[To be provided.]
ASSET
COVERAGE RATIO
[To be provided.]
SPECIAL
CHARACTERISTICS AND RISKS OF THE NOTES
[To be provided.]
TERMS OF
THE NOTES
[To be provided.]
TAXATION
[To be provided.]
UNDERWRITING
[To be provided.]
LEGAL
MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, counsel
to the Fund in connection with the offering of the notes.
R-4
The
Gabelli Global Utility & Income Trust
Notes
PROSPECTUS SUPPLEMENT
, 2011
|
|
PROSPECTUS
SUPPLEMENT
|
Filed
Pursuant to Rule 497
|
|
|
(To
Prospectus
dated ,
2011)
|
Registration Statement
No. 333-
|
[GRAPHIC OMITTED]
Rights
for
Shares
Subscription Rights for Common
Shares
We are issuing subscription rights to our [common] [preferred]
stockholders to purchase our common shares. Our common shares
are traded on the NYSE Amex LLC (NYSE Amex) under
the symbol GLU. The last reported sale price for our
common shares
on ,
was $ per share.
You should review the information set forth under Risk
Factors and Special Considerations in the accompanying
Prospectus before investing in our common shares.
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
Total(1)
|
|
Subscription price of Common Shares
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
The aggregate expenses of the offering are estimated to be
$ , which represents approximately
$ per share. |
You should read this Prospectus Supplement and the accompanying
Prospectus before deciding whether to invest in our common
shares and retain it for future reference. The Prospectus
Supplement and the accompanying Prospectus contain important
information about us. Material that has been incorporated by
reference and other information about us can be obtained from us
by calling 800-GABELLI
(422-3554)
or from the Securities and Exchange Commissions
(SEC) website
(http://www.sec.gov).
Neither the SEC nor any state securities commission has approved
or disapproved these securities or determined if this Prospectus
Supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
STOCKHOLDERS WHO DO NOT EXERCISE THEIR RIGHTS MAY, AT THE
COMPLETION OF THE OFFERING, OWN A SMALLER PROPORTIONAL INTEREST
IN THE FUND THAN IF THEY EXERCISED THEIR RIGHTS. AS A
RESULT OF THE OFFERING YOU MAY EXPERIENCE DILUTION OR ACCRETION
OF THE AGGREGATE NET ASSET VALUE OF YOUR SHARES OF COMMON
STOCK DEPENDING UPON WHETHER THE FUNDS NET ASSET VALUE PER
SHARE OF COMMON STOCK IS ABOVE OR BELOW THE SUBSCRIPTION PRICE
ON THE EXPIRATION DATE. ,
The common shares are expected to be ready for delivery in
book-entry form through the Depository Trust Company on or
about ,
2011. If the offer is extended, the common shares are expected
to be ready for delivery in book-entry form through the
Depository Trust Company on or
about ,
2011.
The date of this Prospectus Supplement
is ,
2011
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. The Fund has not authorized anyone to
provide you with different information. The Fund is not making
an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should not assume that the
information contained in this Prospectus Supplement and the
accompanying Prospectus is accurate as of any date other than
the date of this Prospectus Supplement and the accompanying
Prospectus, respectively. Our business, financial condition,
results of operations and prospects may have changed since those
dates. In this Prospectus Supplement and in the accompanying
Prospectus, unless otherwise indicated, Fund,
us, our and we refer to The
Gabelli Global Utility & Income Trust. This Prospectus
Supplement also includes trademarks owned by other persons.
S-1
TABLE OF
CONTENTS
Prospectus
Supplement
|
|
|
|
|
|
|
Page
|
|
|
|
|
S-3
|
|
|
|
|
S-4
|
|
|
|
|
S-5
|
|
|
|
|
S-5
|
|
|
|
|
S-6
|
|
|
|
|
S-6
|
|
|
|
|
S-6
|
|
|
|
|
S-6
|
|
|
|
|
S-6
|
|
S-2
SUMMARY
OF THE TERMS OF THE RIGHTS OFFERING
|
|
|
Terms of the Offer |
|
[To be provided.] |
|
Amount Available for Primary Subscription |
|
$[ ] |
|
Title |
|
Subscription Rights for Common Shares |
|
Subscription Price |
|
Rights may be exercised at a price of
$ per share of Common Stock (the
Subscription Price). See Terms of the
Offer. |
|
Record Date |
|
Rights will be issued to holders of record of the Funds
[Common] [Preferred] Shares
on ,
2011 (the Record Date). See Terms of the
Offer. |
|
Number of Rights Issued |
|
Right will be issued in respect of
each share of [Common] [Preferred] Stock of the Fund outstanding
on the Record Date. See Terms of the Offer. |
|
Number of Rights Required to Purchase One Common Share |
|
A holder of Rights may
purchase
shares of Common Stock of the Fund for
every
Rights exercised. The number of Rights to be issued to a
stockholder on the Record Date will be rounded up to the nearest
number of Rights evenly divisible
by .
See Terms of the Offer. |
|
Over-Subscription Privilege |
|
[To be provided.] |
|
Transfer of Rights |
|
[To be provided.] |
|
Subscription Period |
|
The Rights may be exercised at any time after issuance and prior
to expiration of the Rights, which will be 5:00 PM Eastern
Time
on ,
2011 (the Expiration Date) (the Subscription
Period). See Terms of the Offer and
Method of Exercise of Rights. |
|
Offer Expenses |
|
The expenses of the Offer are expected to be approximately
$[ ]. See Use of
Proceeds. |
|
Sale of Rights |
|
[To be provided.] |
|
Use of Proceeds |
|
The Fund estimates the net proceeds of the Offer to be
approximately $[ ]. This figure is
based on the Subscription Price per share of
$ and assumes all new shares of
Common Stock offered are sold and that the expenses related to
the Offer estimated at approximately
$[ ] are paid. |
|
|
|
The Investment Adviser anticipates that investment of the
proceeds will be made in accordance with the Funds
investment objectives and policies as appropriate investment
opportunities are identified, which is expected to be
substantially completed in approximately three months; however,
the identification of appropriate investment opportunities
pursuant to the Funds investment style or changes in
market conditions may cause the investment period to extend as
long as six months. Pending such investment, the proceeds will
be held in high quality short-term debt securities and
instruments. See Use of Proceeds. |
S-3
TABLE OF
FEES AND EXPENSES
The following tables are intended to assist you in understanding
the various costs and expenses directly or indirectly associated
with investing in our common shares as a percentage of net
assets attributable to common shares. Amounts are for the
current fiscal year after giving effect to anticipated net
proceeds of the offering, assuming that we incur the estimated
offering expenses, including preferred share offering expenses.
Shareholder
Transaction Expenses
|
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|
Sales Load (as a percentage of offering price)
|
|
|
[ ]
|
%
|
Offering Expenses Borne by the Fund (as a percentage of offering
price)
|
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|
[ ]
|
%
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Dividend Reinvestment Plan Fees
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None(1
|
)
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Percentage of Net Assets
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|
Attributable to Common Shares
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Annual Expenses
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|
Management Fees
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|
[ ]
|
%(2)
|
Interest on Borrowed Funds
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|
[ ]
|
|
Other Expenses
|
|
|
[ ]
|
%(2)
|
Dividends on Preferred Shares
|
|
|
|
%
|
Total Annual Expenses
|
|
|
[ ]
|
%(2)
|
|
|
|
(1) |
|
Shareholders participating in the Funds Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plans would pay $0.75
plus their pro rata share of brokerage commissions per
transactions to purchase shares and $2.50 plus their pro rata
share of brokerage commissions per transaction to sell shares.
See Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plans. |
|
(2) |
|
The investment Advisers fee is
[ ]% annually of the Funds
average weekly net assets, plus assets attributable to any
outstanding senior securities, with no deduction for the
liquidation preference of any outstanding preferred shares or
the principal amount of any outstanding notes. Consequently, if
the fund has preferred shares or notes outstanding, the
investment management fees and other expenses as a percentage of
net assets attributable to common shares will be higher than if
the Fund does not utilize a leveraged capital structure.
Other Expenses are based on estimated amounts for
the current year assuming completion of the proposed issuances. |
Example
The following example illustrates the expenses (including the
maximum estimated sales load of
$[ ] and estimated offering
expenses of $[ ] from the issuance
of $[ ] million in common
shares) you would pay on a $1,000 investment in common shares,
assuming a 5% annual portfolio total return.* The actual amounts
in connection with any offering will be set forth in the
Prospectus Supplement if applicable.
|
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1 Year
|
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3 Years
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5 Years
|
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10 Years
|
|
|
Total Expenses Incurred
|
|
|
|
|
|
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|
|
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|
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* |
|
The example should not be considered a representation of
future expenses. The example assumes that the amounts set
forth in the Annual Expenses table are accurate and that all
distributions are reinvested at net asset value. Actual expenses
may be greater or less than those assumed. Moreover, the
Funds actual rate of return may be greater or less than
the hypothetical 5% return shown in the example. |
USE OF
PROCEEDS
The Fund estimates the net proceeds of the Offer to be
$[ ], based on the Subscription
Price per share of $[ ], assuming
all new shares of Common Shares offered are sold and that the
expenses related to the
S-5
Offer estimated at approximately
$[ ] are paid and after deduction
of the underwriting discounts and commissions.
The Investment Adviser expects that it will initially invest the
proceeds of the offering in high-quality short-term debt
securities and instruments. The Investment Adviser anticipates
that the investment of the proceeds will be made in accordance
with the Funds investment objectives and policies as
appropriate investment opportunities are identified, which is
expected to be substantially completed within three months;
however, the identification of appropriate investment
opportunities pursuant to the Funds investment style or
changes in market conditions may cause the investment period to
extend as long as six months.
CAPITALIZATION
[To be provided.]
PRICE
RANGE OF COMMON SHARES
The following table sets forth for the quarters indicated, the
high and low sale prices on the NYSE Amex per share of our
common shares and the net asset value and the premium or
discount from net asset value per share at which the common
shares were trading, expressed as a percentage of net asset
value, at each of the high and low sale prices provided.
[To be provided.]
On ,
2011, the last reported net asset value per share of the Common
Stock was $ and the last reported
sales price per share of Common Stock on the NYSE Amex was
$ .
SPECIAL
CHARACTERISTICS AND RISKS OF THE RIGHTS
[To be provided.]
TAXATION
[To be provided.]
LEGAL
MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to the Fund in connection
with this rights offering.
S-6
The
Gabelli Global Utility & Income Trust
Shares
of Common Stock
Issuable Upon Exercise of
Rights to
Subscribe to Such Shares of
Common Stock
PROSPECTUS SUPPLEMENT
, 2011
|
|
PROSPECTUS
SUPPLEMENT
|
Filed
Pursuant to Rule 497
|
|
|
(To
Prospectus
dated ,
2011)
|
Registration Statement
No. 333-
|
[GRAPHIC
OMITTED]
Rights
for Shares
Subscription Rights
for % Series
[ ]
[ ] Preferred Shares
We are issuing subscription rights to our [common] [preferred]
stockholders to purchase our %
Series
[ ]
[ ]
Preferred Shares. Our common shares are traded on the NYSE Amex
LLC (NYSE Amex) under the symbol GLU.
The last reported sale price for our common shares
on , was
$ per share.
You should review the information set forth under Risk
Factors and Special Considerations in the accompanying
Prospectus before investing in our preferred shares.
|
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|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Total(1)
|
|
|
Subscription price of Preferred Shares
|
|
$
|
|
|
|
$
|
|
|
Underwriting discounts and commissions
|
|
$
|
|
|
|
$
|
|
|
Proceeds, before expenses, to us
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
The aggregate expenses of the offering are estimated to be
$ , which represents approximately
$ per share. |
You should read this Prospectus Supplement and the accompanying
Prospectus before deciding whether to invest in our preferred
shares and retain it for future reference. The Prospectus
Supplement and the accompanying Prospectus contain important
information about us. Material that has been incorporated by
reference and other information about us can be obtained from us
by calling 800-GABELLI
(422-3554)
or from the Securities and Exchange Commissions
(SEC) website
(http://www.sec.gov).
Neither the SEC nor any state securities commission has approved
or disapproved these securities or determined if this Prospectus
Supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
,
The preferred shares are expected to be ready for delivery in
book-entry form through the Depository Trust Company on or
about ,
2011. If the offer is extended, the preferred shares are
expected to be ready for delivery in book-entry form through the
Depository Trust Company on or
about ,
2011.
The date of this Prospectus Supplement
is ,
2011
You should rely only on the information contained or
incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. The Fund has not authorized anyone to
provide you with different information. The Fund is not making
an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should not assume that the
information contained in this Prospectus Supplement and the
accompanying Prospectus is accurate as of any date other than
the date of this Prospectus Supplement and the accompanying
Prospectus, respectively. Our business, financial condition,
results of operations and prospects may have changed since those
dates. In this Prospectus Supplement and in the accompanying
Prospectus, unless otherwise indicated, Fund,
us, our and we refer to The
Gabelli Global Utility & Income Trust. This Prospectus
Supplement also includes trademarks owned by other persons.
T-1
TABLE OF
CONTENTS
Prospectus
Supplement
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Page
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T-3
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T-4
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T-5
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T-6
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T-6
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T-6
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T-6
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T-6
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T-6
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T-6
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T-2
SUMMARY
OF THE TERMS OF THE RIGHTS OFFERING
|
|
|
Terms of the Offer |
|
[To be provided.] |
|
Amount Available for Primary Subscription |
|
$[ ] |
|
Title |
|
Subscription Rights for Series [ ]
Preferred Shares |
|
Exercise Price |
|
Rights may be exercised at a price of
$ per share of Preferred Stock
(the Subscription Price). See Terms of the
Offer. |
|
Record Date |
|
Rights will be issued to holders of record of the Funds
[Common] [Preferred] Shares
on ,
2011 (the Record Date). See Terms of the
Offer. |
|
Number of Rights Issued |
|
Right will be issued in respect of each share of [Common]
[Preferred] Stock of the Fund outstanding on the Record Date.
See Terms of the Offer. |
|
Number of Rights Required to Purchase One Preferred
Share |
|
A holder of Rights may
purchase share
of Preferred Stock of the Fund for
every
Rights exercised. The number of Rights to be issued to a
stockholder on the Record Date will be rounded up to the nearest
number of Rights evenly divisible
by .
See Terms of the Offer. |
|
Over-Subscription Privilege |
|
[To be provided.] |
|
Transfer of Rights |
|
[To be provided.] |
|
Exercise Period |
|
The Rights may be exercised at any time after issuance and prior
to expiration of the Rights, which will be 5:00 PM Eastern
Time
on ,
2011 (the Expiration Date) (the Subscription
Period). See Terms of the Offer and
Method of Exercise of Rights. |
|
Offer Expenses |
|
The expenses of the Offer are expected to be approximately
$[ ]. See Use of
Proceeds. |
|
Sale of Rights |
|
[To be provided.] |
|
Use of Proceeds |
|
The Fund estimates the net proceeds of the Offer to be
approximately $[ ]. This figure is
based on the Exercise Price per share of
$ and assumes all new shares of
Series [ ]Preferred Stock offered
are sold and that the expenses related to the Offer estimated at
approximately $[ ] are paid. |
|
|
|
The Investment Adviser anticipates that investment of the
proceeds will be made in accordance with the Funds
investment objectives and policies as appropriate investment
opportunities are identified, which is expected to be
substantially completed in approximately three months; however,
the identification of appropriate investment opportunities
pursuant to the Funds investment style or changes in
market conditions may cause the investment period to extend as
long as six months. Pending such investment, the proceeds will
be held in high quality short-term debt securities and
instruments. See Use of Proceeds. |
|
Taxation/ERISA |
|
See Employee Plan Considerations. |
|
Rights Agent |
|
[To be provided.] |
T-3
TERMS OF
THE SERIES PREFERRED
STOCK
|
|
|
Dividend Rate |
|
The dividend rate [for the initial dividend
period]1
will be %. |
|
Dividend Payment Rate |
|
[Dividends will be paid when, as and if declared
on , , ,
and ,
commencing .]2
The payment date for the initial dividend period will
be .]1 |
|
[Regular Dividend Period |
|
Regular dividend periods will
be
days.]1 |
|
Liquidation Preference |
|
$ per share |
|
[Non-Call Period |
|
The shares may not be called for redemption at the option of the
Fund prior
to .]2 |
|
|
|
|
|
[Stock Exchange
Listing]2 |
|
|
|
|
|
1 |
|
Applicable only if the preferred shares being offered are
auction rate shares. |
|
2 |
|
Applicable only if the preferred shares being offered are fixed
rate shares. |
T-4
USE OF
PROCEEDS
The Fund estimates the net proceeds of the Offer to be
$[ ], based on the Subscription
Price per share of
$[ ],
assuming all new shares of Series
[ ]
Preferred Stock offered are sold and that the expenses related
to the Offer estimated at approximately
$[ ] are paid and after deduction
of the underwriting discounts and commissions.
The Investment Adviser expects that it will initially invest the
proceeds of the offering in high-quality short-term debt
securities and instruments. The Investment Adviser anticipates
that the investment of the proceeds will be made in accordance
with the Funds investment objectives and policies as
appropriate investment opportunities are identified, which is
expected to be substantially completed within three months;
however, the identification of appropriate investment
opportunities pursuant to the Funds investment style or
changes in market conditions may cause the investment period to
extend as long as six months.
CAPITALIZATION
[To be provided.]
ASSET
COVERAGE RATIO
[To be provided.]
SPECIAL
CHARACTERISTICS AND RISKS OF THE RIGHTS
[To be provided.]
TAXATION
[To be provided.]
UNDERWRITING
[To be provided.]
LEGAL
MATTERS
Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to the Fund, in connection
with this rights offering.
T-6
The
Gabelli Global Utility & Income Trust
Shares
of % Series
[ ]
[ ] Preferred Shares
Issuable Upon Exercise of
Rights to
Subscribe to Such Shares of
Preferred Stock
PROSPECTUS SUPPLEMENT
, 2011
Dated
July 21, 2011
THE
GABELLI GLOBAL UTILITY & INCOME TRUST
STATEMENT
OF ADDITIONAL INFORMATION
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT COMPLETE AND MAY BE CHANGED. THE FUND MAY NOT SELL
THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT
OF ADDITIONAL INFORMATION IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The Gabelli Global Utility & Income Trust (the
Fund) is a non-diversified, closed-end management
investment company registered under the Investment Company Act
of 1940, as amended (the 1940 Act). The Funds
investment objective is to achieve a consistent level of
after-tax total return with an emphasis currently on
tax-advantaged qualified dividend income. The Fund will attempt
to achieve its investment objective under current tax law by
investing, under normal market conditions, at least 80% of its
assets in (i) equity securities (including preferred
securities) of domestic and foreign companies involved to a
substantial extent (i.e., at least 50% of the assets, gross
income or net profits of a company is committed to or derived
from) in providing (a) products, services or equipment for
the generation or distribution of electricity, gas or water and
(b) infrastructure operations such as airports, toll roads
and municipal services and telecommunications services such as
telephone, telegraph, satellite, cable, microwave,
radiotelephone, mobile communication and cellular, paging,
electronic mail, videotext, voice communications, data
communications and internet (collectively, the Utilities
Industry) and (ii) in equity securities (including
preferred securities) of companies in other industries, in each
case in such securities that are expected to periodically pay
dividends. The Funds 80% policy is not fundamental and
shareholders will be notified if it is changed. In addition,
under normal market conditions, at least 50% of the Funds
assets will consist of debt or equity of securities of domestic
and foreign companies involved to a substantial extent (i.e., at
least 50% of the assets, gross income or net profits of a
company is committed to or derived from) in the Utilities
Industry. The Fund commenced investment operations on
May 28, 2004. Gabelli Funds, LLC (the Investment
Adviser) serves as investment adviser to the Fund.
This Statement of Additional Information (the SAI)
does not constitute a prospectus, but should be read in
conjunction with the Funds prospectus relating thereto
dated July 21, 2011, and as it may be supplemented. This
SAI does not include all information that a prospective investor
should consider before investing in the Funds shares, and
investors should obtain and read the Funds prospectus
prior to purchasing such shares. A copy of the Funds
Registration Statement, including the prospectus and any
supplement, may be obtained from the Securities and Exchange
Commission (the SEC) upon payment of the fee
prescribed, or inspected at the SECs office or via its
website (www.sec.gov) at no charge.
This Statement of Additional Information is dated July 21,
2011.
1
TABLE OF
CONTENTS
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Page
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3
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3
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11
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12
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23
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24
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25
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27
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36
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37
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38
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2
THE
FUND
The Fund was organized as a statutory trust in Delaware on
March 8, 2004 and is a non-diversified, closed-end
management investment company registered under the 1940 Act. The
common shares of the Fund are listed on the NYSE Amex LLC (the
NYSE Amex) under the symbol GLU.
INVESTMENT
OBJECTIVES AND POLICIES
Investment
Objectives
The objective of the Fund is to provide a consistent level of
after-tax total return with an emphasis currently on
tax-advantaged qualified dividend income. No assurance can be
given that the Fund will achieve its investment objective. The
Fund will attempt to achieve its investment objective by
investing, under normal market conditions, at least 80% of its
assets in (i) equity securities (including preferred
securities) of domestic and foreign companies involved to a
substantial extent (i.e., at least 50% of the assets, gross
income or net profits of a company is committed to or derived
from) in providing (a) products, services or equipment for
the generation or distribution of electricity, gas or water and
(b) infrastructure operations such as airports, toll roads
and municipal services and telecommunications services such as
telephone, telegraph, satellite, cable, microwave,
radiotelephone, mobile communication and cellular, paging,
electronic mail, videotext, voice communications, data
communications and internet (collectively, the Utilities
Industry) and (ii) in equity securities (including
preferred securities) of companies in other industries, in each
case in such securities that are expected to periodically pay
dividends, which will in large part qualify under current tax
law for U.S. federal income taxation at rates applicable to
long-term capital gains, which currently are taxed at a maximum
rate of 15%. (Such dividends are referred to in this SAI as
tax-advantaged qualified dividend income or
qualifying dividends.) The Funds 80% policy is
not fundamental and shareholders will be notified if it is
changed. In addition, under normal market conditions, at least
50% of the Funds assets will consist of debt or equity of
securities of domestic and foreign companies involved to a
substantial extent in the Utilities Industry. In making stock
selections, the Funds Investment Adviser (as hereinafter
defined) looks for companies that have proven dividend records
and sound financial structures.
Additional
Investment Policies.
Options. The Fund may, from time to time,
subject to guidelines of the Board of Trustees (the
Board) 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 Funds
portfolio.
A call option is a contract that gives the holder of the option
the right to buy from the writer of the call option, in return
for a premium, the security or currency underlying the option at
a specified exercise price at any time during the term of the
option. The writer of the call option has the obligation, upon
exercise of the option, to deliver the underlying security or
currency upon payment of the exercise price during the option
period.
A put option is a contract that gives the holder of the option
the right, in return for a premium, to sell to the seller the
underlying security at a specified price. The seller of the put
option has the obligation to buy the underlying security upon
exercise at the exercise price.
A call option is covered if the Fund owns the
underlying instrument covered by the call or has an absolute and
immediate right to acquire that instrument without additional
cash consideration (or for additional cash consideration held in
a segregated account by its custodian) upon conversion or
exchange of other instruments held in its portfolio. A call
option is also covered if the Fund holds a call 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
3
in cash, U.S. Government Obligations or other high-grade
short-term obligations in a segregated account with its
custodian. A put option is covered if the Fund
maintains cash or other high grade short-term obligations with a
value equal to the exercise price in a segregated account with
its custodian, or else holds a put on the same instrument as the
put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written.
If the Fund has written an option, it may terminate its
obligation by effecting a closing purchase transaction. This is
accomplished by purchasing an option of the same series as the
option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction. Similarly, if the Fund is the
holder of an option it may liquidate its position by effecting a
closing sale transaction. This is accomplished by selling an
option of the same series as the option previously purchased.
There can be no assurance that either a closing purchase or sale
transaction can be effected when the Fund so desires.
The Fund will realize a profit from a closing transaction if the
price of the transaction is less than the premium received from
writing the option or is more than the premium paid to purchase
the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option or is less than the
premium paid to purchase the option. Since call option prices
generally reflect increases in the price of the underlying
security, any loss resulting from the repurchase of a call
option may also be wholly or partially offset by unrealized
appreciation of the underlying security. Other principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price and
price volatility of the underlying security and the time
remaining until the expiration date. Gains and losses on
investments in options depend, in part, on the ability of the
Investment Adviser to predict correctly the effect of these
factors. The use of options cannot serve as a complete hedge
since the price movement of securities underlying the options
will not necessarily follow the price movements of the portfolio
securities subject to the hedge.
An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series or
in a private transaction. Although the Fund will generally
purchase or write only those options for which there appears to
be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any
particular option. In such event it might not be possible to
effect closing transactions in particular options, so that the
Fund would have to exercise its options in order to realize any
profit and would incur brokerage commissions upon the exercise
of call options and upon the subsequent disposition of
underlying securities for the exercise of put options. If the
Fund, as a covered call option writer, is unable to effect a
closing purchase transaction in a secondary market, it will not
be able to sell the underlying security until the option expires
or it delivers the underlying security upon exercise or
otherwise covers the position.
Options on Securities Indices. The Fund may
purchase and sell securities index options. One effect of such
transactions may be to hedge all or part of the Funds
securities holdings against a general decline in the securities
market or a segment of the securities market. Options on
securities indices are similar to options on stocks except that,
rather than the right to take or make delivery of stock at a
specified price, an option on a securities index gives the
holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon
which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of
the option.
The Funds successful use of options on indices depends
upon its ability to predict the direction of the market and is
subject to various additional risks. The correlation between
movements in the index and the price of the securities being
hedged against is imperfect and the risk from imperfect
correlation increases as the composition of the Fund diverges
from the composition of the relevant index. Accordingly, a
decrease in the value of the securities being hedged against may
not be wholly offset by a gain on the exercise or sale of a
securities index put option held by the Fund.
Options on Foreign Currencies. Instead of
purchasing or selling currency futures (as described below), the
Fund may attempt to accomplish similar objectives by purchasing
put or call options on currencies or by
4
writing put options or call options on currencies either on
exchanges or in
over-the-counter
(OTC) markets. A put option gives the Fund the right
to sell a currency at the exercise price until the option
expires. A call option gives the Fund the right to purchase a
currency at the exercise price until the option expires. Both
types of options serve to insure against adverse currency price
movements in the underlying portfolio assets designated in a
given currency. The Funds use of options on currencies
will be subject to the same limitations as its use of options on
securities, described above and in the Prospectus. Currency
options may be subject to position limits which may limit the
ability of the Fund to fully hedge its positions by purchasing
the options.
As in the case of interest rate futures contracts and options
thereon, described below, the Fund may hedge against the risk of
a decrease or increase in the U.S. dollar value of a
foreign currency denominated debt security which the Fund owns
or intends to acquire by purchasing or selling options
contracts, futures contracts or options thereon with respect to
a foreign currency other than the foreign currency in which such
debt security is denominated, where the values of such different
currencies
(vis-a-vis
the U.S. dollar) historically have a high degree of
positive correlation.
Futures Contracts and Options on Futures. The
Fund will not enter into futures contracts or options on futures
contracts unless (i) the aggregate initial margins and
premiums do not exceed 5% of the fair market value of its assets
and (ii) the aggregate market value of its outstanding
futures contracts and the market value of the currencies and
futures contracts subject to outstanding options written by the
Fund, as the case may be, do not exceed 50% of its total assets.
It is anticipated that these investments, if any, will be made
by the Fund solely for the purpose of hedging against changes in
the value of its portfolio securities and in the value of
securities it intends to purchase. Such investments will only be
made if they are economically appropriate to the reduction of
risks involved in the management of the Fund. In this regard,
the Fund may enter into futures contracts or options on futures
for the purchase or sale of securities indices or other
financial instruments including but not limited to
U.S. Government Obligations.
A sale of a futures contract (or a short
futures position) means the assumption of a contractual
obligation to deliver the securities underlying the contract at
a specified price at a specified future time. A
purchase of a futures contract (or a
long futures position) means the assumption of a
contractual obligation to acquire the securities underlying the
contract at a specified price at a specified future time.
Certain futures contracts, including stock and bond index
futures, are settled on a net cash payment basis rather than by
the sale and delivery of the securities underlying the futures
contracts.
No consideration will be paid or received by the Fund upon the
purchase or sale of a futures contract. Initially, the Fund will
be required to deposit with the broker an amount of cash or cash
equivalents equal to approximately 1% to 10% of the contract
amount (this amount is subject to change by the exchange or
board of trade on which the contract is traded and brokers or
members of such board of trade may charge a higher amount). This
amount is known as the initial margin and is in the
nature of a performance bond or good faith deposit on the
contract. Subsequent payments, known as variation
margin, to and from the broker will be made daily as the
price of the index or security underlying the futures contract
fluctuates. At any time prior to the expiration of the futures
contract, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate its existing
position in the contract.
An option on a futures contract gives the purchaser the right,
in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time prior
to the expiration of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writers futures margin account
attributable to that contract, which represents the amount by
which the market price of the futures contract exceeds, in the
case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract. The
potential loss related to the purchase of an option on futures
contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option purchased is
fixed at the point of sale, there are no daily cash payments by
the purchaser to reflect changes in the value of the underlying
contract; however, the value of the option does change daily and
that change would be reflected in the net assets of the Fund.
5
Futures and options on futures entail certain risks, including
but not limited to the following: no assurance that futures
contracts or options on futures can be offset at favorable
prices, possible reduction of the yield of the Fund due to the
use of hedging, possible reduction in value of both the
securities hedged and the hedging instrument, possible lack of
liquidity due to daily limits on price fluctuations, imperfect
correlation between the contracts and the securities being
hedged, losses from investing in futures transactions that are
potentially unlimited and the segregation requirements described
below.
In the event the Fund sells a put option or enters into long
futures contracts, under current interpretations of the 1940
Act, an amount of cash, U.S. Government Obligations or
other liquid securities equal to the market value of the
contract must be deposited and maintained in a segregated
account with the custodian of the Fund to collateralize the
positions, in order for the Fund to avoid being treated as
having issued a senior security in the amount of its
obligations. For short positions in futures contracts and sales
of call options, the Fund may establish a segregated account
(not with a futures commission merchant or broker) with cash,
U.S. Government Obligations or other high grade debt
securities that, when added to amounts deposited with a futures
commission merchant or a broker as margin, equal the market
value of the instruments or currency underlying the futures
contracts or call options, respectively (but are no less than
the stock price of the call option or the market price at which
the short positions were established).
Interest Rate Futures Contracts and Options
Thereon. The Fund may purchase or sell interest
rate futures contracts to take advantage of or to protect the
Fund against fluctuations in interest rates affecting the value
of debt securities which the Fund holds or intends to acquire.
For example, if interest rates are expected to increase, the
Fund might sell futures contracts on debt securities, the values
of which historically have a high degree of positive correlation
to the values of the Funds portfolio securities. Such a
sale would have an effect similar to selling an equivalent value
of the Funds portfolio securities. If interest rates
increase, the value of the Funds portfolio securities will
decline, but the value of the futures contracts to the Fund will
increase at approximately an equivalent rate thereby keeping the
net asset value of the Fund from declining as much as it
otherwise would have. The Fund could accomplish similar results
by selling debt securities with longer maturities and investing
in debt securities with shorter maturities when interest rates
are expected to increase. However, since the futures market may
be more liquid than the cash market, the use of futures
contracts as a risk management technique allows the Fund to
maintain a defensive position without having to sell its
portfolio securities.
Similarly, the Fund may purchase interest rate futures contracts
when it is expected that interest rates may decline. The
purchase of futures contracts for this purpose constitutes a
hedge against increases in the price of debt securities (caused
by declining interest rates) which the Fund intends to acquire.
Since fluctuations in the value of appropriately selected
futures contracts should approximate that of the debt securities
that will be purchased, the Fund can take advantage of the
anticipated rise in the cost of the debt securities without
actually buying them. Subsequently, the Fund can make its
intended purchase of the debt securities in the cash market and
currently liquidate its futures position. To the extent the Fund
enters into futures contracts for this purpose, it will maintain
in a segregated asset account with the Funds custodian,
assets sufficient to cover the Funds obligations with
respect to such futures contracts, which will consist of cash or
other liquid securities from its portfolio in an amount equal to
the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial margin
deposited by the Fund with its custodian with respect to such
futures contracts.
The purchase of a call option on a futures contract is similar
in some respects to the purchase of a call option on an
individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying debt securities, it
may or may not be less risky than ownership of the futures
contract or underlying debt securities. As with the purchase of
futures contracts, when the Fund is not fully invested it may
purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates.
6
The purchase of a put option on a futures contract is similar to
the purchase of protective put options on portfolio securities.
The Fund will purchase a put option on a futures contract to
hedge the Funds portfolio against the risk of rising
interest rates and 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 Funds portfolio holdings. The
writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the securities that
are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the
exercise price, the Fund will retain the full amount of the
option premium, which provides a partial hedge against any
increase in the price of debt securities that the Fund intends
to purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it received. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions,
the Funds losses from options on futures it has written
may to some extent be reduced or increased by changes in the
value of its portfolio securities.
Currency Futures and Options
Thereon. Generally, foreign currency futures
contracts and options thereon are similar to the interest rate
futures contracts and options thereon discussed previously. By
entering into currency futures and options thereon, the Fund
will seek to establish the rate at which it will be entitled to
exchange U.S. dollars for another currency at a future
time. By selling currency futures, the Fund will seek to
establish the number of dollars it will receive at delivery for
a certain amount of a foreign currency. In this way, whenever
the Fund anticipates a decline in the value of a foreign
currency against the U.S. dollar, the Fund can attempt to
lock in the U.S. dollar value of some or all of
the securities held in its portfolio that are denominated in
that currency. By purchasing currency futures, the Fund can
establish the number of dollars it will be required to pay for a
specified amount of a foreign currency in a future month. Thus,
if the Fund intends to buy securities in the future and expects
the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the
Fund can attempt to lock in the price in
U.S. dollars of the securities it intends to acquire.
The purchase of options on currency futures will allow the Fund,
for the price of the premium and related transaction costs it
must pay for the option, to decide whether or not to buy (in the
case of a call option) or to sell (in the case of a put option)
a futures contract at a specified price at any time during the
period before the option expires. If the Investment Adviser, in
purchasing an option, has been correct in its judgment
concerning the direction in which the price of a foreign
currency would move 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
Funds profits on its underlying securities transactions.
Securities Index Futures Contracts and Options
Thereon. Purchases or sales of securities index
futures contracts are used for hedging purposes to attempt to
protect the Funds current or intended investments from
broad fluctuations in stock or bond prices. For example, the
Fund may sell securities index futures contracts in anticipation
of or during a market decline to attempt to offset the decrease
in market value of the Funds securities portfolio that
might otherwise result. If such decline occurs, the loss in
value of portfolio securities may be offset, in whole or part,
by gains on the futures position. When the Fund is not fully
invested in the securities market and anticipates a significant
market advance, it may purchase securities index futures
contracts in order to gain rapid market exposure that may, in
part or entirely, offset increases in the cost of securities
that the Fund intends to purchase. As such purchases are made,
the corresponding positions in securities index futures
contracts will be closed out. The Fund may write put and call
options on securities index futures contracts for hedging
purposes.
7
Limitations on the Purchase and Sale of Futures Contracts and
Options on Futures Contracts. Subject to the
guidelines of the Board, 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 currently applicable to the Fund permit
the Funds futures and options on futures transactions to
include (i) bona fide hedging transactions without regard
to the percentage of the Funds assets committed to margin
and option premiums and (ii) non-hedging transactions,
provided that the Fund not enter into such non-hedging
transactions if, immediately thereafter, the sum of the amount
of initial margin deposits on the Funds existing futures
positions and option premiums would exceed 5% of the market
value of the Funds 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 Funds outstanding senior
securities.
Forward Currency Exchange Contracts. Subject
to guidelines of the Board, the Fund may enter into forward
foreign currency exchange contracts to protect the value of its
portfolio against uncertainty in the level of future currency
exchange rates between a particular foreign currency and the
U.S. dollar or between foreign currencies in which its
securities are or may be denominated. The Fund may enter into
such contracts on a spot, i.e., cash, basis at the rate then
prevailing in the currency exchange market or on a forward
basis, by entering into a forward contract to purchase or sell
currency. A forward contract on foreign currency is an
obligation to purchase or sell a specific currency at a future
date, which may be any fixed number of days agreed upon by the
parties from the date of the contract at a price set on the date
of the contract. Forward currency contracts (i) are traded
in a market conducted directly between currency traders
(typically, commercial banks or other financial institutions)
and their customers, (ii) generally have no deposit
requirements and (iii) are typically consummated without
payment of any commissions. The Fund, however, may enter into
forward currency contracts requiring deposits or involving the
payment of commissions. To assure that its forward currency
contracts are not used to achieve investment leverage, the Fund
will segregate liquid assets consisting of cash,
U.S. Government Obligations or other liquid securities with
its custodian, or a designated
sub-custodian,
in an amount at all times equal to or exceeding its commitment
with respect to the contracts.
The dealings of the Fund in forward foreign exchange are limited
to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of one
forward foreign currency for another currency with respect to
specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio
securities or its payment of dividends and distributions.
Position hedging is the purchase or sale of one forward foreign
currency for another currency with respect to portfolio security
positions denominated or quoted in the foreign currency to
offset the effect of an anticipated substantial appreciation or
depreciation, respectively, in the value of the currency
relative to the U.S. dollar. In this situation, the Fund
also may, for example, enter into a forward contract to sell or
purchase a different foreign currency for a fixed
U.S. dollar amount where it is believed that the
U.S. dollar value of the currency to be sold or bought
pursuant to the forward contract will fall or rise, as the case
may be, whenever there is a decline or increase, respectively,
in the U.S. dollar value of the currency in which its
portfolio securities are denominated (this practice being
referred to as a cross-hedge).
In hedging a specific transaction, the Fund may enter into a
forward contract with respect to either the currency in which
the transaction is denominated or another currency deemed
appropriate by the Investment Adviser. The amount the Fund may
invest in forward currency contracts is limited to the amount of
its aggregate investments in foreign currencies.
The use of forward currency contracts may involve certain risks,
including the failure of the counterparty to perform its
obligations under the contract, and such use may not serve as a
complete hedge because of an imperfect correlation between
movements in the prices of the contracts and the prices of the
currencies hedged
8
or used for cover. The Fund will only enter into forward
currency contracts with parties which it believes to be
creditworthy institutions.
Special Risk Considerations Relating to Futures and Options
Thereon. The Funds ability to establish and
close out positions in futures contracts and options thereon
will be subject to the development and maintenance of liquid
markets. Although the Fund generally will purchase or sell only
those futures contracts and options thereon for which there
appears to be a liquid market, there is no assurance that a
liquid market on an exchange will exist for any particular
futures contract or option thereon at any particular time. In
the event no liquid market exists for a particular futures
contract or option thereon in which the Fund maintains a
position, it will not be possible to effect a closing
transaction in that contract or to do so at a satisfactory price
and the Fund would have to either make or take delivery under
the futures contract or, in the case of a written option, wait
to sell the underlying securities until the option expires or is
exercised or, in the case of a purchased option, exercise the
option. In the case of a futures contract or an option thereon
which the Fund has written and which the Fund is unable to
close, the Fund would be required to maintain margin deposits on
the futures contract or option thereon and to make variation
margin payments until the contract is closed.
Successful use of futures contracts and options thereon and
forward contracts by the Fund is subject to the ability of the
Investment Adviser to predict correctly movements in the
direction of interest and foreign currency rates. If the
Investment Advisers expectations are not met, the Fund
will be in a worse position than if a hedging strategy had not
been pursued. For example, if the Fund has hedged against the
possibility of an increase in interest rates that would
adversely affect the price of securities in its portfolio and
the price of such securities increases instead, the Fund will
lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash to meet daily variation margin requirements,
it may have to sell securities to meet the requirements. These
sales may be, but will not necessarily be, at increased prices
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 United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of,
foreign securities. The value of such positions also could be
adversely affected by (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than
in the U.S. of data on which to make trading decisions,
(iii) delays in the Funds ability to act upon
economic events occurring in the foreign markets during
non-business hours in the United States, (iv) the
imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and
(v) lesser trading volume.
Exchanges on which options, futures and options on futures are
traded may impose limits on the positions that the Fund may take
in certain circumstances.
Risks of Currency Transactions. Currency
transactions are also subject to risks different from those of
other portfolio transactions. Because currency control is of
great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency
and related instruments can be adversely affected by government
exchange controls, limitations or restrictions on repatriation
of currency, and manipulation, or exchange restrictions imposed
by governments. These forms of governmental action can result in
losses to the Fund if it is unable to deliver or receive
currency or monies in settlement of obligations and could also
cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring
transaction costs.
Repurchase Agreements. The Fund may enter into
repurchase agreements as set forth in the Prospectus. A
repurchase agreement is an instrument under which the purchaser,
i.e., the Fund, acquires a debt security and the seller agrees,
at the time of the sale, to repurchase the obligation at a
mutually agreed upon time and price, thereby determining the
yield during the purchasers holding period. This results
in a fixed rate of return insulated from market fluctuations
during such period. The underlying securities are ordinarily
U.S. Treasury
9
or other government obligations or high quality money market
instruments. The Fund will require that the value of such
underlying securities, together with any other collateral held
by the Fund, always equals or exceeds the amount of the
repurchase obligations of the counter party. The Funds
risk is primarily that, if the seller defaults, the proceeds
from the disposition of the underlying securities and other
collateral for the sellers obligation are less than the
repurchase price. If the seller becomes insolvent, the Fund
might be delayed in or prevented from selling the collateral. In
the event of a default or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. To the extent that
the proceeds from any sale of such collateral upon a default in
the obligation to repurchase are less than the repurchase price,
the Fund will experience a loss.
If the financial institution which is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the
United States Bankruptcy Code, the law regarding the rights of
the Fund is unsettled. As a result, under extreme circumstances,
there may be a restriction on the Funds ability to sell
the collateral and the Fund would suffer a loss.
Loans of Portfolio Securities. Consistent with
applicable regulatory requirements and the Funds
investment restrictions, the Fund may lend its portfolio
securities to securities broker-dealers or financial
institutions, provided that such loans are callable at any time
by the Fund (subject to notice provisions described below), and
are at all times secured by cash or cash equivalents, which are
maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value,
determined daily, of the loaned securities. The advantage of
such loans is that the Fund continues to receive the income on
the loaned securities while at the same time earns interest on
the cash amounts deposited as collateral, which will be invested
in short-term obligations. The Fund will not lend its portfolio
securities if such loans are not permitted by the laws or
regulations of any state in which its shares are qualified for
sale. The Funds loans of portfolio securities will be
collateralized in accordance with applicable regulatory
requirements and no loan will cause the value of all loaned
securities to exceed 20% of the value of the Funds total
assets. The Funds ability to lend portfolio securities
will be limited by the rating agency guidelines applicable to
any of the Funds outstanding senior securities.
A loan may generally be terminated by the borrower on one
business day notice, or by the Fund on five business days
notice. If the borrower fails to deliver the loaned securities
within five days after receipt of notice, the Fund could use the
collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As
with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral
should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms
deemed by the Funds management to be creditworthy and when
the income which can be earned from such loans justifies the
attendant risks. The Board will oversee the creditworthiness of
the contracting parties on an ongoing basis. Upon termination of
the loan, the borrower is required to return the securities to
the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund. The risks associated with loans
of portfolio securities are substantially similar to those
associated with repurchase agreements. Thus, if the counter
party to the loan petitions for bankruptcy or becomes subject to
the United States Bankruptcy Code, the law regarding the rights
of the Fund is unsettled. As a result, under extreme
circumstances, there may be a restriction on the Funds
ability to sell the collateral and the Fund would suffer a loss.
When voting or consent rights which accompany loaned securities
pass to the borrower, the Fund will follow the policy of calling
the loaned securities, to be delivered within one day after
notice, to permit the exercise of such rights if the matters
involved would have a material effect on the Funds
investment in such loaned securities. The Fund will pay
reasonable finders, administrative and custodial fees in
connection with a loan of its securities.
When Issued, Delayed Delivery Securities and Forward
Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities, including on
a when issued or delayed delivery basis,
in excess of customary settlement periods for the type of
security involved. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization
or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the
time of the commitment, with
10
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.
INVESTMENT
RESTRICTIONS
The Fund operates under the following restrictions that
constitute fundamental policies that, except as otherwise noted,
cannot be changed without the affirmative vote of the holders of
a majority of the outstanding voting securities of the Fund
voting together as a single class. In the event the Fund were to
issue any preferred shares, the approval of a majority of such
shares voting as a separate class would also be required. Such
majority vote requires the lesser of (i) 67% of the
Funds applicable shares represented at a meeting at which
more than 50% of the applicable shares outstanding are
represented, whether in person or by proxy, or (ii) more
than 50% of the Funds applicable shares outstanding.
Except as otherwise noted, all percentage limitations set forth
below apply after a purchase or initial investment and any
subsequent change in any applicable percentage resulting from
market fluctuations does not require any action. The Fund may
not:
(1) invest more than 25% of its total assets, taken at
market value at the time of each investment, in the securities
of issuers in any particular industry. This restriction does not
apply to investments in U.S. government securities and
investments in the Utilities Industry;
(2) purchase commodities or commodity contracts if such
purchase would result in regulation of the Fund as a commodity
pool operator;
(3) purchase or sell real estate, provided the Fund may
invest in securities and other instruments secured by real
estate or interests therein or issued by companies that invest
in real estate or interests therein;
(4) make loans of money or other property, except that
(i) the Fund may acquire debt obligations of any type
(including through extensions of credit), enter into repurchase
agreements and lend portfolio assets and (ii) the Fund may
lend money or other property to other investment companies
advised by the Investment Adviser pursuant to a common lending
program to the extent permitted by applicable law;
(5) borrow money, except to the extent permitted by
applicable law;
(6) issue senior securities, except to the extent permitted
by applicable law; or
(7) underwrite securities of other issuers, except insofar
as the Fund may be deemed an underwriter under applicable law in
selling portfolio securities; provided, however, this
restriction shall not apply to securities of any investment
company organized by the Fund that are to be distributed pro
rata as a dividend to its shareholders.
In addition, it is a fundamental policy of the Fund to invest
25% or more of its assets in the Utilities Industry.
Unless specifically stated as such, no policy of the Fund is
fundamental and may be changed by the Board without shareholder
approval.
11
MANAGEMENT
OF THE FUND
Trustees
and Officers
The business and affairs of the Fund are managed under the
direction of its Board, and the
day-to-day
operations are conducted through or under the direction of its
officers.
The names and business addresses of the Trustees and principal
officers of the Fund are set forth in the following table,
together with their positions and their principal occupations
during the past five years and, in the case of the Trustees,
their positions with certain other organizations and companies.
Trustees who are interested persons of the Fund, as
defined by the 1940 Act, are listed under the caption
Interested Trustee.
Trustees
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Number of
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Other
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Portfolios
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Term of Office
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Directorships
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in Fund Complex
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Name, Position with the Fund,
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and Length of
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Principal Occupation(s)
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Held by
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Overseen by
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Age and Business
Address(1)
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Time
Served(2)
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During Past Five Years
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Director
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Director
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Interested
Trustee(3)
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Salvatore M. Salibello
Trustee
Age: 65
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Since 2004(***)
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Certified Public Accountant and Managing Partner of the public
accounting firm Salibello & Broder LLP since 1978
|
|
Director of Kid Brands, Inc. (group of companies in infant and
juvenile products) and until September 2007, Director of
Brooklyn Federal Bank Corp., Inc. (independent community bank)
|
|
|
3
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
Anthony J. Colavita
Trustee
Age: 75
|
|
Since 2004(*)
|
|
Partner in the law firm of Anthony J. Colavita, P.C.
|
|
None
|
|
|
34
|
|
James P. Conn
Trustee
Age: 73
|
|
Since 2004(***)
|
|
Former Managing Director and Chief Investment Officer of
Financial Security Assurance Holdings Ltd. (insurance holding
company) (1992-1998)
|
|
Director of First Republic Bank (banking) through January 2008
and LaQuinta Corp. (hotels) through January 2006
|
|
|
18
|
|
Mario DUrso
Trustee
Age: 71
|
|
Since 2004(**)
|
|
Chairman of Mittel Capital Markets S.p.A., since 2001; Senator
in the Italian Parliament (1996-2001).
|
|
None
|
|
|
5
|
|
Vincent D. Enright
Trustee
Age: 67
|
|
Since 2004(**)
|
|
Former Senior Vice President and Chief Financial Officer of
KeySpan Corporation (public utility)
(1994-1998)
|
|
Director of Echo Therapeutics, Inc. (therapeutics and
diagnostics) and until September 2006, Director of Aphton
Corporation (pharmaceuticals)
|
|
|
16
|
|
Michael J. Melarkey
Trustee
Age: 61
|
|
Since 2004(**)
|
|
Partner in the law firm of Avansino, Melarkey, Knobel, Mulligan,
and McKenzie
|
|
Director of Southwest Gas Corporation (natural gas utility)
|
|
|
4
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Other
|
|
Portfolios
|
|
|
|
Term of Office
|
|
|
|
Directorships
|
|
in Fund Complex
|
|
Name, Position with the Fund,
|
|
and Length of
|
|
Principal Occupation(s)
|
|
Held by
|
|
Overseen by
|
|
Age and Business
Address(1)
|
|
Time
Served(2)
|
|
During Past Five Years
|
|
Director
|
|
Director
|
|
|
Salvatore J. Zizza
Director
Age: 65
|
|
Since 2004(*)
|
|
Chairman of Zizza & Co., Ltd. (financial consulting) since
1978; Chairman of Metropolitan Paper Recycling Inc. (recycling)
since 2006; Chairman of BAM. Inc. (manufacturing); Chairman of
E-Corp English (global English instruction for corporate
professionals) since 2009
|
|
Non-Executive Chairman and Director of Harbor BioSciences, Inc.
(biotechnology); Vice-Chairman and Director of Trans-Lux
Corporation (business services); Chairman, Chief Executive
Officer, and Director of General Employment Enterprises, Inc.
(staffing); Director of Bion Environmental Technologies
(technology) (2005-2008); and Director of Earl Scheib Inc.
(automotive painting) through April 2009
|
|
|
26
|
|
Officers
|
|
|
|
|
Name, Position with the
|
|
Length of
|
|
|
Fund, Age, and Business
Address(1)
|
|
Time Served
|
|
Principal Occupation(s) During Past Five Years
|
|
Bruce N. Alpert
President
Age: 59
|
|
Since 2004
|
|
Executive Vice President and Chief Operating Officer of Gabelli
Funds, LLC since 1988 and an officer of all of the registered
investment companies in the Gabelli/GAMCO Funds complex.
Director of Teton Advisors, Inc. since 1998; Chairman of Teton
Advisors, Inc. 2008 to 2010; President of Teton Advisors, Inc.
1998 through 2008; Senior Vice President of GAMCO Investors,
Inc. since 2008
|
David I. Schachter
Vice President and Ombudsman
Age: 57
|
|
Since 2004
|
|
Vice President of other closed-end funds within the Gabelli
Funds complex; Vice President of Gabelli Funds, LLC since 1996
|
Peter D. Goldstein
Chief Compliance Officer
Age: 58
|
|
Since 2004
|
|
Director of Regulatory Affairs at GAMCO Investors, Inc. since
2004; Chief Compliance Officer of all of the registered
investment companies in the Gabelli/GAMCO Funds complex
|
Agnes Mullady
Treasurer and Secretary
Age: 52
|
|
Since 2006
|
|
President and Chief Operating Officer of the Open-End Fund
Division of Gabelli Funds, LLC since September 2010; Senior Vice
President of GAMCO Investors, Inc. since 2009; Vice President of
Gabelli Funds, LLC since 2007; Officer of all of the registered
investment companies in the Gabelli/GAMCO Funds Complex;
Ombudsman of the Fund since 2008; Vice President of the Fund
since 2004;
|
13
|
|
|
|
|
Name, Position with the
|
|
Length of
|
|
|
Fund, Age, and Business
Address(1)
|
|
Time Served
|
|
Principal Occupation(s) During Past Five Years
|
|
Adam E. Tokar
Vice President and Ombudsman
Age: 31
|
|
Since 2011
|
|
Vice President of the The Gabelli Healthcare and Wellness Trust
since 2007; Portfolio Administrator for GAMCO Asset Management,
Inc. since 2003
|
|
|
|
(1) |
|
Address: One Corporate Center, Rye, NY
10580-1422,
unless otherwise noted. |
|
(2) |
|
The Board of the Fund is divided into three classes, each class
having a term of three years. Each year the term of office of
one class expires and the successor or successors elected to
such class serve for a three-year term. The three year term for
each class is as follows: |
|
(*) |
|
Term continues until the Funds 2014 Annual Meeting of
Shareholders or until their successors are duly elected and
qualified. |
|
(**) |
|
Term continues until the Funds 2013 Annual Meeting of
Shareholders or until their successors are duly elected and
qualified. |
|
(***) |
|
Term continues until the Funds 2012 Annual Meeting of
Shareholders or until their successors are duly elected and
qualified. |
|
(3) |
|
Interested person of the Fund is defined in the 1940
Act. Mr. Salibello is considered an interested
person of the Fund as a result of being a partner in an
accounting firm that provides professional services to
affiliates of the investment adviser. |
|
(4) |
|
This column includes only directorships of companies required to
report to the SEC under the Securities Exchange Act of 1934, as
amended, i.e., public companies, or other investment companies
registered under the 1940 Act. |
|
(5) |
|
Trustees who are not interested persons are considered
Independent Trustees. |
The Board believes that each Trustees experience,
qualifications, attributes, or skills on an individual basis and
in combination with those of other Trustees lead to the
conclusion that each Trustee should serve in such capacity.
Among the attributes or skills common to all Trustees are their
ability to review critically and to evaluate, question, and
discuss information provided to them, to interact effectively
with the other Trustees, the Adviser, the
sub-administrator,
other service providers, counsel, and the Funds
independent registered public accounting firm, and to exercise
effective and independent business judgment in the performance
of their duties as Trustees. Each Trustees ability to
perform
his/her
duties effectively has been attained in large part through the
Trustees business, consulting or public service positions
and through experience from service as a member of the Board and
one or more of the other funds in the Gabelli/GAMCO Funds
Complex, public companies, or non-profit entities or other
organizations as set forth above and below. Each Trustees
ability to perform
his/her
duties effectively also has been enhanced by his education,
professional training, and experience.
Anthony J.
Colavita, Esq. Mr. Colavita is a
practicing attorney with over forty-nine years of experience,
including the field of business law. He is the Chairman of the
Funds Proxy Voting Committee and a member of the
Funds Audit and Nominating Committees. Mr. Colavita
also serves on comparable or other board committees with respect
to other funds in the Fund Complex on whose boards he sits.
Mr. Colavita also serves as a Trustee of a charitable
remainder unitrust. He formerly served as a Commissioner of the
New York State Thruway Authority and as a Commissioner of the
New York State Bridge Authority. He served for ten years as the
elected Supervisor of the Town of Eastchester, New York,
responsible for ten annual municipal budgets of approximately
eight million dollars per year. Mr. Colavita formerly
served as Special Counsel to the New York State Assembly
for five years and as a Senior Attorney with the New York State
Insurance Department. He is the former Chairman of the
Westchester County Republican Party and the New York State
Republican Party. Mr. Colavita received his Bachelor of
Arts from Fair field University and his Juris Doctor from
Fordham University School of Law.
James P. Conn. Mr. Conn, the lead
independent Trustee of the Fund, a member of the Funds
Proxy Voting Committee, a member of the Funds ad hoc
Pricing Committee (described below under Trustees
14
Leadership Structure and Oversight Responsibilities), and
also serves on comparable or other board committees for other
funds in the Fund Complex on whose boards he sits. He was a
senior business executive of an insurance holding company for
much of his career, including service as Chief Investment
Officer. Mr. Conn has been a director of several public
companies in banking and other industries, and was lead Director
and/or Chair
of various committees. He received his Bachelor of Science in
Business Administration from Santa Clara University.
Mario dUrso. Mr. dUrso was a
former Senator and Undersecretary of Commerce in the Italian
government. He is member of the Board of other funds in the
Fund Complex. He is a former Chairman of Mittel Capital
Markets, S.p.A., a boutique investment bank headquartered in
Italy, and former Partner and Managing Director at investment
banks Kuhn Loeb & Co. and Shearson Lehman Brothers Co.
He previously served as President of The Italy Fund, a
closed-end fund investing mainly in Italian listed and
non-listed companies. Mr. dUrso received his Masters
Degree in Comparative Law from George Washington University and
was formerly a practicing attorney in Italy.
Vincent D. Enright. Mr. Enright was a
senior executive and Chief Financial Officer (CFO)
of an energy public utility for a total of four years. In
accordance with his experience as a CFO, he is Chairman of the
Funds Audit Committee and has been designated the
Funds Audit Committee Financial Expert. Mr. Enright
is also Chairman of the Funds Nominating Committee, a
member of the Funds Proxy Voting Committee, a member of
both multi-fund ad hoc Compensation Committees and serves on
comparable or other board committees with respect to other funds
in the Fund Complex on whose boards he sits.
Mr. Enright is also a Director of a therapeutics and
diagnostics company and serves as Chairman of its compensation
and audit committees. He is a former Director of a
pharmaceutical company. Mr. Enright received his Bachelor
of Science from Fordham University and completed the Advanced
Management Program at Harvard University.
Michael J.
Melarkey, Esq. Mr. Melarkey is a
practicing attorney specializing in business, estate planning,
and gaming regulatory work with over thirty-four years of
experience. Mr. Melarkey is a member of the multi-fund ad
hoc Compensation Committee relating to certain officers of the
closed-end funds in the Fund Complex. He also serves on
other board committees with respect to other funds in the
Fund Complex on whose boards he sits. He is currently a
Director of a natural gas utility company and chairs its
Nominating and Corporate Governance Committee. Mr. Melarkey
acts as a Trustee and officer for several private charitable
organizations, is an owner of two northern Nevada casinos, and
an officer of a private oil and gas company. Mr. Melarkey
received his Bachelor of Arts from the University of Nevada,
Reno, his Juris Doctor from the University of San Francisco
School of Law, and his Masters of Law in Taxation from New York
University School of Law.
Salvatore M. Salibello. Mr. Salibello is
a Certified Public Accountant and Managing Partner of a
certified independent registered public accounting firm with
forty-three years of experience in public accounting. He is a
member of the board of other funds in the Gabelli
Fund Complex. He is currently a director of Kids Brands,
Inc., a NYSE listed group of companies in infant and juvenile
products, and chairs its Audit Committee. Mr. Salibello was
formerly a director of an independent community bank and chaired
its Audit Committee. Mr. Salibello received his Bachelor of
Business Administration in Accounting from St. Francis
College and his Masters in Business Administration in Finance
from Long Island University.
Salvatore J. Zizza. Mr. Zizza is the
Chairman of a financial consulting firm. He also serves as
Chairman to other companies involved in manufacturing,
recycling, and real estate. Mr. Zizza is a member of the
Funds Audit and Nominating Committees, the Funds ad
hoc Pricing Committee, and both multi-fund ad hoc Compensation
Committees. He serves on comparable or other board committees,
including as lead independent director, with respect to other
funds in the Fund Complex on whose boards he sits. Besides
serving on the boards of many funds within the
Fund Complex, he is currently a Director of three other
public companies and previously served on the boards of several
other public companies. He previously served as the Chief
Executive of a large NYSE listed construction company.
Mr. Zizza received his Bachelor of Arts and his Master of
Business Administration in Finance from St. Johns
University, which awarded him an Honorary Doctorate in
Commercial Sciences.
15
TrusteesLeadership
Structure and Oversight Responsibilities
Overall responsibility for general oversight of the Fund rests
with the Board. The Board does not have a Chairman. The Board
has appointed Mr. Conn as the lead independent Trustee. The
lead independent Trustee presides over executive sessions of the
Trustees and also serves between meetings of the Board as a
liaison with service providers, officers, counsel, and other
Trustees on a wide variety of matters including scheduling
agenda items for Board meetings. Designation as such does not
impose on the lead independent Trustee any obligations or
standards greater than or different from other Trustees. The
Board has established a Nominating Committee and an Audit
Committee to assist the Board in the oversight of the management
and affairs of the Fund. The Board also has a Proxy Voting
Committee that exercises beneficial ownership responsibilities
on behalf of the Fund in selected situations. From time to time,
the Board establishes additional committees or informal working
groups, such as pricing committees related to securities
offerings by the Fund to address specific matters, or assigns
one of its members to work with trustees or directors of other
funds in the Gabelli/GAMCO Funds Complex on special committees
or working groups that address complex-wide matters, such as the
multi-fund ad hoc Compensation Committee relating to
compensation of the Chief Compliance Officer for all the funds
in the Fund Complex, and a separate multi-fund ad hoc
Compensation Committee relating to compensation of certain
officers of the closed-end funds in the Fund Complex.
All of the Funds Trustees other than Mr. Salibello
are Independent Trustees, and the Board believes they are able
to provide effective oversight of the Funds service
providers. In addition to providing feedback and direction
during Board meetings, the Trustees meet regularly in executive
session and chair all committees of the Board.
The Funds operations entail a variety of risks, including
investment, administration, valuation, and a range of compliance
matters. Although the Adviser, the
sub-administrator,
and the officers of the Fund are responsible for managing these
risks on a
day-to-day
basis within the framework of their established risk management
functions, the Board also addresses risk management of the Fund
through its meetings and those of the committees and working
groups. As part of its general oversight, the Board reviews with
the Adviser at Board meetings the levels and types of option
risks being undertaken by the Fund, and the Audit Committee
discusses the Funds risk management and controls with the
independent registered public accounting firm engaged by the
Fund. The Board reviews valuation policies and procedures and
the valuations of specific illiquid securities. The Board also
receives periodic reports from the Funds Chief Compliance
Officer regarding compliance matters relating to the Fund and
its major service providers, including results of the
implementation and testing of the Funds and such
providers compliance programs. The Boards oversight
function is facilitated by management reporting processes
designed to provide visibility to the Board regarding the
identification, assessment, and management of critical risks,
and the controls and policies and procedures used to mitigate
those risks. The Board reviews its role in supervising the
Funds risk management from time to time and may make
changes at its discretion at any time.
The Board has determined that its leadership structure is
appropriate for the Fund because it enables the Board to
exercise informed and independent judgment over matters under
its purview, allocates responsibility among committees in a
manner that fosters effective oversight and allows the Board to
devote appropriate resources to specific issues in a flexible
manner as they arise. The Board periodically reviews its
leadership structure as well as its overall structure,
composition, and functioning, and may make changes at its
discretion at any time.
16
Beneficial
Ownership of Shares Held in the Fund and the
Fund Complex for Each Trustee
Set forth in the table below is the dollar range of equity
securities in the Fund beneficially owned by each Trustee and
the aggregate dollar range of equity securities in the Fund
complex beneficially owned by each Trustee.
|
|
|
|
|
|
|
|
|
Dollar Range of
|
|
|
|
|
Equity
|
|
Aggregate Dollar Range
|
|
|
Securities Held in the
|
|
of Equity Securities
|
Name of Trustee
|
|
Fund(*)(1)
|
|
Held in Fund Complex(*)(1)(2)
|
|
Interested Trustee:
|
|
|
|
|
|
|
Salvatore M. Salibello
|
|
A
|
|
|
E
|
|
Independent Trustees:
|
|
|
|
|
|
|
Anthony J. Colavita
|
|
C
|
|
|
E
|
|
James P. Conn
|
|
E
|
|
|
E
|
|
Mario dUrso
|
|
A
|
|
|
E
|
|
Vincent D. Enright
|
|
B
|
|
|
E
|
|
Michael J. Melarkey
|
|
C
|
|
|
E
|
|
Salvatore J. Zizza
|
|
A
|
|
|
E
|
|
A. None
B. $1$10,000
C. $10,001$50,000
D. $50,001$100,000
E. Over $100,000
All shares were valued as of December 31, 2010
|
|
|
(1) |
|
This information has been furnished by each Trustee as of
December 31, 2010. Beneficial Ownership is
determined in accordance with
Section 16a-1(a)(2)
of the Securities Exchange Act of 1934, as amended (the
1934 Act). |
|
(2) |
|
The Fund Complex includes all the funds that
are considered part of the same fund complex as the Fund because
they have common or affiliated investment advisers. |
The Trustees serving on the Funds Nominating Committee are
Messrs. Colavita, Enright and Zizza. The Nominating
Committee is responsible for recommending qualified candidates
to the Board in the event that a position is vacated or created.
The Nominating Committee would consider recommendations by
shareholders if a vacancy were to exist. Such recommendations
should be forwarded to the Secretary of the Fund. The Fund does
not have a standing compensation committee. The Nominating
Committee met once during the year ended December 31, 2010.
Anthony J. Colavita, Vincent D. Enright and Salvatore J. Zizza,
who are not interested persons of the Fund as
defined in the 1940 Act, serve on the Funds Audit
Committee. The Audit Committee is generally responsible for
reviewing and evaluating issues related to the accounting and
financial reporting policies and internal controls of the Fund
and, as appropriate, the internal controls of certain service
providers, overseeing the quality and objectivity of the
Funds financial statements and the audit thereof and to
act as a liaison between the Board and the Funds
independent registered public accounting firm. The Audit
Committee met three times during the year ended
December 31, 2010.
Remuneration
of Trustees and Officers
The Fund pays each Trustee who is not affiliated with the
Adviser or its affiliates a fee of $3,000 per year plus $1,000
per Board meeting attended, $500 per standing Committee meeting
attended, and $500 per
17
telephonic meeting attended, together with the Trustees
actual
out-of-pocket
expenses relating to his attendance at such meetings. In
addition, the lead independent Trustee receives an annual fee of
$1,000, the Audit Committee Chairman receives an annual fee of
$3,000, and the Nominating Committee Chairman receives an annual
fee of $2,000. A Trustee may receive a single meeting fee,
allocated among the participating funds, for participation in
certain meetings on behalf of multiple funds.
The following table shows the compensation that the Trustees
earned in their capacity as Trustees during the year ended
December 31, 2010. The table also shows, for the year ended
December 31, 2010, the compensation Trustees earned in
their capacity as Directors/Trustees for other funds in the
Gabelli Fund Complex.
COMPENSATION
TABLE FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
Compensation
|
|
|
|
|
from the Fund
|
|
|
|
|
and
|
|
|
Aggregate
|
|
Fund Complex
|
|
|
Compensation From
|
|
Paid to Trustees
|
Name of Person and Position
|
|
the Fund
|
|
and Officers(*)
|
|
INTERESTED TRUSTEES:
|
|
|
|
|
|
|
|
|
Salvatore M. Salibello
|
|
$
|
7,333
|
|
|
$
|
37,000
|
(3)
|
TRUSTEES:
|
|
|
|
|
|
|
|
|
Anthony J. Colavita
|
|
$
|
8,611
|
|
|
$
|
254,500
|
(33)
|
James P. Conn
|
|
$
|
8,125
|
|
|
$
|
144,500
|
(17)
|
Mario dUrso
|
|
$
|
7,125
|
|
|
$
|
46,500
|
(4)
|
Vincent D. Enright
|
|
$
|
13,821
|
|
|
$
|
131,000
|
(15)
|
Michael J. Melarkey
|
|
$
|
7,250
|
|
|
$
|
50,000
|
(4)
|
Salvatore J. Zizza
|
|
$
|
8,611
|
|
|
$
|
212,000
|
(27)
|
|
|
|
(*) |
|
Represents the total compensation paid to such persons during
the calendar year ended December 31, 2010 by investment
companies (including the Fund) or portfolios thereof that are
considered 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. |
Limitation
of Trustees and Officers Liability
The Governing Documents of the Fund provide that the Fund will
indemnify its Trustees and officers and may indemnify its
employees or agents against liabilities and expenses incurred in
connection with litigation in which they may be involved because
of their positions with the Fund, to the fullest extent
permitted by law. However, nothing in the Governing Documents
protects or indemnifies a Trustee, officer, employee or agent of
the Fund against any liability to which such person would
otherwise be subject in the event of such persons willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her position.
Investment
Advisory and Administrative Arrangements
Gabelli Funds, LLC serves as the Funds Investment Adviser
pursuant to the Investment Advisory Agreement with the Fund. The
Investment Adviser is a New York limited liability company with
principal offices located at One Corporate Center, Rye, New York
10580-1422
and is registered under the Investment Advisers Act of 1940, as
amended. The Investment Adviser was organized in 1999 and is the
successor to Gabelli Funds, Inc., which was organized in 1980.
As of March 31, 2011, the Investment Adviser acts as a
registered investment adviser to 26 management investment
companies with aggregate net assets of $20.1 billion. The
Investment Adviser, together with the other affiliated
investment advisers noted below, had assets under management
totaling approximately $35.4 billion as of March 31,
2011. GAMCO Asset
18
Management Inc., an affiliate of the Investment Adviser, acts as
investment adviser for individuals, pension trusts, profit
sharing trusts and endowments, and as a
sub-adviser
to management investment companies having aggregate assets of
$14.7 billion under management as of March 31, 2011.
Gabelli Securities, Inc., an affiliate of the Investment
Adviser, acts as investment adviser for investment partnerships
and entities having aggregate assets of approximately
$547 million under management as of March 31, 2011.
Teton Advisors, Inc., an affiliate of the Investment Adviser,
acts as investment manager to The GAMCO Westwood Funds and
separately managed accounts having aggregate assets of
approximately $983.1 million under management as of
March 31, 2011.
Affiliates of the Investment Adviser may, in the ordinary course
of their business, acquire for their own account or for the
accounts of their investment advisory clients, significant (and
possibly controlling) positions in the securities of companies
that may also be suitable for investment by the Fund. The
securities in which the Fund might invest may thereby be limited
to some extent. For instance, many companies in the past several
years have adopted so-called poison pill or other
defensive measures designed to discourage or prevent the
completion of non-negotiated offers for control of the company.
Such defensive measures may have the effect of limiting the
shares of the company which might otherwise be acquired by the
Fund if the affiliates of the Investment Adviser or their
investment advisory accounts have or acquire a significant
position in the same securities. However, the Investment Adviser
does not believe that the investment activities of its
affiliates will have a material adverse effect upon the Fund in
seeking to achieve its investment objective. Securities
purchased or sold pursuant to contemporaneous orders entered on
behalf of the investment company accounts of the Investment
Adviser or the investment advisory accounts managed by its
affiliates for their unaffiliated clients are allocated pursuant
to principles believed to be fair and not disadvantageous to any
such accounts. In addition, all such orders are accorded
priority of execution over orders entered on behalf of accounts
in which the Investment Adviser or its affiliates have a
substantial pecuniary interest. The Investment Adviser may on
occasion give advice or take action with respect to other
clients that differs from the actions taken with respect to the
Fund. The Fund may invest in the securities of companies which
are investment management clients of GAMCO Investors Inc. In
addition, portfolio companies or their officers or directors may
be minority shareholders of the Investment Adviser or its
affiliates.
The Investment Adviser is a wholly-owned subsidiary of GAMCO
Investors, Inc., a New York corporation, whose Class A
Common Stock is traded on the New York Stock Exchange under the
symbol GBL. Mr. Mario J. Gabelli may be deemed
a controlling person of the Investment Adviser on
the basis of his ownership of a majority of the stock and voting
power of GGCP, Inc., which owns a majority of the capital stock
and voting power of GAMCO Investors, Inc.
Under the terms of the Investment Advisory Agreement, the
Investment Adviser manages the portfolio of the Fund in
accordance with its stated investment 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 Funds Board. In addition, under the
Investment Advisory Agreement, the Investment Adviser oversees
the administration of all aspects of the Funds business
and affairs and provides, or arranges for others to provide, at
the Investment Advisers expense, certain enumerated
services, including maintaining the Funds books and
records, preparing reports to the Funds shareholders and
supervising the calculation of the net asset value of its
shares. All expenses of computing the net asset value of the
Fund, including any equipment or services obtained solely for
the purpose of pricing shares or valuing its investment
portfolio, will be an expense of the Fund under its Investment
Advisory Agreement.
The Investment 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 Investment 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 total assets of the
Fund (which includes for this purpose assets attributable to
outstanding senior securities, if any, with no deduction for the
liquidation preference or principal amount, as applicable). This
fee will be reduced each year following the fifth anniversary of
the
19
Investment Advisory Agreement by 10 basis points until the
eighth anniversary, after which time the Investment Adviser will
be compensated at an annual rate of .50% of the Funds
average weekly total assets.
The Investment Advisory Agreement provides that in the absence
of willful misfeasance, bad faith, gross negligence or reckless
disregard for its obligations and duties thereunder, the
Investment Adviser is not liable for any error or judgment or
mistake of law or for any loss suffered by the Fund. As part of
the Investment Advisory Agreement, the Fund has agreed that the
name Gabelli is the Investment Advisers
property, and that in the event the Investment Adviser ceases to
act as an investment adviser to the Fund, the Fund will change
its name to one not including Gabelli.
Pursuant to its terms, the Investment Advisory Agreement will
remain in effect with respect to the Fund until the second
anniversary of sole shareholder approval of such Agreement, and
from year to year thereafter if approved annually (i) by
the Funds Board or by the holders of a majority of its
outstanding voting securities and (ii) by a majority of the
Trustees who are not interested persons (as defined
in the 1940 Act) of any party to the Investment Advisory
Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval.
The Investment Advisory Agreement was approved by the
Funds Board at a meeting in person of the Board held on
May 25, 2011, including a majority of the Trustees who are
not parties to the agreement or interested persons of any such
party (as such term is defined in the 1940 Act).
In the course of agreeing in principle to the Investment
Advisory Agreement, the Funds non-interested Trustees
focused primarily on (i) the services provided to the Fund
by the Investment Adviser and the
sub-administrator,
(ii) the Funds fee and expense data as compared to
various benchmarks, a peer group of closed-end funds and the
other registered investment companies managed by the Investment
Adviser and (iii) the experience and breadth of the
investment advisory team expected to be utilized by the
Investment Adviser.
The Investment Advisory Agreement terminates automatically on
its assignment and may be terminated without penalty on
60 days written notice at the option of either party
thereto or by a vote of a majority (as defined in the 1940 Act)
of the Funds outstanding shares.
Portfolio
Manager Information
Other
Accounts Managed
The information below lists other accounts for which each
portfolio manager was primarily responsible for the
day-to-day
management during the year ended December 31, 2010.
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# of
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Accounts
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Managed
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with
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Total Assets
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Advisory
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with
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Name of Portfolio
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Total #
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Fee
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Advisory
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Manager or
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of Accounts
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Based on
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Fee Based on
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Team Member
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Type of Accounts
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Managed
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Total Assets
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Performance
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Performance
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Mario J. Gabelli
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Registered Investment Companies:
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26
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$
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17.1 billion
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8
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$
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4.3 billion
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Other Pooled Investment Vehicles:
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16
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$
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478.4 million
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14
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$
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470.6 million
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Other Accounts:
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1,712
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$
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14.6 billion
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9
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$
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1.9 billion
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Ownership
of Shares in the Fund
As of December 31, 2010, the portfolio manager of the Fund
owns the following amounts of equity securities of the Fund.
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Name
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Dollar Range of Equity Securities Held in Fund
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Mario J. Gabelli
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over $1,000,000
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20
Potential
Conflicts of Interest
Actual or apparent conflicts of interest may arise when the
portfolio manager also has
day-to-day
management responsibilities with respect to one or more other
accounts. These potential conflicts include:
Allocation of Limited Time and
Attention. Because the portfolio manager manages
many accounts, he may not be able to formulate as complete a
strategy or identify equally attractive investment opportunities
for each of those accounts as if he were to devote substantially
more attention to the management of only a few accounts.
Allocation of Limited Investment
Opportunities. If the portfolio manager
identifies an investment opportunity that may be suitable for
multiple accounts, the Fund may not be able to take full
advantage of that opportunity because the opportunity may need
to be allocated among all or many of these accounts or other
accounts primarily managed by other portfolio managers of the
Investment Adviser and its affiliates.
Pursuit of Differing Strategies. At times, the
portfolio manager may determine that an investment opportunity
may be appropriate for only some of the accounts for which he
exercises investment responsibility, or may decide that certain
of the accounts should take differing positions with respect to
a particular security. In these cases, the portfolio manager may
execute differing or opposite transactions for one or more
accounts which may affect the market price of the security or
the execution of the transactions, or both, to the detriment of
one or more of his accounts.
Selection of Broker/Dealers. Portfolio
managers may be able to select or influence the selection of the
brokers and dealers that are used to execute securities
transactions for the funds or accounts that they supervise. In
addition to providing execution of trades, some brokers and
dealers provide portfolio managers with brokerage and research
services which may result in the payment of higher brokerage
fees than might otherwise be available. These services may be
more beneficial to certain funds or accounts than to others.
Although the payment of brokerage commissions is subject to the
requirement that the portfolio manager determine in good faith
that the commissions are reasonable in relation to the value of
the brokerage and research services provided to the fund, a
portfolio managers decision as to the selection of brokers
and dealers could yield disproportionate costs and benefits
among the funds or other accounts that he or she manages. In
addition, with respect to certain types of accounts (such as
pooled investment vehicles and other accounts managed for
organizations and individuals) the Investment Adviser may be
limited by the client concerning the selection of brokers or may
be instructed to direct trades to particular brokers. In these
cases, the Investment Adviser or its affiliates may place
separate, non-simultaneous transactions in the same security for
a fund and another account that may temporarily affect the
market price of the security or the execution of the
transaction, or both, to the detriment of the fund or the other
accounts. Because of Mr. Gabellis position with, and
his indirect majority ownership interest in, an affiliated
broker dealer, Gabelli & Company, Inc., he may have an
incentive to use Gabelli & Company, Inc. to execute
portfolio transactions for the Fund even if using
Gabelli & Company, Inc. is not in the best interest of
the Fund.
Variation in Compensation. A conflict of
interest may arise where the financial or other benefits
available to the portfolio manager differ among the accounts
that he manages. If the structure of the Investment
Advisers management fee or the portfolio managers
compensation differs among accounts (such as where certain
accounts pay higher management fees or performance-based
management fees), the portfolio manager may be motivated to
favor certain accounts over others. The portfolio manager also
may be motivated to favor accounts in which he has an investment
interest, or in which the Investment Adviser or its affiliates
have investment interests. In Mr. Gabellis case, the
Investment Advisers compensation (and expenses) for the
Fund is marginally greater as a percentage of assets than for
certain other accounts and is less than for certain other
accounts managed by Mr. Gabelli, while his personal
compensation structure varies with near-term performance to a
greater degree in certain performance fee-based accounts than
with non-performance-based accounts. In addition, he has
investment interests in several of the funds managed by the
Investment Adviser and its affiliates.
21
The Investment Adviser and the Fund have adopted compliance
policies and procedures that are designed to address the various
conflicts of interest that may arise for the Investment Adviser
and its staff members. However, there is no guarantee that such
policies and procedures will be able to detect and address every
situation in which an actual or potential conflict may arise.
Compensation
Structure
The compensation of the portfolio managers is reviewed annually
and structured to enable the Investment Adviser to attract and
retain highly qualified professionals in a competitive
environment.
Mr. Gabelli receives incentive-based variable compensation
based on a percentage of net revenues received by the Adviser
for managing the Fund. Net revenues are determined by deducting
from gross investment management fees the firms expenses
(other than Mr. Gabellis compensation) allocable to
this Fund. Five closed-end registered investment companies
managed by Mr. Gabelli have arrangements whereby the
Adviser will only receive its investment advisory fee
attributable to the liquidation value of outstanding preferred
stock (and Mr. Gabelli would only receive his percentage of
such advisory fee) if certain performance levels are met.
Additionally, he receives similar incentive based variable
compensation for managing other accounts within the firm and its
affiliates. This method of compensation is based on the premise
that superior long-term performance in managing a portfolio
should be rewarded with higher compensation as a result of
growth of assets through appreciation and net investment
activity. The level of compensation is not determined with
specific reference to the performance of any account against any
specific benchmark. One of the other registered investment
companies managed by Mr. Gabelli has a performance
(fulcrum) fee arrangement for which his compensation is adjusted
up or down based on the performance of the investment company
relative to an index. Mr. Gabelli manages other accounts
with performance fees. Compensation for managing these accounts
has two components. One component is based on a percentage of
net revenues to the investment adviser for managing the account.
The second component is based on absolute performance of the
account, with respect to which a percentage of such performance
fee is paid to Mr. Gabelli. As an executive officer of the
Advisers parent company, GAMCO Investors, Inc.,
Mr. Gabelli also receives ten percent of the net operating
profits of the parent company. He receives no base salary, no
annual bonus, and no stock options.
Portfolio
Holdings Information
Employees of the Investment Adviser and its affiliates will
often have access to information concerning the portfolio
holdings of the Fund. The Fund and the Investment Adviser have
adopted policies and procedures that require all employees to
safeguard proprietary information of the Fund, which includes
information relating to the Funds portfolio holdings as
well as portfolio trading activity of the Investment Adviser
with respect to the Fund (collectively, Portfolio Holdings
Information). In addition, the Fund and the Investment
Adviser have adopted policies and procedures providing that
Portfolio Holdings Information may not be disclosed except to
the extent that it is (a) made available to the general
public by posting on the Funds website or filed as part of
a required filing on
Form N-Q
or N-CSR or (b) provided to a third party for legitimate
business purposes or regulatory purposes, that has agreed to
keep such data confidential under terms approved by the
Investment Advisers legal department or outside counsel,
as described below. The Investment Adviser will examine each
situation under (b) with a view to determine that release
of the information is in the best interest of the Fund and its
shareholders and, if a potential conflict between the Investment
Advisers interests and the Funds interests arises,
to have such conflict resolved by the Chief Compliance Officer
or those Trustees who are not considered to be interested
persons, as defined in the 1940 Act (the
Independent Directors). These policies further
provide that no officer of the Fund or employee of the
Investment Adviser shall communicate with the media about the
Fund without obtaining the advance consent of the Chief
Executive Officer, Chief Operating Officer, or General Counsel
of the Investment Adviser.
Under the foregoing policies, the Fund currently may disclose
Portfolio Holdings Information in the circumstances outlined
below. Disclosure generally may be either on a monthly or
quarterly basis with no time
22
lag in some cases and with a time lag of up to 60 days in
other cases (with the exception of proxy voting services which
require a regular download of data):
(1) To regulatory authorities in response to requests for
such information and with the approval of the Chief Compliance
Officer of the Fund;
(2) To mutual fund rating and statistical agencies and to
persons performing similar functions where there is a legitimate
business purpose for such disclosure and such entity has agreed
to keep such data confidential until at least it has been made
public by the Investment Adviser;
(3) To service providers of the Fund, as necessary for the
performance of their services to the Fund and to the Board,
where such entity has agreed to keep such data confidential
until at least it has been made public by the Investment
Adviser. The Funds current service providers that may
receive such information are its administrator,
sub-administrator,
custodian, independent registered public accounting firm, legal
counsel, and financial printers;
(4) To firms providing proxy voting and other proxy
services provided such entity has agreed to keep such data
confidential until at least it has been made public by the
Investment Adviser;
(5) To certain broker dealers, investment advisers, and
other financial intermediaries for purposes of their performing
due diligence on the Fund and not for dissemination of this
information to their clients or use of this information to
conduct trading for their clients. Disclosure of Portfolio
Holdings Information in these circumstances requires the broker,
dealer, investment adviser, or financial intermediary to agree
to keep such information confidential until it has been made
public by the Investment Adviser and is further subject to prior
approval of the Chief Compliance Officer of the Fund and shall
be reported to the Board at the next quarterly meeting; and
(6) To consultants for purposes of performing analysis of
the Fund, which analysis may be used by the consultant with its
clients or disseminated to the public, provided that such entity
shall have agreed to keep such information confidential until at
least it has been made public by the Investment Adviser.
As of the date of this SAI, the Fund makes information about
portfolio securities available to its administrator,
sub-administrator,
custodian, and proxy voting services on a daily basis, with no
time lag, to its typesetter on a quarterly basis with a ten day
time lag, to its financial printers on a quarterly basis with a
forty-five day time lag, and its independent registered public
accounting firm and legal counsel on an as needed basis with no
time lag. The names of the Funds administrator, custodian,
independent registered public accounting firm, and legal counsel
are set forth is this SAI. The Funds proxy voting service
is Broadridge Investor Communication Services. Bowne &
Co., Inc. provides typesetting services for the Fund and the
Fund selects from a number of financial printers who have agreed
to keep such information confidential until at least it has been
made public by the Investment Adviser. Other than those
arrangements with the Funds service providers and proxy
voting service, the Fund has no ongoing arrangements to make
available information about the Funds portfolio securities
prior to such information being disclosed in a publicly
available filing with the SEC that is required to include the
information.
Disclosures made pursuant to a confidentiality agreement are
subject to periodic confirmation by the Chief Compliance Officer
of the Fund that the recipient has utilized such information
solely in accordance with the terms of the agreement. Neither
the Fund, nor the Investment Adviser, nor any of the Investment
Advisers affiliates will accept on behalf of itself, its
affiliates, or the Fund any compensation or other consideration
in connection with the disclosure of portfolio holdings of the
Fund. The Board will review such arrangements annually with the
Funds Chief Compliance Officer.
PORTFOLIO
TRANSACTIONS
Subject to policies established by the Board of Trustees of the
Fund, the Investment Adviser is responsible for placing purchase
and sale orders and the allocation of brokerage on behalf of the
Fund. Transactions in equity securities are in most cases
effected on U.S. stock exchanges and involve the payment
23
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 thereunder, and other regulatory
requirements, the Funds Board of Trustees have determined
that portfolio transactions may be executed through
Gabelli & Company, Inc. and its broker-dealer
affiliates if, in the judgment of the Investment Adviser, the
use of those broker-dealers is likely to result in price and
execution at least as favorable as those of other qualified
broker-dealers, and if, in particular transactions, those
broker-dealers charge the Fund a rate consistent with that
charged to comparable unaffiliated customers in similar
transactions. For the fiscal years ended December 31, 2008,
December 31, 2009, and December 31, 2010, the Fund
paid a total of $16,409, $12,819, and $5,183, respectively, in
brokerage commissions, of which Gabelli & Company,
Inc. and its affiliates received $15,054, $9,650, and $3,030,
respectively. For 2010, the amount paid to Gabelli &
Company, Inc. and its broker-dealer affiliates represented 58.4%
of the number of aggregate brokerage commissions paid by the
Fund, and the dollar amount of transactions executed through
Gabelli & Company, Inc. represented 35% of the
aggregate dollar amount of transactions involving the payment of
commissions by the Fund. The Fund has no obligations to deal
with any broker or group of brokers in executing transactions in
portfolio securities. In executing transactions, the Investment
Adviser seeks to obtain the best price and execution for the
Fund, taking into account such factors as price, size of order,
difficulty of execution and operational facilities of the firm
involved and the firms risk in positioning a block of
securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Fund does not
necessarily pay the lowest commission available.
Subject to obtaining the best price and execution, brokers who
provide supplemental research, market and statistical
information, or other services (e.g., wire services) to the
Investment Adviser or its affiliates may receive orders for
transactions by the Fund. The term research, market and
statistical information includes advice as to the value of
securities, and advisability of investing in, purchasing or
selling securities, and the availability of securities or
purchasers or sellers of securities, and furnishing analyses and
reports concerning issues, industries, securities, economic
factors and trends, portfolio strategy and the performance of
accounts. Information so received will be in addition to and not
in lieu of the services required to be performed by the
Investment Adviser under the Advisory Agreement and the expenses
of the Investment Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information. Such
information may be useful to the Investment Adviser and its
affiliates in providing services to clients other than the Fund,
and not all such information is used by the Investment Adviser
in connection with the Fund. Conversely, such information
provided to the Investment Adviser and its affiliates by brokers
and dealers through whom other clients of the Investment Adviser
and its affiliates effect securities transactions may be useful
to the Investment Adviser in providing services to the Fund.
Although investment decisions for the fund are made
independently from those for the other accounts managed by the
investment adviser and its affiliates, investments of the kind
made by the fund may also be made for those other accounts. When
the same securities are purchased for or sold by the fund and
any of such other accounts, it is the policy of the investment
adviser and its affiliates to allocate such purchases and sales
in the manner deemed fair and equitable to all of the accounts,
including the fund.
PORTFOLIO
TURNOVER
Portfolio turnover rate is calculated by dividing the lesser of
an investment companys annual sales or purchases of
portfolio securities by the monthly average value of securities
in its portfolio during the year, excluding portfolio securities
the maturities of which at the time of acquisition were one year
or less. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expense than a
lower rate, which expense must be borne by the Fund and
indirectly by its shareholders. The portfolio turnover rate may
vary from year to year and will not be a factor when the
Investment Adviser determines that portfolio changes are
appropriate.
24
For example, an increase in the Funds participation in
risk arbitrage situations would increase the Funds
portfolio turnover rate. A higher rate of portfolio turnover may
also result in taxable gains being passed to shareholders sooner
than would otherwise be the case. The Fund anticipates that its
annual portfolio turnover rate will not exceed 100%. The
Funds portfolio turnover rates for the years ended
December 31, 2009 and December 31, 2010 were 9.5% and
7.8% respectively.
AUCTIONS
FOR AUCTION RATE PREFERRED SHARES
Summary
of Auction Procedures
The following is a brief summary of the auction procedures for
preferred shares that are auction rate preferred shares. 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 Funds Governing Documents, including the provisions
of the Statement of Preferences establishing any series of
auction rate preferred shares.
The auctions determine the dividend rate for auction rate
preferred shares, but each dividend rate will not be higher than
the maximum rate. If you own auction rate preferred shares, you
may instruct your broker-dealer to enter one of three kinds of
orders in the auction with respect to your shares: sell, bid and
hold.
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If you enter a sell order, you indicate that you want to sell
auction rate preferred shares at their liquidation preference
per share, no matter what the next dividend periods rate
will be.
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If you enter a bid (or hold at a rate) order, which
must specify a dividend rate, you indicate that you want to sell
auction rate preferred shares only if the next dividend
periods rate is less than the rate you specify.
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If you enter a hold order you indicate that you want to continue
to own auction rate preferred shares, no matter what the next
dividend periods rate will be.
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You may enter different types of orders for different portions
of your auction rate preferred shares. You may also enter an
order to buy additional auction rate preferred shares. All
orders must be for whole shares. All orders you submit are
irrevocable. There is a fixed number of 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 auction rate
preferred shares and general economic conditions including
current interest rates. If you own auction rate preferred shares
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 auction rate preferred shares, 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 auction rate preferred shares, or want to
buy more shares, you may instruct a broker-dealer to enter a bid
order to buy shares in an auction at the liquidation preference
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 auction rate preferred shares to the auction agent.
Neither the Fund nor the auction agent will be responsible for a
broker-dealers failure to submit orders from existing or
potential holders of auction rate preferred shares. A
broker-dealers failure to submit orders for auction rate
preferred shares held by it or its customers will be treated in
the same manner as a holders 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 auction rate
preferred shares will pay to each broker-dealer, from funds
provided by the Fund, a service charge equal to, in the case
shares 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
25
number of days in such dividend period and the denominator of
which is 365, times (ii) 1/4 of 1%, times (iii) the
liquidation preference per share, times (iv) the aggregate
number of 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 auction rate preferred
shares placed by the broker-dealer at the auction agreed to by
the Fund and the broker-dealers.
If the number of 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 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 auction rate preferred shares available for purchase in
the auction.
If the number of 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
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
auction rate preferred shares offered for sale than there are
buyers for those shares.
If broker-dealers submit or are deemed to submit hold orders for
all outstanding auction rate preferred shares, 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 Statement of Preferences
establishing the auction rate preferred shares.
The auction procedures include a pro rata allocation of 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 shares of 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 auction
rate preferred shares 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 SAI, 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 a series of auction rate preferred shares
will be held on the date specified in the Prospectus Supplement
for such series, which will be the business day preceding the
dividend payment date for the initial dividend period.
Thereafter, except during special dividend periods, auctions for
such series auction rate preferred shares normally will be held
within the frequency specified in the Prospectus Supplement for
such series, and each subsequent dividend period for such series
auction rate preferred shares normally will begin on the
following 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.
26
The following is a simplified example of how a typical auction
works. Assume that the Fund has 1,000 outstanding shares of
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 500 shares if
auction rate is less than 4.6%
|
|
Bid order at 4.6% rate for all 500 shares
|
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 200 shares if
auction rate is less than 4.4%
|
|
Bid order at 4.4% rate for all 200 shares
|
Potential Holder D
|
|
Wants to buy 200 shares
|
|
Places order to buy at or above 4.5%
|
Potential Holder E
|
|
Wants to buy 300 shares
|
|
Places order to buy at or above 4.4%
|
Potential Holder F
|
|
Wants to buy 200 shares
|
|
Places order to buy at or above 4.6%
|
The lowest dividend rate that will result in all
1,000 shares of auction rate preferred shares continuing to
be held is 4.5% (the offer by D). Therefore, the dividend rate
will be 4.5%. Current holders B and C will continue to own their
shares. Current holder A will sell its shares because As
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 Auction Rate Preferred
Shares
The underwriters shall not be required to make a market in the
auction rate preferred shares. 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
auction rate preferred shares will develop or, if it does
develop, that it will provide owners with liquidity of
investment. The auction rate preferred shares will not be
registered on any stock exchange. Investors who purchase auction
rate preferred shares 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 auction rate
preferred shares 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 auction rate preferred shares in the name of a
broker-dealer, a sale or transfer of your auction rate preferred
shares to that broker dealer, or to another customer of that
broker-dealer, will not be considered a sale or transfer or
purposes of the foregoing if the shares remain in the name of
the broker-dealer immediately after your transaction. In
addition, in the case of all transfers other than through an
auction, the broker-dealer (or other person, if the Fund
permits) receiving the transfer must advise the auction agent of
the transfer.
TAXATION
The following discussion is a brief summary of certain
U.S. federal income tax considerations affecting the Fund
and, as the case may be, its shareholders and noteholders who
purchase notes in this offering at the original issue price
equal to the face amount of the Notes. Except as expressly
provided otherwise, this discussion assumes you are a
U.S. person (as defined for U.S. federal income tax
purposes) and that you hold
27
your shares or notes as capital assets (generally, for
investment). The discussion is based upon current provisions of
the Internal Revenue Code of 1986, as amended (the
Code), Treasury regulations, judicial authorities,
published positions of the Internal Revenue Service (the
IRS) and other applicable authorities, all of which
are subject to change or differing interpretations, possibly
with retroactive effect. No ruling has been or will be sought
from the IRS regarding any matter discussed herein. Counsel to
the Fund has not rendered and will not render any legal opinion
regarding any tax consequences relating to the Fund or an
investment in the Fund. No attempt is made to present a detailed
explanation of all U.S. federal, state, local and foreign
tax concerns affecting the Fund and its shareholders and
noteholders (including shareholders and noteholders subject to
special tax rules and shareholders owning a large position in
the Fund).
The discussions set forth here and in the Prospectus do not
constitute tax advice. Investors are urged to consult their own
tax advisers with any specific questions relating to
U.S. federal, state, local and foreign taxes.
Taxation
of the Fund
The Fund has elected to be treated and has qualified, and
intends to continue to qualify, as a regulated investment
company (a RIC) 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 from (a) dividends, interest (including tax-exempt
interest), payments with respect to certain securities loans,
and gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including but
not limited to gain from options, futures and forward contracts)
derived with respect to its business of investing in such stock,
securities or currencies and (b) net income derived from
interests in certain publicly traded partnerships that are
treated as partnerships for U.S. federal income tax
purposes and that derive less than 90% of their gross income
from the items described in (a) above (each a
Qualified Publicly Traded Partnership); 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 Funds 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 Funds
total assets and not more than 10% of the outstanding voting
securities of such issuer and (b) not more than 25% of the
value of the Funds total assets is invested in the
securities of (I) any one issuer (other than
U.S. government securities and the securities of other
RICs), (II) any two or more issuers (other than regulated
investment companies) that the Fund controls and that are
determined to be engaged in the same business or similar or
related trades or businesses or (III) any one or more
Qualified Publicly Traded Partnerships.
As a RIC, the Fund generally is not subject to U.S. federal
income tax on income and gains that it distributes each taxable
year to shareholders, provided that it distributes at least 90%
of the sum of the Funds (i) investment company
taxable income (which includes, among other items, dividends,
interest and the excess of any net short-term capital gain over
net long-term capital loss and other taxable income, other than
any net long-term capital gain, reduced by deductible expenses)
determined without regard to the deduction for dividends and
distributions paid and (ii) net tax-exempt interest income
(the excess of its gross tax-exempt interest income over certain
disallowed deductions). The Fund intends to distribute at least
annually substantially all of such income. The Fund will be
subject to income tax at regular corporate rates on any taxable
income or gains that it does not distribute to its shareholders.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a
nondeductible 4% federal 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) 98.2% of its capital gain in excess
of its capital loss (adjusted for certain ordinary losses) for a
one-year period generally ending on October 31 of the
28
calendar year (unless an election is made to use the Funds
fiscal year), and (iii) certain undistributed amounts from
previous years on which the Fund paid no U.S. federal
income tax. While the Fund intends to distribute any income and
capital gain in the manner necessary to minimize imposition of
the 4% federal excise tax, there can be no assurance that
sufficient amounts of the Funds ordinary income and
capital gain will be distributed to avoid entirely the
imposition of the tax. In that event, the Fund will be liable
for the tax only on the amount by which it does not meet the
foregoing distribution requirement.
A distribution will be treated as paid during the calendar year
if it is paid during the calendar year or declared by the Fund
in October, November or December of the year, payable to
shareholders of record on a date during such a month and paid by
the Fund during January of the following year. Any such
distributions paid during January of the following year will be
deemed to be received by the Funds shareholders on
December 31 of the year the distributions are declared, rather
than when the distributions are actually received.
If the Fund were unable to satisfy the 90% distribution
requirement or otherwise were to fail to qualify as a RIC in any
year, it would be taxed on all of its taxable income in the same
manner as an ordinary corporation and distributions to the
Funds shareholders would not be deductible by the Fund in
computing its taxable income. Such distributions would be
taxable to the shareholders as ordinary dividends to the extent
of the Funds current or accumulated earnings and profits.
Provided that certain holding period and other requirements are
met, such dividends would be eligible (i) to be treated as
qualified dividend income in the case of shareholders taxed as
individuals with respect to taxable years beginning on or before
December 31, 2012 (but not for taxable years beginning
thereafter, unless the relevant provisions are extended by
legislation) and (ii) for the dividends received deduction
in the case of corporate shareholders to the extent that the
Funds income consists of dividend income from
U.S. corporations. To qualify again to be taxed as a RIC in
a subsequent year, the Fund would be required to distribute to
its shareholders its earnings and profits attributable to
non-RIC years. In addition, if the Fund failed to qualify as a
RIC for a period greater than two taxable years, then the Fund
would be required to recognize and pay tax on any net built-in
gain (the excess of aggregate gain, including items of income,
over aggregate loss that would have been realized if the Fund
had been liquidated) or, alternatively, to elect to be subject
to taxation on such built-in gain recognized for a period of ten
years, in order to qualify as a RIC in a subsequent year.
Gain or loss on the sales of securities by the Fund will
generally be long-term capital gain or loss if the securities
have been held by the Fund for more than one year. Gain or loss
on the sale of securities held for one year or less will be
short-term capital gain or loss.
Certain of the Funds investment practices are subject to
special and complex U.S. federal income tax provisions that
may, among other things, (i) disallow, suspend or otherwise
limit the allowance of certain losses or deductions,
(ii) convert lower taxed long-term capital gains and
qualified dividend income into higher taxed short-term capital
gains or ordinary income, (iii) convert ordinary loss or a
deduction into capital loss (the deductibility of which is more
limited), (iv) cause the Fund to recognize income or gain
without a corresponding receipt of cash, (v) adversely
affect the time as to when a purchase or sale of stock or
securities is deemed to occur, (vi) adversely alter the
characterization of certain complex financial transactions and
(vii) produce income that will not qualify as good income
for purposes of the 90% annual gross income requirement
described above. The Fund will monitor its transactions and may
make certain tax elections and may be required to borrow money
or dispose of securities to mitigate the effect of these rules
and prevent disqualification of the Fund as a regulated
investment company.
Foreign currency gain or loss on
non-U.S. dollar-denominated
securities and on any
non-U.S. dollar-denominated
futures contracts, options and forward contracts that are not
section 1256 contracts (as defined below) generally will be
treated as ordinary income and loss.
The premium received by the Fund for writing a call option is
not included in income at the time of receipt. If the option
expires, the premium is short-term capital gain to the Fund. If
the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the
premium received is short-term capital gain or loss. If a call
option written by the Fund is exercised, thereby requiring the
Fund
29
to sell the underlying security, the premium will increase the
amount realized upon the sale of the security and any resulting
gain or loss will be long-term or short-term, depending upon the
holding period of the security. The Fund does not have control
over the exercise of the call options it writes and thus does
not control the timing of such taxable events.
With respect to a put or call option that is purchased by the
Fund, if the option is sold, any resulting gain or loss will be
a capital gain or loss, and will be short-term or long-term,
depending upon the holding period for the option. If the option
expires, the resulting loss is a capital loss and is short-term
or long-term, depending upon the holding period for the option.
If the option is exercised, the cost of the option, in the case
of a call option, is added to the basis of the purchased
security and, in the case of a put option, reduces the amount
realized on the underlying security in determining gain or loss.
The Funds investment in so-called section 1256
contracts, such as regulated futures contracts, most
foreign currency forward contracts traded in the interbank
market, options on most stock indices and any non-equity
options, are subject to special tax rules. All section 1256
contracts held by the Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized
gain or loss on those positions will be included in the
Funds income as if each position had been sold for its
fair market value at the end of the taxable year. The resulting
gain or loss will be combined with any gain or loss realized by
the Fund from positions in section 1256 contracts closed
during the taxable year. Provided such positions were held as
capital assets and were not part of a hedging
transaction nor part of a straddle, 60% of the
resulting net gain or loss will be treated as long-term capital
gain or loss, and 40% of such net gain or loss will be treated
as short-term capital gain or loss, regardless of the period of
time the positions were actually held by the Fund.
Investments by the Fund in certain passive foreign
investment companies (PFICs) could subject the
Fund to U.S. federal income tax (including interest
charges) on certain distributions or dispositions with respect
to those investments which cannot be eliminated by making
distributions to shareholders. Elections may be available to the
Fund to mitigate the effect of the PFIC rules, but such
elections generally accelerate the recognition of income without
the receipt of cash. Dividends paid by PFICs will not qualify
for the reduced tax rates discussed below under Taxation
of Shareholders.
The Fund may invest in debt obligations purchased at a discount
with the result that the Fund may be required to accrue income
for U.S. federal income tax purposes before amounts due
under the obligations are paid. The Fund may also invest in
securities rated in the medium to lower rating categories of
nationally recognized rating organizations, and in unrated
securities (high yield securities). A portion of the
interest payments on such high yield securities may be treated
as dividends for certain U.S. federal income tax purposes.
As a result of investing in stock of PFICs or securities
purchased at a discount or any other investment that produces
income that is not matched by a corresponding cash distribution
to the Fund, the Fund could be required to include in current
income, income it has not yet received. Any such income would be
treated as income earned by the Fund and therefore would be
subject to the distribution requirements of the Code. This might
prevent the Fund from distributing 90% of its investment company
taxable income as is required in order to avoid
Fund-level U.S. federal income tax on all of its
income, or might prevent the Fund from distributing enough
ordinary income and capital gain net income to avoid the
imposition of the excise tax. To avoid this result, the Fund may
be required to borrow money or dispose of securities to be able
to make distributions to its shareholders.
If the Fund does not meet the asset coverage requirements of the
1940 Act and the Statements of Preferences, the Fund will be
required to suspend distributions to the holders of the common
shares until the asset coverage is restored. Such a suspension
of distributions might prevent the Fund from distributing 90% of
its investment company taxable income as is required in order to
avoid Fund-level U.S. federal income taxation on all
of its income, or might prevent the Fund from distributing
enough income and capital gain net income to avoid imposition of
the excise tax.
30
Foreign
Taxes
Because the Fund may invest in foreign securities, its income
from such securities may be subject to
non-U.S. taxes.
The Fund may invest more or less than 50% of its total assets in
foreign securities. If less than 50% of the Funds total
assets at the close of its taxable year consists of stock or
securities of foreign securities, it will not be eligible to
elect to pass-through to its shareholders the
ability to use the foreign tax deduction or foreign tax credit
for foreign taxes paid with respect to qualifying taxes. If more
than 50% of the Funds total assets at the close of its
taxable year consists of stock or securities of foreign
corporations, the Fund may elect for U.S. federal income
tax purposes to treat foreign income taxes paid by it as paid by
its shareholders. The Fund may qualify for and make this
election in some, but not necessarily all, of its taxable years.
If the Fund were to make such an election, shareholders of the
Fund would be required to take into account an amount equal to
their pro rata portions of such foreign taxes in computing their
taxable income and then treat an amount equal to those foreign
taxes as a U.S. federal income tax deduction or as a
foreign tax credit against their U.S. federal income
liability. Shortly after any year for which it makes such an
election, the Fund will report to its shareholders the amount
per share of such foreign income tax that must be included in
each shareholders gross income and the amount that may be
available for the deduction or credit.
Taxation
of Shareholders
The Fund will either distribute or retain for reinvestment all
or part of its net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss). If any
such gain is retained, the Fund will be subject to regular
corporate income tax such amount. In that event, the Fund
expects to designate the retained amount as undistributed
capital gain in a notice to its shareholders, each of whom
(i) will be required to include in income for tax purposes
as long-term capital gain its share of such undistributed
amounts, (ii) will be entitled to credit its proportionate
share of the tax paid by the Fund against its U.S. federal
income tax liability and to claim refunds to the extent that the
credit exceeds such liability and (iii) will increase its
basis in its shares of the Fund by an amount equal to 65% of the
amount of undistributed capital gain included in such
shareholders gross income.
Distributions paid by the Fund from its investment company
taxable income, which includes net short-term capital gain,
generally are taxable as ordinary income to the extent of the
Funds earnings and profits. Provided that certain holding
period and other requirements are met, such distributions (if
reported by the Fund) may qualify (i) for the dividends
received deduction available to corporations, but only to the
extent that the Funds income consists of dividend income
from U.S. corporations and (ii) in the case of
individual shareholders, as qualified dividend income eligible
to be taxed at long-term capital gain rates to the extent that
the Fund receives qualified dividend income. These special rules
relating to the taxation of ordinary income dividends paid by
RICs to individual taxpayers generally apply to taxable years
beginning on or before December 31, 2012. Thereafter, the
Funds dividends, other than capital gains dividends, will
be fully taxable at ordinary income rates unless further
Congressional action is taken. In general, a shareholder of the
Fund may only include as qualified dividend income that portion
of the dividends that may be and are so reported by the Fund as
qualified dividend income. There can be no assurance as to what
portion of the Funds distributions will qualify for
favorable treatment as qualified dividend income or whether
Congress will extend such treatment to taxable years beginning
after December 31, 2012.
Qualified dividend income is, in general, dividend income from
taxable domestic corporations and certain qualified foreign
corporations (e.g., generally, foreign corporations incorporated
in a possession of the United States or in certain countries
with a qualifying comprehensive tax treaty with the United
States, or whose stock with respect to which such dividend is
paid is readily tradable on an established securities market in
the United States). A qualified foreign corporation does not
include a foreign corporation that for the taxable year of the
corporation in which the dividend was paid, or the preceding
taxable year, is a passive foreign investment
company, as defined in the Code. If the Fund lends
portfolio securities, the amount received by the Fund that is
the equivalent of the dividends paid by the issuer on the
securities loaned will not be eligible for qualified dividend
income treatment.
31
Distributions of net capital gain reported as capital gain
distributions, if any, are taxable to shareholders at rates
applicable to long-term capital gain, whether paid in cash or in
shares, and regardless of how long the shareholder has held the
Funds shares. Capital gain distributions are not eligible
for the dividends received deduction. The maximum tax rate on
net long-term capital gain of individuals generally is 15% for
taxable years beginning before January 1, 2013.
Distributions in excess of the Funds earnings and profits
will first reduce the adjusted tax basis of a holders
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).
The IRS currently requires that a regulated investment company
that has two or more classes of stock allocate to each such
class proportionate amounts of each type of its income (such as
ordinary income, capital gains, dividends qualifying for the
dividends received deduction (DRD) and qualified
dividend income) based upon the percentage of total dividends
paid to each class for the tax year. Accordingly, the Fund
intends each year to allocate capital gain dividends, dividends
qualifying for the DRD and dividends that constitute qualified
dividend income, if any, between its common shares and preferred
shares in proportion to the total dividends paid to each class
with respect to such tax year. Distributions in excess of the
Funds current and accumulated earnings and profits, if
any, however, will not be allocated proportionately among the
common shares and preferred shares. Since the Funds
current and accumulated earnings and profits will first be used
to pay dividends on its preferred shares, distributions in
excess of such earnings and profits, if any, will be made
disproportionately to holders of common shares.
If, for any calendar year, the total distributions exceed both
current earnings and profits and accumulated earnings and
profits, the excess will generally be treated as a tax-free
return of capital up to the amount of a shareholders tax
basis in the shares. The amount treated as a tax-free return of
capital will reduce a shareholders tax basis in the
shares, thereby increasing such shareholders potential
taxable gain or reducing his or her potential taxable loss on
the sale of the shares. Any amounts distributed to a shareholder
in excess of his or her basis in the shares will be taxable to
the shareholder as capital gain (assuming the shares are held as
a capital asset). Distributions that constitute a return of
capital should not be considered as dividend yield or the total
return from an investment in the Fund.
Shareholders may be entitled to offset their capital gain
distributions (but not distributions eligible for qualified
dividend income treatment) with capital loss. There are a number
of statutory provisions affecting when capital loss may be
offset against capital gain, and limiting the use of loss from
certain investments and activities. Accordingly, shareholders
with capital loss are urged to consult their tax advisers.
The price of shares purchased at any time may reflect the amount
of a forthcoming distribution. Those purchasing shares just
prior to a distribution will receive a distribution which will
be taxable to them even though it represents in part a return of
invested capital.
Upon a sale, exchange or other disposition of shares, a
shareholder will generally realize a taxable gain or loss equal
to the difference between the amount of cash and the fair market
value of other property received and the shareholders
adjusted tax basis in the shares. Such gain or loss will be
treated as long-term capital gain or loss if the shares have
been held for more than one year. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of
are replaced by substantially identical shares within a
61-day
period beginning 30 days before and ending 30 days
after the date that the shares are disposed of. In such a case,
the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Any loss realized by a shareholder on the sale of Fund shares
held by the shareholder for six months or less will be treated
for tax purposes as a long-term capital loss to the extent of
any capital gain distributions received by the shareholder (or
amounts credited to the shareholder as an undistributed capital
gain) with respect to such shares.
Ordinary income distributions and capital gain distributions
also may be subject to state and local taxes. Shareholders are
urged to consult their own tax advisers regarding specific
questions about 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.
32
A shareholder that is a nonresident alien individual or a
foreign corporation (a foreign investor) generally
will be subject to U.S. withholding tax at the rate of 30%
(or possibly a lower rate provided by an applicable tax treaty)
on ordinary income dividends. Assuming applicable disclosure and
certification requirements are met, U.S. federal
withholding tax will generally not apply to any gain or income
realized by a foreign investor in respect of any distributions
of net capital gain (including net capital gain retained by the
fund but deemed distributed to shareholders) or upon the sale or
other disposition of shares of the Fund. Different tax
consequences may result if the foreign investor is engaged in a
trade or business in the United States, or in the case of an
individual, if the foreign investor is present in the United
States for 183 days or more during a taxable year and
certain other conditions are met.
In addition, after December 31, 2012, the Fund will be
required to withhold at a rate of 30 percent on dividends
in respect of, and gross proceeds from the sale of, the
Funds shares held by or through certain foreign financial
institutions (including investment funds), unless such
institution enters into an agreement with the Secretary of the
Treasury to report, on an annual basis, information with respect
to shares in, and accounts maintained by, the institution to the
extent such shares or accounts are held by certain
U.S. persons or by certain
non-U.S. entities
that are wholly or partially owned by U.S. persons.
Accordingly, the entity through which the Funds shares are
held will affect the determination of whether such withholding
is required. Similarly, dividends in respect of, and gross
proceeds from the sale of, the Funds shares held by an
investor that is a non-financial
non-U.S. entity
will be subject to withholding at a rate of 30 percent,
unless such entity either (i) certifies to the Fund that
such entity does not have any substantial United States
owners or (ii) provides certain information regarding
the entitys substantial United States owners,
which the Fund will in turn provide to the Secretary of the
Treasury. Foreign investors are encouraged to consult with their
tax advisers regarding the possible implications of the
legislation on their investment in the Funds shares.
In addition, for taxable years of the Fund beginning before
January 1, 2012, properly reported dividends are generally
exempt from U.S. federal withholding tax where they
(i) are paid in respect of the Funds qualified
net interest income (generally, the Funds
U.S.-source
interest income, other than certain contingent interest and
interest from obligations of a corporation or partnership in
which the Fund is at least a 10% shareholder, reduced by
expenses that are allocable to such income) or (ii) are
paid in respect of the Funds qualified short-term
capital gains (generally, the excess of the Funds
net short-term capital gain over the Funds long-term
capital loss for such taxable year). Depending on its
circumstances, however, the Fund may report all, some or none of
its potentially eligible dividends as such qualified net
interest income or as qualified short-term capital gains,
and/or treat
such dividends, in whole or in part, as ineligible for this
exemption from withholding. In order to qualify for this
exemption from withholding, a foreign investor will need to
comply with applicable certification requirements relating to
its
non-U.S. status
(including, in general, furnishing an IRS
Form W-8BEN
or substitute Form). In the case of shares held through an
intermediary, the intermediary may withhold even if the Fund
reports the payment as qualified net interest income or
qualified short-term capital gain. Foreign investors should
contact their intermediaries with respect to the application of
these rules to their accounts. There can be no assurance as to
what portion of the Funds distributions will qualify for
favorable treatment as qualified net interest income or
qualified short-term capital gains.
Foreign investors should consult their tax advisers regarding
the tax consequences of investing in the Funds shares.
The Fund may be required to withhold U.S. federal income
tax on all taxable distributions and redemption proceeds payable
to non-corporate shareholders who fail to provide the Fund (or
its agent) with their correct taxpayer identification number or
to make required certifications, or who have been notified by
the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may
be refunded or credited against such shareholders
U.S. federal income tax liability, if any, provided that
the required information is furnished to the IRS.
33
Taxation
of Noteholders
This discussion assumes that the notes will not be issued with
original issue discount for U.S. federal income tax
purposes. Accordingly, noteholders will be required to include
payments of interest on the notes in their gross income in
accordance with their method of accounting for U.S. federal
income tax purposes.
Any gain or loss from the disposition of the notes will be
treated as capital gain for noteholders who hold the notes as
capital assets and as long-term capital gain or loss if the
notes have been held for more than one year as of the date of
disposition. However, a portion of such gain may be required to
be treated as ordinary income under special rules of the Code
governing the treatment of market discount. A noteholder who
acquires a note at a market discount (i.e., at a price less than
the principal amount or the adjusted issue price as
determined for tax purposes, if relevant), such as a subsequent
purchaser of the notes, will be required to treat as ordinary
income a portion of any gain realized upon a disposition of the
note equal to the amount of market discount deemed to have been
accrued as of the date of disposition unless an election is made
to include such discount in income on a current basis. A
noteholder who acquires a note at a market discount and does not
elect to include such discount in income on a current basis will
be required to defer deduction of a portion of interest paid or
accrued on debt incurred or continue to purchase or carry the
note until the noteholder disposes of the note. These rules may
have an effect on the price that can be obtained upon the sale
of a note. Amounts received upon a sale or redemption of the
notes will be subject to tax as ordinary income to the extent of
any accrued and unpaid interest on the notes as of the date of
redemption.
If you are a foreign investor, the payment of interest on the
notes generally will be considered portfolio
interest and thus generally will be exempt from
U.S. withholding tax and U.S. federal income tax. This
exemption will apply to a noteholder provided that
(1) interest paid on the notes is not effectively connected
with your conduct of a trade or business in the United States,
(2) the noteholder is not a bank whose receipt of interest
on the notes is described in Section 881(c)(3)(A) of the
Code, (3) the noteholder does not actually or
constructively own 10 percent or more of the combined
voting power of all classes of the Funds stock entitled to
vote, (4) the noteholder is not a controlled foreign
corporation that is related, directly or indirectly, to the Fund
through stock ownership, and (5) the noteholder satisfies
the certification requirements described below.
To satisfy the certification requirements, either (1) the
noteholder must certify, under penalties of perjury, that such
holder is a
non-U.S. person
and must provide such owners name, address and taxpayer
identification number, if any, on IRS
Form W-8BEN,
or (2) a securities clearing organization, bank or other
financial institution that holds customer securities in the
ordinary course of its trade or business and holds the notes on
behalf of the holder thereof must certify, under penalties of
perjury, that it has received a valid and properly executed IRS
Form W-8BEN
from the beneficial holder and comply with certain other
requirements. Special certification rules apply for notes held
by a foreign partnership and other intermediaries.
Interest on notes received by a foreign investor that is not
excluded from U.S. federal withholding tax under the
portfolio interest exemption as described above generally will
be subject to 30% U.S. withholding tax, unless a reduced
rate of withholding or a withholding exemption is provided under
applicable treaty law. In order to obtain such a reduced rate of
withholding, a foreign investor will be required to provide an
IRS
Form W-8BEN
certifying its entitlement to benefits under a treaty. Interest
effectively connected with a
non-U.S. noteholders
conduct of a U.S. trade or business would not, however, be
subject to a 30% withholding tax so long as the holder provides
the Fund (or its agent) an adequate certification (currently an
IRS
Form W-8ECI),
such interest generally would be subject to U.S. federal
income tax on a net basis at the rates applicable to
U.S. persons generally.
Any capital gain that a foreign investor realizes on a sale,
exchange or other disposition of notes generally will be exempt
from United States federal income tax, including withholding
tax. Different tax consequences may result (i) if the
foreign investor is engaged in a trade or business in the United
States, (ii) in the case of an individual, if the foreign
investor is present in the United States for 183 days or
more during a taxable year and certain other conditions are met,
or (iii) for distributions or sale proceeds received after
December 31, 2012, if the holder is a foreign entity that
fails to satisfy applicable disclosure and certification
requirements regarding its owners and account holders.
34
Noteholders may be subject to backup withholding with respect to
interest paid to non-corporate holders of the Funds notes
and amounts realized on the disposition of the Funds
notes, unless the noteholder furnishes the Fund with their
correct taxpayer identification number (in the case of
individuals, their social security number) and certain
certifications, or who are otherwise subject to backup
withholding. Backup withholding is not an additional tax. Any
amounts withheld from payments made to you may be refunded or
credited against your U.S. federal income tax liability, if
any, provided that the required information is furnished to the
IRS.
Taxation
of Subscription Rights
As described more fully below, the distribution of subscription
rights may be a taxable or non-taxable distribution. Subject to
certain exceptions (which may apply), distributions of
subscription rights to common shareholders are generally
non-taxable distributions and distributions of subscription
rights to preferred shareholders (subject to certain exceptions
not applicable to the Fund) are generally taxable distributions.
Holders
of Common Shares
The U.S. federal income tax consequences to a holder of
common shares on the receipt of subscription rights should, as a
general matter, be as follows:
If the subscription rights are offered to common shareholders,
the value of a subscription right will not be includible in the
income of such shareholders at the time the subscription right
is issued.
The basis of a subscription right issued to common shareholders
will be zero, and the basis of the share with respect to which
the subscription right was issued (the old share) will remain
unchanged, unless either (a) the fair market value of the
subscription right on the date of distribution is at least 15%
of the fair market value of the old share, or (b) such
shareholder affirmatively elects (in the manner set out in
Treasury regulations under the Code) to allocate to the
subscription right a portion of the basis of the old share. If
either (a) or (b) applies, a common shareholder must
allocate basis between the old share and the subscription right
in proportion to their fair market values on the date of
distribution.
The basis of a subscription right purchased in the market will
generally be its purchase price.
The holding period of a subscription right issued to a common
shareholder will include the holding period of the old share.
No loss will be recognized by a common shareholder if a
subscription right distributed to such shareholder expires
unexercised because the basis of the old share may be allocated
to a subscription right only if the subscription right is
exercised. If a subscription right that has been purchased in
the market expires unexercised, there will be a recognized loss
equal to the basis of the subscription right.
Any gain or loss on the sale of a subscription right will be a
capital gain or loss if the subscription right is held as a
capital asset (which in the case of subscription rights issued
to shareholders will depend on whether the old share is held as
a capital asset), and will be a long-term capital gain or loss
if the holding period is deemed to exceed one year. Capital
losses are deductible only to the extent of capital gains
(subject to an exception for individuals under which $3,000 of
capital losses may be offset against ordinary income).
No gain or loss will be recognized by a common shareholder upon
the exercise of a subscription right, and the basis of any
preferred share acquired upon exercise (the new preferred share)
will equal the sum of the basis, if any, of the subscription
right and the price of the subscription right for the new
preferred share. The holding period for the new preferred share
will begin on the date when the subscription right is exercised.
35
Holders
of Preferred Shares
The U.S. federal income tax consequences to a holder of
preferred shares on the receipt of subscription rights should,
as a general matter, be as follows:
As more fully described below, if the subscription rights are
offered to preferred shareholders, upon receipt of a
subscription right, a preferred shareholder generally will be
treated as receiving a taxable distribution in an amount equal
to the fair market value of the subscription right the preferred
shareholder receives.
To the extent that the distribution is made out of the
Funds earnings and profits, the subscription right will be
a taxable dividend to the preferred shareholder. If the amount
of the distribution received by the preferred shareholder
exceeds such shareholders proportionate share of the
Funds earnings and profits, the excess will reduce the
preferred shareholders tax basis in the preferred shares
with respect to which the subscription right was issued (the old
share). To the extent that the excess is greater than the
preferred shareholders tax basis in the old shares, such
excess will be treated as gain from the sale of the old shares.
If the preferred shareholder held the old shares for more than
one year, such gain will be treated as long-term capital gain.
A preferred shareholders tax basis in the subscription
rights received will equal the fair market value of the
subscription rights on the date of the distribution.
A preferred shareholder who allows the subscription rights
received to expire generally will recognize a short-term capital
loss. Capital losses are deductible only to the extent of
capital gains (subject to an exception for individuals under
which $3,000 of capital losses may be offset against ordinary
income).
A preferred shareholder who sells the subscription rights will
recognize a gain or loss equal to the difference between the
amount realized on the sale and the preferred shareholders
tax basis in the subscription rights as described above.
A preferred shareholder will not recognize any gain or loss upon
the exercise of the subscription rights received in the rights
offering. The tax basis of the shares acquired through exercise
of the subscription rights (the new shares) will equal the sum
of the subscription price for the new shares and the preferred
shareholders tax basis in the subscription rights as
described above. The holding period for the new shares acquired
through exercise of the subscription rights will begin on the
day following the date on which the subscription rights are
exercised.
THE FOREGOING IS A GENERAL AND ABBREVIATED SUMMARY OF THE
APPLICABLE PROVISIONS OF THE CODE AND TREASURY REGULATIONS
PRESENTLY IN EFFECT. FOR THE COMPLETE PROVISIONS, REFERENCE
SHOULD BE MADE TO THE PERTINENT CODE SECTIONS AND THE
TREASURY REGULATIONS PROMULGATED THEREUNDER. THE CODE AND THE
TREASURY REGULATIONS ARE SUBJECT TO CHANGE BY LEGISLATIVE,
JUDICIAL OR ADMINISTRATIVE ACTION, EITHER PROSPECTIVELY OR
RETROACTIVELY. PERSONS CONSIDERING AN INVESTMENT IN OUR
SHARES OR NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS
REGARDING THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR
SHARES OR NOTES.
NET ASSET
VALUE
The net asset value of the Funds shares is computed based
on the market value of the securities it holds and determined
daily as of the close of the regular trading day on the NYSE.
For purposes of determining the Funds net asset value per
share, portfolio securities listed or traded on a nationally
recognized securities exchange or traded in the
U.S. over-the-counter
market for which market quotations are readily available are
valued at the last quoted sale price or a markets official
closing price as of the close of business on the day the
securities are being valued. If there were no sales that day,
the security is valued at the average of the closing bid and
asked prices or, if there were no asked prices quoted on that
day, then the security is valued at
36
the closing bid price on that day. If no bid or asked prices are
quoted on such day, the security is valued at the most recently
available price or, if the Board so determines, by such other
method as the Board shall determine in good faith to reflect its
fair market value. Portfolio securities traded on more than one
national securities exchange or market are valued according to
the broadest and most representative market, as determined by
the Investment Adviser.
Portfolio securities primarily traded on a foreign market are
generally valued at the preceding closing values of such
securities on the relevant market, but may be fair valued
pursuant to procedures established by the Board if market
conditions change significantly after the close of the foreign
market but prior to the close of business on the day the
securities are being valued. Debt instruments with remaining
maturities of 60 days or less that are not credit impaired
are valued at amortized cost, unless the Board determines such
amount does not reflect the securities fair value, in
which case these securities will be fair valued as determined by
the Board. Debt instruments having a maturity greater than
60 days for which market quotations are readily available
are valued at the average of the latest bid and asked prices. If
there were no asked prices quoted on such day, the security is
valued using the closing bid price. Futures contracts are valued
at the closing settlement price of the exchange or board of
trade on which the applicable contract is traded.
Securities and assets for which market quotations are not
readily available are fair valued as determined by the Board.
Fair valuation methodologies and procedures may include, but are
not limited to: analysis and review of available financial and
non-financial information about the company; comparisons to the
valuation and changes in valuation of similar securities,
including a comparison of foreign securities to the equivalent
U.S. dollar value ADR securities at the close of the
U.S. exchange; and evaluation of any other information that
could be indicative of the value of the security.
The Fund obtains valuations on the basis of prices provided by
one or more pricing services approved by the Board. All other
investment assets, including restricted and not readily
marketable securities, are valued in good faith at fair value
under procedures established by and under the general
supervision and responsibility of the Funds Board.
In addition, whenever developments in one or more securities
markets after the close of the principal markets for one or more
portfolio securities and before the time as of which the Fund
determines its net asset value would, if such developments had
been reflected in such principal markets, likely have more than
a minimal effect on the Funds net asset value per share,
the Fund may fair value such portfolio securities based on
available market information as of the time the Fund determines
its net asset value.
NYSE Amex Closings. The holidays (as observed)
on which the NYSE Amex is closed, and therefore days upon which
shareholders cannot purchase or sell shares, currently are: New
Years Day, Martin Luther King, Jr. Day,
Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday when a holiday falls on a
Saturday or Sunday, respectively.
BENEFICIAL
OWNERS
As of June 30, 2011, the following person was known to the
Fund to be beneficial owners of more than 5% of the Funds
outstanding common shares; Mr. Mario J. Gabelli and
affiliates.
As of June 30, 2010, the Trustees and Officers of the Fund
as a group beneficially owned less than 1% of the Funds
outstanding common shares.
*Mr. Gabelli and his affiliates owned 5.6% of the
outstanding common shares of the Fund as of June 30, 2011.
This amount is comprised of 171,491 shares owned by GAMCO
Investors, Inc. or its affiliates. Mr. Gabelli disclaims
beneficial ownership of the shares held by the discretionary
accounts and by the entities named except to the extent of his
interest in such entities.
37
GENERAL
INFORMATION
Book-Entry-Only
Issuance
The Depository Trust Company (DTC) will act as
securities depository for the securities offered pursuant to the
Prospectus. The information in this section concerning DTC and
DTCs book-entry system is based upon information obtained
from DTC. The securities offered hereby initially will be issued
only as fully-registered securities registered in the name of
Cede & Co. (as nominee for DTC). One or more
fully-registered global security certificates initially will be
issued, representing in the aggregate the total number of
securities, and deposited with DTC.
DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code and a
clearing agency registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of
1934. DTC holds securities that its participants deposit with
DTC. DTC also facilities the settlement among participants of
securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry
changes in participants accounts, thereby eliminating the
need for physical movement of securities certificates. Direct
DTC participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other
organizations. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial
relationship with a direct participant, either directly or
indirectly through other entities.
Purchases of securities within the DTC system must be made by or
through direct participants, which will receive a credit for the
securities on DTCs records. The ownership interest of each
actual purchaser of a security, a beneficial owner, is in turn
to be recorded on the direct or indirect participants
records. Beneficial owners will not receive written confirmation
from DTC of their purchases, but beneficial owners are expected
to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the
beneficial owners purchased securities. Transfers of ownership
interests in securities are to be accomplished by entries made
on the books of participants acting on behalf of beneficial
owners. Beneficial owners will not receive certificates
representing their ownership interests in securities, except as
provided herein.
DTC has no knowledge of the actual beneficial owners of the
securities being offered pursuant to the prospectus; DTCs
records reflect only the identity of the direct participants to
whose accounts such securities are credited, which may or may
not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants,
and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Payments on the securities will be made to DTC. DTCs
practice is to credit direct participants accounts on the
relevant payment date in accordance with their respective
holdings shown on DTCs records unless DTC has reason to
believe that it will not receive payments on such payment date.
Payments by participants to beneficial owners will be governed
by standing instructions and customary practices and will be the
responsibility of such participant and not of DTC or the Fund,
subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the
responsibility of the Fund, disbursement of such payments to
direct participants is the responsibility of DTC, and
disbursement of such payments to the beneficial owners is the
responsibility of direct and indirect participants. Furthermore
each beneficial owner must rely on the procedures of DTC to
exercise any rights under the securities.
38
DTC may discontinue providing its services as securities
depository with respect to the securities at any time by giving
reasonable notice to the Fund. Under such circumstances, in the
event that a successor securities depository is not obtained,
certificates representing the securities will be printed and
delivered.
Proxy
Voting Procedures
The Fund has adopted the proxy voting procedures of the
Investment Adviser and has directed the Investment Adviser to
vote all proxies relating to the Funds voting securities
in accordance with such procedures. The proxy voting procedures
are attached. They are also on file with the Securities and
Exchange Commission and can be reviewed and copied at the
Securities and Exchange Commissions Public Reference Room
in Washington, D.C., and information on the operation of
the Public Reference Room may be obtained by calling the
Securities and Exchange Commission at
202-551-8090.
The proxy voting procedures are also available on the EDGAR
Database on the Securities and Exchange Commissions
internet site
(http://www.sec.gov)
and copies of the proxy voting procedures may be obtained, after
paying a duplicating fee, by electronic request at the follow
E-mail
address: publicinfo@sec.gov, or by writing the Securities
and Exchange Commissions Public Reference Section,
Washington, D.C.
20549-0102.
Code of
Ethics
The Fund and the Investment Adviser have adopted a code of
ethics. This code of ethics sets forth restrictions on the
trading activities of Trustees/directors, officers and employees
of the Fund, the Investment Adviser and their affiliates. For
example, such persons may not purchase any security for which
the Fund has a purchase or sale order pending, or for which such
trade is under consideration. In addition, those
trustees/directors, officers and employees that are principally
involved in investment decisions for client accounts are
prohibited from purchasing or selling for their own account for
a period of seven days a security that has been traded for a
clients account, unless such trade is executed on more
favorable terms for the clients account and it is
determined that such trade will not adversely affect the
clients account. Short-term trading by such
Trustee/directors, officers and employees for their own accounts
in securities held by a Fund clients account is also
restricted. The above examples are subject to certain exceptions
and they do not represent all of the trading restrictions and
policies set forth by the code of ethics. The code of ethics is
on file with the SEC and can be reviewed and copied at the
SECs Public Reference Room in Washington, D.C., and
information on the operation of the Public Reference Room may be
obtained by calling the SEC at
(202) 942-8090.
The code of ethics is also available on the EDGAR Database on
the SECs Internet site at
http://www.sec.gov
and copies of the code of ethics may be obtained, after
paying a duplicating fee, by electronic request at the following
E-mail
address: publicinfo@sec.gov, or by writing the SECs
Public Reference Section,
Washington, D.C. 20549-0102.
Joint
Code of Ethics for Chief Executive and Senior Financial
Officers
The Fund and the Investment Adviser have adopted a joint Code of
Ethics that serves as a code of conduct. The Code of Ethics sets
forth policies to guide the chief executive and senior financial
officers in the performance of their duties. The Code of Ethics
is on file with the SEC and can be reviewed and copied at the
SECs Public Reference Room in Washington, D.C., and
information on the operation of the Public Reference Room may be
obtained by calling the SEC at
202-551-8090.
The Code of Ethics is also available on the EDGAR Database on
the SECs Internet site
(http://www.sec.gov),
and copies of the Code of Ethics may be obtained, after paying a
duplicating fee, by electronic request at the following
E-mail
address: publicinfo@sec.gov, or by writing the SECs
Public Reference Section, Washington, D.C.
20549-0102.
FINANCIAL
STATEMENTS
The audited financial statements included in the annual report
to the Funds shareholders for the year ended
December 31, 2010, together with the report of
[ ]
are incorporated herein by reference to the Funds annual
report to shareholders. All other portions of the annual report
to shareholders are not incorporated herein by reference and are
not part of the registration statement.
39
APPENDIX A
GAMCO
INVESTORS, INC. and AFFILIATES
The
Voting of Proxies on Behalf of Clients
Rules 204(4)-2
and 204-2
under the Investment Advisers Act of 1940 and
Rule 30b1-4
under the Investment Company Act of 1940 require investment
advisers to adopt written policies and procedures governing the
voting of proxies on behalf of their clients.
These procedures will be used by GAMCO Asset Management Inc.,
Gabelli Funds, LLC, Gabelli Securities, Inc., and Teton
Advisors, Inc. (collectively, the Advisers) to
determine how to vote proxies relating to portfolio securities
held by their clients, including the procedures that the
Advisers use when a vote presents a conflict between the
interests of the shareholders of an investment company managed
by one of the Advisers, on the one hand, and those of the
Advisers; the principal underwriter; or any affiliated person of
the investment company, the Advisers, or the principal
underwriter. These procedures will not apply where the Advisers
do not have voting discretion or where the Advisers have agreed
to with a client to vote the clients proxies in accordance
with specific guidelines or procedures supplied by the client
(to the extent permitted by ERISA).
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I.
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Proxy
Voting Committee
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The Proxy Voting Committee was originally formed in April 1989
for the purpose of formulating guidelines and reviewing proxy
statements within the parameters set by the substantive proxy
voting guidelines originally published in 1988 and updated
periodically, a copy of which are appended as Exhibit A.
The Committee will include representatives of Research,
Administration, Legal, and the Advisers. Additional or
replacement members of the Committee will be nominated by the
Chairman and voted upon by the entire Committee.
Meetings are held as needed basis to form views on the manner in
which the Advisers should vote proxies on behalf of their
clients.
In general, the Director of Proxy Voting Services, using the
Proxy Guidelines, recommendations of Institutional Shareholder
Corporate Governance Service (ISS), other
third-party services and the analysts of Gabelli &
Company, Inc., will determine how to vote on each issue. For
non-controversial matters, the Director of Proxy Voting Services
may vote the proxy if the vote is: (1) consistent with the
recommendations of the issuers Board of Directors and not
contrary to the Proxy Guidelines; (2) consistent with the
recommendations of the issuers Board of Directors and is a
non-controversial issue not covered by the Proxy Guidelines; or
(3) the vote is contrary to the recommendations of the
Board of Directors but is consistent with the Proxy Guidelines.
In those instances, the Director of Proxy Voting Services or the
Chairman of the Committee may sign and date the proxy statement
indicating how each issue will be voted.
All matters identified by the Chairman of the Committee, the
Director of Proxy Voting Services or the Legal Department as
controversial, taking into account the recommendations of ISS or
other third party services and the analysts of
Gabelli & Company, Inc., will be presented to the
Proxy Voting Committee. If the Chairman of the Committee, the
Director of Proxy Voting Services or the Legal Department has
identified the matter as one that (1) is controversial;
(2) would benefit from deliberation by the Proxy Voting
Committee; or (3) may give rise to a conflict of interest
between the Advisers and their clients, the Chairman of the
Committee will initially determine what vote to recommend that
the Advisers should cast and the matter will go before the
Committee.
A. Conflicts of Interest.
The Advisers have implemented these proxy voting procedures in
order to prevent conflicts of interest from influencing their
proxy voting decisions. By following the Proxy Guidelines, as
well as the recommendations of ISS, other third-party services
and the analysts of Gabelli & Company, the Advisers
A-1
are able to avoid, wherever possible, the influence of potential
conflicts of interest. Nevertheless, circumstances may arise in
which one or more of the Advisers are faced with a conflict of
interest or the appearance of a conflict of interest in
connection with its vote. In general, a conflict of interest may
arise when an Adviser knowingly does business with an issuer,
and may appear to have a material conflict between its own
interests and the interests of the shareholders of an investment
company managed by one of the Advisers regarding how the proxy
is to be voted. A conflict also may exist when an Adviser has
actual knowledge of a material business arrangement between an
issuer and an affiliate of the Adviser.
In practical terms, a conflict of interest may arise, for
example, when a proxy is voted for a company that is a client of
one of the Advisers, such as GAMCO Asset Management Inc. A
conflict also may arise when a client of one of the Advisers has
made a shareholder proposal in a proxy to be voted upon by one
or more of the Advisers. The Director of Proxy Voting Services,
together with the Legal Department, will scrutinize all proxies
for these or other situations that may give rise to a conflict
of interest with respect to the voting of proxies.
B. Operation of Proxy Voting Committee
For matters submitted to the Committee, each member of the
Committee will receive, prior to the meeting, a copy of the
proxy statement, any relevant third party research, a summary of
any views provided by the Chief Investment Officer and any
recommendations by Gabelli & Company, Inc. analysts.
The Chief Investment Officer or the Gabelli & Company,
Inc. analysts may be invited to present their viewpoints. If the
Director of Proxy Voting Services or the Legal Department
believe that the matter before the committee is one with respect
to which a conflict of interest may exist between the Advisers
and their clients, counsel will provide an opinion to the
Committee concerning the conflict. If the matter is one in which
the interests of the clients of one or more of Advisers may
diverge, counsel will so advise and the Committee may make
different recommendations as to different clients. For any
matters where the recommendation may trigger appraisal rights,
counsel will provide an opinion concerning the likely risks and
merits of such an appraisal action.
Each matter submitted to the Committee will be determined by the
vote of a majority of the members present at the meeting. Should
the vote concerning one or more recommendations be tied in a
vote of the Committee, the Chairman of the Committee will cast
the deciding vote. The Committee will notify the proxy
department of its decisions and the proxies will be voted
accordingly.
Although the Proxy Guidelines express the normal preferences for
the voting of any shares not covered by a contrary investment
guideline provided by the client, the Committee is not bound by
the preferences set forth in the Proxy Guidelines and will
review each matter on its own merits. Written minutes of all
Proxy Voting Committee meetings will be maintained. The Advisers
subscribe to ISS, which supplies current information on
companies, matters being voted on, regulations, trends in proxy
voting and information on corporate governance issues.
If the vote cast either by the analyst or as a result of the
deliberations of the Proxy Voting Committee runs contrary to the
recommendation of the Board of Directors of the issuer, the
matter will be referred to legal counsel to determine whether an
amendment to the most recently filed Schedule 13D is
appropriate.
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II.
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Social
Issues and Other Client Guidelines
|
If a client has provided special instructions relating to the
voting of proxies, they should be noted in the clients
account file and forwarded to the proxy department. This is the
responsibility of the investment professional or sales assistant
for the client. In accordance with Department of Labor
guidelines, the Advisers policy is to vote on behalf of
ERISA accounts in the best interest of the plan participants
with regard to social issues that carry an economic impact.
Where an account is not governed by ERISA, the Advisers will
vote shares held on behalf of the client in a manner consistent
with any individual investment/voting guidelines provided by the
client. Otherwise the Advisers will abstain with respect to
those shares.
A-2
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III.
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Client
Retention of Voting Rights
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If a client chooses to retain the right to vote proxies or if
there is any change in voting authority, the following should be
notified by the investment professional or sales assistant for
the client.
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Operations
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Proxy Department
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Investment professional assigned to the account
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In the event that the Board of Directors (or a Committee
thereof) of one or more of the investment companies managed by
one of the Advisers has retained direct voting control over any
security, the Proxy Voting Department will provide each Board
Member (or Committee member) with a copy of the proxy statement
together with any other relevant information including
recommendations of ISS or other third-party services.
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IV.
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Proxies
of Certain
Non-U.S. Issuers
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Proxy voting in certain countries requires
share-blocking. Shareholders wishing to vote their
proxies must deposit their shares shortly before the date of the
meeting with a designated depository. During the period in which
the shares are held with a depository, shares that will be voted
at the meeting cannot be sold until the meeting had taken place
and the shares are returned to the clients custodian.
Absent a compelling reason to the contrary, the Advisers believe
that the benefit to the client of exercising the vote is
outweighed by the cost of voting and therefore, the Advisers
will not typically vote the securities of
non-U.S. issuers
that require share-blocking.
In addition, voting proxies of issuers in non-US markets may
also give rise to a number of administrative issues to prevent
the Advisers from voting such proxies. For example, the Advisers
may receive the notices for shareholder meetings without
adequate time to consider the proposals in the proxy or after
the cut-off date for voting. Other markets require the Advisers
to provide local agents with power of attorney prior to
implementing their respective voting instructions on the proxy.
Although it is the Advisers policies to vote the proxies
for its clients for which they have proxy voting authority, in
the case of issuers in non-US markets, we vote client proxies on
a best efforts basis.
The Proxy Voting Department will retain a record of matters
voted upon by the Advisers for their clients. The Advisers will
supply information on how they voted a clients proxy upon
request from the client.
The complete voting records for each registered investment
company (the Fund) that is managed by the Advisers
will be filed on
Form N-PX
for the twelve months ended June 30th, no later than
August 31st of each year. A description of the
Funds proxy voting policies, procedures, and how the Fund
voted proxies relating to portfolio securities is available
without charge, upon request, by (i) calling 800-GABELLI
(800-422-3554);
(ii) writing to Gabelli Funds, LLC at One Corporate Center,
Rye, NY
10580-1422;
or (iii) visiting the SECs website at
www.sec.gov. Question should we post the proxy voting
records for the funds on the website.
The Advisers proxy voting records will be retained in
compliance with
Rule 204-2
under the Investment Advisers Act.
1. Custodian banks, outside brokerage firms and clearing
firms are responsible for forwarding proxies directly to the
Advisers.
A-3
Proxies are received in one of two forms:
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Shareholder Vote Instruction Forms
(VIFs)Issued by Broadridge Financial
Solutions, Inc. (Broadridge). Broadridge is an
outside service contracted by the various institutions to issue
proxy materials.
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Proxy cards which may be voted directly.
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2. Upon receipt of the proxy, the number of shares each
form represents is logged into the proxy system, electronically
or manually, according to security.
3. Upon receipt of instructions from the proxy committee
(see Administrative), the votes are cast and recorded for each
account on an individual basis.
Records have been maintained on the Proxy Edge system.
Proxy Edge records include:
Security Name and Cusip Number
Date and Type of Meeting (Annual, Special, Contest)
Client Name
Adviser or Fund Account Number
Directors Recommendation
How the Adviser voted for the client on item
4. VIFs are kept alphabetically by security. Records for
the current proxy season are located in the Proxy Voting
Department office. In preparation for the upcoming season, files
are transferred to an offsite storage facility during
January/February.
5. If a proxy card or VIF is received too late to be voted
in the conventional matter, every attempt is made to vote
including:
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When a solicitor has been retained, the solicitor is called. At
the solicitors direction, the proxy is faxed.
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In some circumstances VIFs can be faxed to Broadridge up until
the time of the meeting.
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6. In the case of a proxy contest, records are maintained
for each opposing entity.
7. Voting in Person
a) At times it may be necessary to vote the shares in
person. In this case, a legal proxy is obtained in
the following manner:
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Banks and brokerage firms using the services at Broadridge:
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Broadridge is notified that we wish to vote in person.
Broadridge issues individual legal proxies and sends them back
via email or overnight (or the Adviser can pay messenger
charges). A lead-time of at least two weeks prior to the meeting
is needed to do this. Alternatively, the procedures detailed
below for banks not using Broadridge may be implemented.
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Banks and brokerage firms issuing proxies directly:
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The bank is called
and/or faxed
and a legal proxy is requested.
All legal proxies should appoint:
Representative of [Adviser name] with full power of
substitution.
b) The legal proxies are given to the person attending the
meeting along with the limited power of attorney.
A-4
Appendix A
Proxy
Guidelines
PROXY
VOTING GUIDELINES
General
Policy Statement
It is the policy of GAMCO Investors, Inc, and its affiliated
advisers (collectively the Advisers) to vote in the
best economic interests of our clients. As we state in our Magna
Carta of Shareholders Rights, established in May 1988, we are
neither for nor against management. We are for
shareholders.
At our first proxy committee meeting in 1989, it was decided
that each proxy statement should be evaluated on its own merits
within the framework first established by our Magna Carta of
Shareholders Rights. The attached guidelines serve to enhance
that broad framework.
We do not consider any issue routine. We take into consideration
all of our research on the company, its directors, and their
short and long-term goals for the company. In cases where issues
that we generally do not approve of are combined with other
issues, the negative aspects of the issues will be factored into
the evaluation of the overall proposals but will not necessitate
a vote in opposition to the overall proposals.
Board
of Directors
We do not consider the election of the Board of Directors a
routine issue. Each slate of directors is evaluated on a
case-by-case
basis.
Factors taken into consideration include:
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Historical responsiveness to shareholders
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This may include such areas as:
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Paying greenmail
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Failure to adopt shareholder resolutions receiving a majority of
shareholder votes
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Qualifications
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Nominating committee in place
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Number of outside directors on the board
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Attendance at meetings
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Overall performance
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Selection
of Auditors
In general, we support the Board of Directors
recommendation for auditors.
Blank
Check Preferred Stock
We oppose the issuance of blank check preferred stock.
Blank check preferred stock allows the company to issue stock
and establish dividends, voting rights, etc. without further
shareholder approval.
A-5
Classified
Board
A classified board is one where the directors are divided into
classes with overlapping terms. A different class is elected at
each annual meeting.
While a classified board promotes continuity of directors
facilitating long range planning, we feel directors should be
accountable to shareholders on an annual basis. We will look at
this proposal on a
case-by-case
basis taking into consideration the boards historical
responsiveness to the rights of shareholders.
Where a classified board is in place we will generally not
support attempts to change to an annually elected board.
When an annually elected board is in place, we generally will
not support attempts to classify the board.
Increase
Authorized Common Stock
The request to increase the amount of outstanding shares is
considered on a
case-by-case
basis.
Factors taken into consideration include:
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Future use of additional shares
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Stock split
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Stock option or other executive compensation plan
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Finance growth of company/strengthen balance sheet
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Aid in restructuring
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Improve credit rating
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Implement a poison pill or other takeover defense
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Amount of stock currently authorized but not yet issued or
reserved for stock option plans
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Amount of additional stock to be authorized and its dilutive
effect
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We will support this proposal if a detailed and verifiable plan
for the use of the additional shares is contained in the proxy
statement.
Confidential
Ballot
We support the idea that a shareholders identity and vote
should be treated with confidentiality.
However, we look at this issue on a
case-by-case
basis.
In order to promote confidentiality in the voting process, we
endorse the use of independent Inspectors of Election.
Cumulative
Voting
In general, we support cumulative voting.
Cumulative voting is a process by which a shareholder may
multiply the number of directors being elected by the number of
shares held on record date and cast the total number for one
candidate or allocate the voting among two or more candidates.
Where cumulative voting is in place, we will vote against any
proposal to rescind this shareholder right. Cumulative voting
may result in a minority block of stock gaining representation
on the board. When a proposal is made to institute cumulative
voting, the proposal will be reviewed on a
case-by-case
basis. While
A-6
we feel that each board member should represent all
shareholders, cumulative voting provides minority shareholders
an opportunity to have their views represented.
Director
Liability and Indemnification
We support efforts to attract the best possible directors by
limiting the liability and increasing the indemnification of
directors, except in the case of insider dealing.
Equal
Access to the Proxy
The SECs rules provide for shareholder
resolutions. However, the resolutions are limited
in scope and there is a 500 word limit on proponents
written arguments. Management has no such limitations. While we
support equal access to the proxy, we would look at such
variables as length of time required to respond, percentage of
ownership, etc.
Fair
Price Provisions
Charter provisions requiring a bidder to pay all shareholders a
fair price are intended to prevent two-tier tender offers that
may be abusive. Typically, these provisions do not apply to
board-approved transactions.
We support fair price provisions because we feel all
shareholders should be entitled to receive the same benefits.
Reviewed on a
case-by-case
basis.
Golden
Parachutes
Golden parachutes are severance payments to top executives who
are terminated or demoted after a takeover.
We support any proposal that would assure management of its own
welfare so that they may continue to make decisions in the best
interest of the company and shareholders even if the decision
results in them losing their job. We do not, however, support
excessive golden parachutes. Therefore, each proposal will be
decided on a case-by- case basis.
Note: Congress has imposed a tax on any parachute
that is more than three times the executives average
annual compensation
Anti-Greenmail
Proposals
We do not support greenmail. An offer extended to one
shareholder should be extended to all shareholders equally
across the board
Limit
Shareholders Rights to Call Special Meetings
We support the right of shareholders to call a special meeting.
Consideration
of Nonfinancial Effects of a Merger
This proposal releases the directors from only looking at the
financial effects of a merger and allows them the opportunity to
consider the mergers effects on employees, the community,
and consumers.
As a fiduciary, we are obligated to vote in the best economic
interests of our clients. In general, this proposal does not
allow us to do that. Therefore, we generally cannot support this
proposal.
A-7
Reviewed on a
case-by-case
basis.
Mergers,
Buyouts, Spin-Offs, Restructurings
Each of the above is considered on a
case-by-case
basis. According to the Department of Labor, we are not required
to vote for a proposal simply because the offering price is at a
premium to the current market price. We may take into
consideration the long term interests of the shareholders.
Military
Issues
Shareholder proposals regarding military production must be
evaluated on a purely economic set of criteria for our ERISA
clients. As such, decisions will be made on a
case-by-case
basis.
In voting on this proposal for our non-ERISA clients, we will
vote according to the clients direction when applicable.
Where no direction has been given, we will vote in the best
economic interests of our clients. It is not our duty to impose
our social judgment on others.
Northern
Ireland
Shareholder proposals requesting the signing of the MacBride
principles for the purpose of countering the discrimination of
Catholics in hiring practices must be evaluated on a purely
economic set of criteria for our ERISA clients. As such,
decisions will be made on a
case-by-case
basis.
In voting on this proposal for our non-ERISA clients, we will
vote according to client direction when applicable. Where no
direction has been given, we will vote in the best economic
interests of our clients. It is not our duty to impose our
social judgment on others.
Opt
Out of State Anti-Takeover Law
This shareholder proposal requests that a company opt out of the
coverage of the states takeover statutes. Example:
Delaware law requires that a buyer must acquire at least 85% of
the companys stock before the buyer can exercise control
unless the board approves.
We consider this on a
case-by-case
basis. Our decision will be based on the following:
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State of Incorporation
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Management history of responsiveness to shareholders
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Other mitigating factors
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Poison
Pill
In general, we do not endorse poison pills.
In certain cases where management has a history of being
responsive to the needs of shareholders and the stock is very
liquid, we will reconsider this position.
Reincorporation
Generally, we support reincorporation for well-defined business
reasons. We oppose reincorporation if proposed solely for the
purpose of reincorporating in a state with more stringent
anti-takeover statutes that may negatively impact the value of
the stock.
A-8
Stock
Incentive Plans
Director and Employee Stock incentive plans are an excellent way
to attract, hold and motivate directors and employees. However,
each incentive plan must be evaluated on its own merits, taking
into consideration the following:
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Dilution of voting power or earnings per share by more than 10%.
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Kind of stock to be awarded, to whom, when and how much.
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Method of payment.
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Amount of stock already authorized but not yet issued under
existing stock plans.
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The successful steps taken by management to maximize shareholder
value.
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Supermajority
Vote Requirements
Supermajority vote requirements in a companys charter or
bylaws require a level of voting approval in excess of a simple
majority of the outstanding shares. In general, we oppose
supermajority-voting requirements. Supermajority requirements
often exceed the average level of shareholder participation. We
support proposals approvals by a simple majority of the
shares voting.
Limit
Shareholders Right to Act by Written Consent
Written consent allows shareholders to initiate and carry on a
shareholder action without having to wait until the next annual
meeting or to call a special meeting. It permits action to be
taken by the written consent of the same percentage of the
shares that would be required to effect proposed action at a
shareholder meeting.
Reviewed on a
case-by-case
basis.
Say on
Pay and Say When on Pay
We will generally abstain from advisory votes on executive
compensation (Say on Pay) and will also abstain from votes on
the frequency of voting on executive compensation (Say When on
Pay). In those instances when we believe that it is in our
clients best interest, we may cast a vote for or against
executive compensation
and/or the
frequency of votes on executive compensation.
A-9
PART C
OTHER INFORMATION
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Item 25.
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Financial
Statements and Exhibits
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(1) Financial Statements
Part A
None
Part B
Statement of Assets and Liabilities as of December 31, 2010
Statement of Operations for the Year Ended December 31, 2010
Statement of Changes in Net Assets
Report of Independent Registered Public Accounting Firm
(2) Exhibits
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(a)
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Agreement and Declaration of Trust of Registrant (1)
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(i)
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Statement of Preferences
for Cumulative Preferred Shares (4)
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(b) Amended and Restated By-Laws of Registrant (4)
(c) Not applicable
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(d)
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(i)
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Form of Specimen Common Share Certificate (1)
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(ii)
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Form of Specimen Share Certificate for the ___ Preferred Shares
(4)
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(iii)
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Form of Subscription Certificate for Common Shares (4)
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(iv)
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Form of Subscription Certificate for
[ ]%
Series___ Cumulative Preferred Shares (4)
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(e)
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Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan
of Registrant (5)
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(f)
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Not applicable
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(g)
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Form of Investment Advisory Agreement between Registrant and
Gabelli Funds, LLC (1)
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(h)
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Form of Underwriting Agreement (4)
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(i)
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Not applicable
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(j)
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Form of Custodian Agreement (1)
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(k)
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(i)
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Form of Registrar, Transfer Agency and Service Agreement (1)
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(ii)
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Form of Rights Agent Agreement (4)
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(l)
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Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom
LLP with respect to legality (4)
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(m)
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Not applicable
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(n)
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(i)
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Consent of Independent Registered Public Accounting Firm (4)
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(ii)
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Powers of Attorney (3)
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(o)
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Not applicable
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(p)
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Form of Initial Subscription Agreement (1)
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(q)
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Not applicable
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(r)
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(i)
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Code of Ethics of the Fund and the Investment Adviser (1)
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(ii)
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Joint Code of Ethics for Chief Executive and Senior Financial
Officers (1)
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(1) |
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Previously filed with Pre-Effective Amendment No. 2 to the
Registrants Registration Statement on
Form N-2
filed on May 25, 2004
(333-113621). |
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(2) |
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Previously filed with the Registrants Registration
Statement on
Form N-2
filed November 21, 2007
(333-147575). |
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(3) |
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Filed herewith. |
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(4) |
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To be filed by Amendment. |
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(5) |
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Included in Prospectus |
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Item 26.
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Marketing
Arrangements
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The information contained under the heading Plan of
Distribution on page 69 of the Prospectus is
incorporated by reference, and any information concerning any
underwriters will be contained in the accompanying Prospectus
Supplement, if any.
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Item 27.
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Other
Expenses of Issuance and Distribution
|
The following table sets forth the estimated expenses to be
incurred in connection with the offering described in this
Registration Statement:
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SEC registration fees
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$
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8,540
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NYSE Amex LLC listing fee
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$
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40,000
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Rating Agency fees
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$
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30,000
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Printing/engraving expenses
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$
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200,000
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Auditing fees and expenses
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$
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30,000
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Legal fees and expenses
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$
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250,000
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FINRA fees
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$
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-
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Miscellaneous
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$
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116,460
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Total
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$
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675,000
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Item 28.
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Persons
Controlled by or Under Common Control with
Registrant
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None.
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Item 29.
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Number
of Holders of Securities as of June 30, 2011:
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Number of
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Class of Shares
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Record Holders
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Common Shares
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12
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Article IV of the Registrants Agreement and
Declaration of Trust provides as follows:
4.1 No personal Liability of Shareholders, Trustees, etc.
No Shareholder of the Trust shall be subject in such capacity to
any personal liability whatsoever to any Person in connection
with Trust Property or the acts, obligations or affairs of
the Trust. Shareholders shall have the same limitation of
personal liability as is extended to stockholders of a private
corporation for profit incorporated under the general
corporation law of the State of Delaware. No Trustee or officer
of the Trust shall be subject in such capacity to any personal
liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the
affairs of the Trust, save only liability to the Trust or its
Shareholders arising from bad faith, willful misfeasance, gross
negligence or reckless disregard for his duty to such Person;
and, subject to the foregoing exception, all such Persons shall
look solely to the Trust Property for satisfaction of
claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee or officer, as such, of
the Trust, is made a party to any suit or proceeding to enforce
any such liability, subject to the foregoing exception, he shall
not, on account thereof, be held to any personal liability.
4.2 Mandatory Indemnification. (a) The Trust shall
indemnify the Trustees and officers of the Trust (each such
person being an indemnitee) against any liabilities
and expenses, including amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and
reasonable counsel fees reasonably incurred by such indemnitee
in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any
court or administrative or investigative body in which he may be
or may have been involved as a party or otherwise (other than,
except as authorized by the Trustees, as the plaintiff or
complainant) or with which he may be or may have been
threatened, while acting in any capacity set forth above in this
Section 4.2 by reason of his having acted in any such
capacity, except with respect to any matter as to which he shall
not have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust or, in the case of
any criminal proceeding, as to which he shall have had
reasonable cause to believe that the conduct was unlawful,
provided, however, that no indemnitee shall be indemnified
hereunder against any liability to any person or any expense of
such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence
(negligence in the case of Affiliated Indemnitees), or
(iv) being sometimes referred to herein as disabling
conduct). Notwithstanding the foregoing, with respect to
any action, suit or other proceeding voluntarily prosecuted by
any indemnitee as plaintiff, indemnification shall be mandatory
only if the prosecution of such action, suit or other proceeding
by such indemnitee was authorized by a majority of the Trustees.
(b) Notwithstanding the foregoing, no indemnification shall
be made hereunder unless there has been a determination
(1) by a final decision on the merits by a court or other
body of competent jurisdiction before whom the issue of
entitlement to indemnification hereunder was brought that such
indemnitee is entitled to indemnification hereunder or,
(2) in the absence of such a decision by (i) a
majority vote of a quorum of those Trustees who are neither
Interested Persons of the Trust nor parties to the proceeding
(Disinterested Non-Party Trustees), that the
indemnitee is entitled to indemnification hereunder, or
(ii) if such quorum is not obtainable or even if
obtainable, if such majority so directs, independent legal
counsel in a written opinion conclude that the indemnitee should
be entitled to indemnification hereunder. All determinations to
make advance payments in connection with the expense of
defending any proceeding shall be authorized and made in
accordance with the immediately succeeding paragraph
(c) below.
(c) The Trust shall make advance payments in connection
with the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Trust receives
a written affirmation by the indemnitee of the indemnitees
good faith belief that the standards of conduct necessary for
indemnification have been met and a written undertaking to
reimburse the Trust unless it is subsequently determined that he
is entitled to such indemnification and if a majority of the
Trustees determine that the applicable standards of conduct
necessary for indemnification appear to have been met. In
addition, at least one of the following conditions must be met.
(1) the indemnitee shall provide adequate security for his
undertaking, (2) the Trust shall be insured against losses
arising by reason of any lawful advances, or (3) a majority
of a quorum of the Disinterested Non-Party Trustees, or if a
majority vote of such quorum so direct, independent legal
counsel in a written opinion, shall conclude, based on a review
of readily available facts (as opposed to a full trial-type
inquiry), that there is substantial reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(d) The rights accruing to any indemnitee under these
provisions shall not exclude any other right to which he may be
lawfully entitled.
(e) Notwithstanding the foregoing, subject to any
limitations provided by the 1940 Act and this Declaration, the
Trust shall have the power and authority to indemnify Persons
providing services to the Trust to the full extent provided by
law as if the Trust were a corporation organized under the
Delaware General Corporation Law provided that such
indemnification has been approved by a majority of the Trustees.
4.3 No Duty of Investigation; Notice in
Trust Instruments, etc. No purchaser, lender, transfer
agent or other person dealing with the Trustees or with any
officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction
purporting to be made by the Trustees or by said officer,
employee or agent or be liable for the application of money or
property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every
obligation, contract, undertaking, instrument, certificate,
Share, other security of the Trust and every other act or thing
whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the
executors thereof only in their capacity as Trustees under this
Declaration or in their capacity as officers, employees or
agents of
the Trust. The Trustees may maintain insurance for the
protection of the Trust Property, its Shareholders,
Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible liability, and
such other insurance as the Trustees in their sole judgment
shall deem advisable or is required by the 1940 Act.
4.4 Reliance on experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of its duties,
be fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good
faith upon the books of account or other records of the Trust,
upon an opinion of counsel, or upon reports made to the Trust by
any of the Trusts officers or employees or by any advisor,
administrator, manager, distributor selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable
care by the Trustees, officers or employees of the Trust,
regardless of whether such counsel or other person may also be a
Trustee.
Section 9 of the Investment Advisory Agreement provides
as follows:
(a) The Fund hereby agrees to indemnify the Adviser and
each of the Advisers trustees, officers, employees, and
agents (including any individual who serves at the
Advisers request as director, officer, partner, trustee or
the like of another corporation) and controlling persons (each
such person being an indemnitee) against any
liabilities and expenses, including amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and
counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such indemnitee in
connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court
or administrative or investigative body in which he may be or
may have been involved as a party or otherwise or with which he
may be or may have been threatened, while acting in any capacity
set forth above in this paragraph or thereafter by reason of his
having acted in any such capacity, except with respect to any
matter as to which he shall have been adjudicated not to have
acted in good faith in the reasonable belief that his action was
in the best interest of the Fund and furthermore, in the case of
any criminal proceeding, so long as he had no reasonable cause
to believe that the conduct was unlawful, provided, however,
that (1) no indemnitee shall be indemnified hereunder
against any liability to the Fund or its shareholders or any
expense of such indemnitee arising by reason of (i) willful
misfeasance, (ii) bad faith, (iii) gross negligence,
(iv) reckless disregard of the duties involved in the
conduct of his position (the conduct referred to in such
clauses (i) through (iv) being sometimes referred to
herein as disabling conduct), (2) as to any
matter disposed of by settlement or a compromise payment by such
indemnitee, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other
expenses shall be provided unless there has been a determination
that such settlement or compromise is in the best interests of
the Fund and that such indemnitee appears to have acted in good
faith in the reasonable belief that his action was in the best
interest of the Fund and did not involve disabling conduct by
such indemnitee and (3) with respect to any action, suit or
other proceeding voluntarily prosecuted by any indemnitee as
plaintiff, indemnification shall be mandatory only if the
prosecution of such action, suit or other proceeding by such
indemnitee was authorized by a majority of the full Board of the
Fund. Notwithstanding the foregoing the Fund shall not be
obligated to provide any such indemnification to the extent such
provision would waive any right which the Fund cannot lawfully
waive.
(b) The Fund shall make advance payments in connection with
the expenses of defending any action with respect to which
indemnification might be sought hereunder if the Fund receives a
written affirmation of the indemnitees good faith belief
that the standard of conduct necessary for indemnification has
been met and a written undertaking to reimburse the Fund unless
it is subsequently determined that he is entitled to such
indemnification and if the trustees of the Fund determine that
the facts then known to them would not preclude indemnification.
In addition, at least one of the following conditions must be
met: (A) the indemnitee shall provide a security for his
undertaking, (B) the Fund shall be insured against losses
arising by reason of any lawful advances, or (C) a majority
of a quorum of trustees of the Fund who are neither
interested persons of the Fund (as defined in
Section 2(a)(19) of the Act) nor parties to the proceeding
(Disinterested Non-Party Trustees) or an independent
legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
indemnitee ultimately will be found entitled to indemnification.
(c) All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the
merits by a court or other body before whom the proceeding was
brought that such indemnitee is not liable by reason of
disabling conduct or, (2) in the absence of such a
decision, by (i) a majority vote of a quorum of the
Disinterested Non-Party Trustees of the Fund, or (ii) if
such a quorum is not obtainable or even, if obtainable, if a
majority vote of such quorum so directs, independent legal
counsel in a written opinion.
The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully
entitled.
Underwriter indemnification provisions to be filed by
Amendment.
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Item 31.
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Business
and Other Connections of Investment Adviser
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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 31 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
SEC pursuant to the 1940 Act (Commission File
No. 801-26202).
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Item 32.
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Location
of Accounts and Records
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The accounts and records of the Registrant are maintained in
part at the office of the Investment Adviser at One Corporate
Center, Rye, New York
10580-1422,
in part at the offices of the Registrants custodian, State
Street Bank and Trust, 225 Franklin Street, Boston,
Massachusetts 02110, in part at the offices of the
Registrants
sub-administrator,
PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware, 19809,
and in part at the offices of Computershare Trust Company,
N.A., P.O. Box 43025, Providence, RI
02940-3025.
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Item 33.
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Management
Services
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Not applicable.
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. Registrant undertakes:
(a) to file, during and period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(1) to include any prospectus required by
Section 10(a) (3) of the Securities Act;
(2) to reflect in the prospectus any facts or events 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; and
(3) 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.
(b) that for the purpose of determining any liability under
the Securities Act, each post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof;
(c) 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; and
(d) that, for the purpose of determining liability under
the Securities Act to any purchaser, if the Registrant is
subject to Rule 430C: Each prospectus filed pursuant to
Rule 497(b), (c), (d) or (e) under the Securities
Act as part of a registration statement relating to an offering,
other than prospectuses filed in reliance on Rule 430A under the
Securities Act shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the
registration or made in a document incorporated or deemed
incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the
registration statement or made in any such document immediately
prior to such date of first use.
(e) that for the purpose of determining liability of the
Registrant under the Securities Act to any purchaser in the
initial distribution of securities:
The undersigned Registrant undertakes that in a primary offering
of securities of the undersigned Registrant pursuant to this
registration statement, regardless of the underwriting method
used to sell the securities to the purchaser, if the securities
are offered or sold to such purchaser by means of any of the
following communications, the undersigned Registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to the purchaser:
(1) any preliminary prospectus or prospectus of the
undersigned Registrant relating to the offering required to be
filed pursuant to Rule 497 under the Securities Act.
(2) the portion of any advertisement pursuant to
Rule 482 under the Securities Act relating to the offering
containing material information about the undersigned Registrant
or its securities provided by or on behalf of the undersigned
Registrant; and
(3) any other communication that is an offer in the
offering made by the undersigned Registrant to the purchaser.
5. Registrant undertakes:
(a) 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.
(b) 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 Registrants Registration
Statement has been signed on behalf of the Registrant, in the
City of Rye, State of New York, on the 21st day of July,
2011.
THE GABELLI GLOBAL UTILITY & INCOME TRUST
Bruce N. Alpert
President and Principal Executive Officer
Date: July 21, 2011
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the 21st day of July, 2011.
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NAME
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TITLE
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*
Anthony
J. Colavita
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Trustee
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*
James
P. Conn
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Trustee
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*
Mario
dUrso
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Trustee
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*
Vincent
D. Enright
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Trustee
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*
Michael
J. Melarkey
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Trustee
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*
Salvatore
M. Salibello
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Trustee
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*
Salvatore
J. Zizza
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Trustee
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/s/ Bruce
N. Alpert
Bruce
N. Alpert
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Attorney-in-Fact
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* |
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Pursuant to Powers of Attorney |
EXHIBIT INDEX
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Exhibit
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Number
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Description of Exhibit
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Ex-99(n)(ii)
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Powers of Attorney
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