Edgar Filing: GABELLI EQUITY TRUST INC

FORM N-2

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-2

þ		Registration Statement under the Securities Act of 1933
o		Pre-Effective Amendment No.
o		Post-Effective Amendment No.

and/or

Registration Statement under the Investment Company Act of 1940 Amendment No. 37

(Check Appropriate Box or Boxes)

THE GABELLI EQUITY TRUST INC.

(Exact Name of Registrant as Specified in Charter)

One Corporate Center
Rye, New York 10580-1422
(Address of Principal Executive Offices)

Registrant’s Telephone Number, Including Area Code: (800) 422-3554

Bruce N. Alpert
The Gabelli Equity Trust Inc.
One Corporate Center
Rye, New York 10580-1422
(914) 921-5100
(Name and Address of Agent for Service)

Copies to:


James E. McKee, Esq. The Gabelli Equity Trust Inc. One Corporate Center Rye, New York 10580-1422 (914) 921-5100		Rose F. DiMartino, Esq. Willkie Farr & Gallagher LLP 787 Seventh Ave. New York, New York 10019 (212) 728-8000

Approximate date of proposed public offering: As soon as practicable after the effective date of this Registration Statement.

If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, as amended, other than securities offered in connection with a dividend reinvestment plan, check the following box. o

It is proposed that this filing will become effective (check appropriate box)

When declared effective pursuant to section 8(c).

If appropriate, check the following box:

o		This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement].

o		This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is o.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933



					Proposed
					Maximum
			Proposed		Aggregate
	Amount Being		Maximum		Offering Price		Amount of
Title of Securities	Registered		Offering Price		(1)		Registration Fee
[ ] Series F Cumulative Preferred Stock		20,000	$	25	$	500,000	$	53.50
Series G Auction Rate Preferred Stock		20	$	25,000	$	500,000	$	53.50


(1)		Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said section 8(a), may determine.

CROSS-REFERENCE SHEET


N-2 Item Number		Location in Part A (Caption)

PART A

1.	Outside Front Cover	Outside Front Cover Page

2.	Cover Pages, Other Offering Information	Outside Front Cover Page; Inside Front Cover Page

3.	Fee Table and Synopsis	Summary

4.	Financial Highlights	Financial Highlights

5.	Plan of Distribution	Outside Front Cover Page; Summary; Underwriting

6.	Selling Shareholders	Not Applicable

7.	Use of Proceeds	Use of Proceeds; Investment Objectives and Policies

8.	General Description of the Registrant	Outside Front Cover Page; Summary; The Fund; Investment Objectives and Policies; Risk Factors & Special Considerations; How the Fund Manages Risk; Description of the Series F Preferred and Series G Auction Rate Preferred; Anti-takeover Provisions of the Fund’s Governing Documents

9.	Management	Outside Front Cover Page; Summary; Management of the Fund; Custodian, Transfer Agent, Auction Agent and Dividend-Disbursing Agent

10.	Capital Shares, Long-Term Debt, and Other Securities	Outside Front Cover Page; Summary; Investment Objectives and Policies; Description of the Series F Preferred and Series G Auction Rate Preferred; Description of Capital Stock and Other Securities; Taxation Policies; Authorized and Outstanding Shares; Taxation

11.	Defaults and Arrears on Senior Securities	Not Applicable

12.	Legal Proceedings	Management of Fund

13.	Table of Contents of the Statement of Additional Information	Table of Contents of the Statement of Additional Information


N-2 Item Number		Location in Statement of Additional Information

PART B

14	Cover Page	Outside Front Cover Page

15.	Table of Contents	Outside Front Cover Page

16.	General Information and History	Not Applicable

17.	Investment Objectives and Policies	Investment Objectives and Policies; Investment Restrictions

18.	Management	Management of the Fund

19.	Control Persons and Principal Holders of Securities	Not Applicable

20.	Investment Advisory and Other Services	Management of the Fund

21.	Portfolio Managers	Management of the Fund

22.	Brokerage Allocation and Other Practices	Portfolio Transactions

23.	Tax Status	Taxation

24.	Financial Statements	Financial Statements

PART C

Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C to this Registration Statement.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION
, 2006

PROSPECTUS

$[ ]

The Gabelli Equity Trust Inc.

[ ] Shares, [ ] Series F Cumulative Preferred Stock

(Liquidation Preference $25 per Share)

[ ] Shares, Series G Auction Rate Preferred Stock

(Liquidation Preference $25,000 per Share)

The Gabelli Equity Trust Inc. (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 Fund’s primary investment objective is to achieve long-term growth of capital by investing primarily in a portfolio of equity securities consisting of common stock, preferred stock, convertible or exchangeable securities and warrants and rights to purchase such securities. Income is a secondary investment objective. Gabelli Funds, LLC (the “Investment Adviser”) serves as investment adviser to the Fund. Under normal market conditions, the Fund will invest at least 80% of the value of its total assets in equity securities. The Fund was organized as a Maryland corporation on May 20, 1986. An investment in the Fund is not appropriate for all investors. We cannot assure you that the Fund’s investment objectives will be achieved.

This prospectus describes the Fund’s [ ] Series F Cumulative Preferred Stock (the “Series F Preferred”), liquidation preference $25 per share. Distributions on the Series F Preferred are cumulative from their original issue date at the annual rate of [ ] of the liquidation preference of $25 per share and are payable quarterly on March 26, June 26, September 26, and December 26 of each year, commencing on [DATE], 2006.

This prospectus also describes the Fund’s Series G Auction Rate Preferred Stock (the “Series G Auction Rate Preferred”), liquidation preference $25,000 per share. The dividend rate for the Series G Auction Rate Preferred will vary from dividend period to dividend period. The annual dividend rate for the initial dividend period for the Series G Auction Rate Preferred will be [ ]% of the liquidation preference of $25,000 per share. The initial dividend period for the Series G Auction Rate Preferred commences on the date of issuance and continues through [DATE], 2006. For subsequent dividend periods, the Series G Auction Rate Preferred will make distributions based on a rate set at auction, usually held weekly.

The Fund offers by this prospectus, in the aggregate, $[ ] million of Series F Preferred and $[ ] million of Series G Auction Rate Preferred.

Investing in the Series F Preferred or the Series G Auction Rate Preferred involves risks that are described in the “Risk Factors and Special Considerations” section beginning on page [34] of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Series F

Series G

Cumulative

Auction Rate

Preferred

Per Share

Total

Per Share

Total

Public Offering Price⁽¹⁾

Underwriting Discount⁽²⁾

Proceeds to the Fund (before expenses)⁽³⁾


(1)		Plus accumulated distributions, if any, from [DATE].


(2)		The Fund and the Investment Adviser have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended.

(3)		Offering expenses payable by the Fund (excluding underwriting discount) are estimated at $[ ].

, 2006

[CO-MANAGER] and [CO-MANAGER]

The Series F Preferred and the Series G Auction Rate Preferred being offered by this prospectus are being offered by the underwriters listed in this prospectus, subject to prior sale, when, as and if accepted by them and subject to certain conditions. The Fund expects that delivery of any Series F Preferred and Series G Auction Rate Preferred will be made in book-entry form through The Depository Trust Company on or about [DATE], 2006.

In the event the Series F Preferred is issued, prior application will have been made to list the Series F Preferred on the New York Stock Exchange. Subject to notice of issuance, trading of the Series F Preferred on the New York Stock Exchange is expected to commence within 30 days of the date of this prospectus. Prior to this offering, there has been no public market for the Series F Preferred. See “Underwriting.”

The Series G Auction Rate Preferred will not be listed on an exchange. Investors may only buy or sell Series G Auction Rate Preferred through an order placed at an auction with or through a broker-dealer in accordance with the procedures specified in this prospectus or in a secondary market maintained by certain broker-dealers should those broker-dealers decide to maintain a secondary market. Broker-dealers are not required to maintain a secondary market in the Series G Auction Rate Preferred, and a secondary market may not provide you with liquidity.

The net proceeds of the offering are estimated at approximately $[ ], after deduction of the estimated underwriting discounts and estimated offering expenses payable by the Fund. The Fund intends to use the net proceeds to redeem [all] shares of Series B Preferred of which there are 4,950,000 shares outstanding with a liquidation rate of $25 per share, which were redeemable beginning on June 20, 2006. See “Investment Objectives and Policies.”

The Fund expects that distributions made on the Series F Preferred and the Series G Auction Rate Preferred will consist of (i) long-term capital gain (gain from the sale of a capital asset held longer than 12 months), (ii) qualified dividend income (dividend income from certain domestic and foreign corporations) and (iii) investment company taxable income (other than qualified dividend income), including interest income, short-term capital gain and income from certain hedging and interest rate transactions. For individuals, the maximum federal income tax rate on long-term capital gain is currently 15%, on qualified dividend income is currently 15%, and on ordinary income (such as distributions from investment company taxable income that are not eligible for treatment as qualified dividend income) is currently 35%. These tax rates are scheduled to apply through 2010. We cannot assure you, however, as to what percentage of the distributions made on the Series F Preferred or Series G Auction Rate Preferred will consist of long-term capital gain and qualified dividend income, which are taxed at lower rates for individuals than ordinary income. For a more detailed discussion, see “Taxation.”

In order to be issued, the Series F Preferred must receive a rating of “Aaa” by Moody’s Investors Service, Inc. (“Moody’s”). In addition, in order to be issued, the Series G Auction Rate Preferred must receive a rating of “Aaa” by Moody’s and a rating of “AAA” by the Standard & Poor’s Division of The McGraw-Hill Companies, Inc. (“S&P”). In order to keep these ratings, the Fund will be required to maintain a minimum discounted asset coverage with respect to its outstanding Series F Preferred and Series G Auction Rate Preferred under guidelines established by each of Moody’s and S&P. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Rating Agency Guidelines.” The Fund is also required to maintain a minimum asset coverage by the 1940 Act. If the Fund fails to maintain any of these minimum asset coverage requirements, the Fund may, at its option (and in certain circumstances must) require, in accordance with its Charter (together with any amendments or supplements thereto, including any articles supplementary, the “Charter”) and the requirements of the 1940 Act, that some or all of its outstanding preferred stock, including the Series F Preferred and/or the Series G Auction Rate Preferred, be sold back to it (redeemed). Otherwise, prior to [ ] the Series F Preferred will be redeemable at the option of the Fund only to the extent necessary for the Fund to continue to qualify for tax treatment as a regulated investment company. Subject to certain notice and other requirements (including those set forth in Section 23(c) of the 1940 Act), the Fund, at its option, may redeem (i) the Series F Preferred beginning on [ ] and (ii) the Series G Auction Rate Preferred following the initial distribution period, usually on a dividend or distribution payment date (so long as the Fund has not designated a non-call period). In the event the Fund redeems the Series F Preferred, such redemption will be for cash at a redemption price equal to $25 per share plus accumulated but unmade distributions

(whether or not earned or declared). In the event the Fund redeems the Series G Auction Rate Preferred, such redemptions will be for cash, generally at a redemption price equal to $25,000 per share plus accumulated but unmade distributions (whether or not earned or declared), although if the Series G Auction Rate Preferred have a dividend period of more than one year, the Fund’s Board of Directors may determine to provide for a redemption premium.

This prospectus concisely sets forth important information about the Fund that you should know before deciding whether to invest in Series F Preferred or Series G Auction Rate Preferred. You should read this prospectus and retain it for future reference.

The Fund has also filed with the Securities and Exchange Commission a Statement of Additional Information (the “SAI”), dated [DATE], 2006, which contains additional information about the Fund. The SAI is incorporated by reference in its entirety into this prospectus. You can review the table of contents of the SAI that is filed with this prospectus. You may request a free copy of the SAI by writing to the Fund at its address at One Corporate Center, Rye, New York 10580-1422 or calling the Fund toll-free at (800) 422-3554. You can also call the toll-free number to request copies of the Fund’s annual and semi-annual reports, to request other information about the Fund, or to make stockholder inquiries. The SAI and the Fund’s reports are also available at the website http://www.gabelli.com. You may also obtain the SAI and reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically with the Securities and Exchange Commission on the Securities and Exchange Commission’s web site (http://www.sec.gov).

The Fund’s Series F Preferred and the Series G Auction Rate Preferred 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 in or incorporated by reference into this prospectus. Neither the Fund nor the underwriters have authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither the Fund nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

TABLE OF CONTENTS


	Page
Summary		1

Financial Highlights		16

Use of Proceeds		18

The Fund		18

Capitalization		19

Investment Objectives and Policies		20

Risk Factors and Special Considerations		25

How The Fund Manages Risk		32

Management of the Fund		34

Portfolio Transactions		38

Dividends and Distributions		38

Description of the Series F Preferred and Series G Auction Rate Preferred		39

The Auction of Series G Auction Rate Preferred		50

Description of Capital Stock and Other Securities		54

Taxation		56

Anti-Takeover Provisions of the Charter and By-Laws		59

Custodian, Transfer Agent, Auction Agent and Dividend-Disbursing Agent		61

Underwriting		62

Legal Matters		65

Experts		66

Additional Information		67

Privacy Principles Of The Fund		68

Special Note Regarding Forward-Looking Statements		69

Appendix A Corporate Bond Ratings Moody’s Investors Service, Inc.		A-1
EX-99.N.II: POWERS OF ATTORNEY

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SUMMARY

This is only a summary. This summary does not contain all of the information that you should consider before investing in the Fund’s Series F Preferred and Series G Auction Rate Preferred, in particular the risks associated with such investments. For a more detailed discussion of these risks, see “Risk Factors and Special Considerations.” You should review the more detailed information contained in this prospectus, the Statement of Additional Information (“SAI”), the Fund’s Articles Supplementary for the [ ] Series F Preferred (the “Series F Articles Supplementary”) and the Fund’s Articles Supplementary for the Series G Auction Rate Preferred (the “Series G Articles Supplementary”) on file with the Securities and Exchange Commission (the “Commission”).

The Fund

The Fund is a non-diversified, closed-end management investment company organized as a Maryland corporation on May 20, 1986.

The Fund’s outstanding shares of common stock, par value $0.001 per share, are listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “GAB.” As of June 30, 2006, the net assets of the Fund attributable to its common stock were $1,425,365,536. As of June 30, 2006, the Fund had outstanding 166,832,166 shares of common stock, 4,950,000 shares of 7.20% Tax Advantaged Series B Cumulative Preferred Stock, liquidation preference $25 per share (the “Series B Preferred”); 5,200 shares of Series C Auction Rate Cumulative Preferred Stock, liquidation preference $25,000 per share (the “Series C Auction Rate Preferred”); 2,949,700 shares of 5.875% Series D Cumulative Preferred Stock, liquidation preference $25 per share (the “Series D Preferred”); and 2,000 shares of Series E Auction Rate Cumulative Preferred Stock, liquidation preference $25,000 per share (the “Series E Auction Rate Preferred”) (collectively, the “Existing Preferred”). The Existing Preferred have the same seniority with respect to distributions and liquidation preference.

The Fund completed its redemption of 100% of its outstanding 7.25% Tax Advantaged Cumulative Preferred Stock (the “Series A Preferred”) on June 17, 2003.

The Offering

The Fund offers by this prospectus, in the aggregate, $[ ] of preferred stock of either Series F Preferred or Series G Auction Rate Preferred, or a combination of both series. The Series F Preferred and the Series G Auction Rate Preferred are being offered by a group of underwriters led by [CO-MANAGER AND CO-MANAGER]. Upon issuance, the Series F Preferred and the Series G Auction Rate Preferred will have equal seniority with respect to distributions and liquidation preference to the Fund’s Existing Preferred. See “Description of the Series F Preferred and Series G Auction Rate Preferred.”

Series F Preferred. The Fund is offering [ ] shares of [ ] Series F Preferred, par value $0.001 per share, liquidation preference $25 per share, at a purchase price of $25 per share. Distributions on the shares of Series F Preferred will accumulate from the date on which such stock is issued. In the event the Series F Preferred is issued, prior application will have been made to list the Series F Preferred on the NYSE and it is anticipated that trading of the Series F Preferred on the NYSE will commence within 30 days from the date of this prospectus.

Series G Auction Rate Preferred. The Fund is offering [ ] shares of Series G Auction Rate Preferred, par value $0.001 per share, liquidation preference $25,000 per share at a purchase price of $25,000 per share, plus distributions, if any, that have accumulated from the commencement date of the dividend period during which such Series G Auction Rate Preferred are issued. The Series G Auction Rate Preferred will not be listed on an exchange. Instead, investors may buy or sell Series G Auction Rate Preferred in an auction by submitting orders to broker-dealers that have entered into an agreement with the auction agent.

Generally, investors in Series F Preferred or Series G Auction Rate Preferred will not receive certificates representing ownership of their stock. The Depository Trust Company (“DTC”), any successor or its nominee for the account of the investor’s broker-dealer will maintain record ownership of the preferred stock in book-entry form. An investor’s broker-dealer, in turn, will maintain records of that investor’s beneficial ownership of preferred stock.

Investment Objectives

Under normal market conditions, the Fund will invest at least 80% of the value of its total assets in equity securities (the “80% Policy”). The 80% Policy may be changed without stockholder approval. The Fund will provide stockholders with notice at least 60 days prior to the implementation of any change in the 80% Policy.

The Investment Adviser selects investments on the basis of fundamental value and, accordingly, the Fund typically invests in the securities of companies that are believed by the Investment Adviser to be priced lower than justified in relation to their underlying assets. Other important factors in the selection of investments include favorable price/earnings and debt/equity ratios and strong management.

The Fund seeks to achieve its secondary investment objective of income, in part, by investing up to 10% of its total assets in a portfolio consisting primarily of high-yielding, fixed-income securities, such as corporate bonds, debentures, notes, convertible securities, preferred stocks and domestic and foreign government obligations. Debt securities purchased by the Fund may be rated in the lower rating categories of nationally recognized statistical rating agencies, such as securities rated “CCC” or lower by S&P or “Caa” or lower by Moody’s, or may be nonrated securities of comparable quality. These debt securities are predominantly speculative and involve major risk exposure to adverse conditions and are often referred to in the financial press as “junk bonds.”

No assurance can be given that the Fund’s investment objectives will be achieved. See “Investment Objectives and Policies.”

Dividends and Distributions

Series F Preferred. Distributions on the Series F Preferred, at the annual rate of [ ] of its $25 per share liquidation preference, are cumulative from the original issue date and are payable, when, as and if declared by the Board of Directors of the Fund, out of funds legally available therefor, quarterly on March 26, June 26, September 26, and December 26 of each year, commencing on [DATE], 2006.

Series G Auction Rate Preferred. The holders of Series G Auction Rate Preferred are entitled to receive cash distributions, stated at annual rates of its $25,000 per share liquidation preference, that will vary from dividend period to dividend period. The table below shows the dividend rate, the dividend payment date and the number of days for the initial dividend period on the Series G Auction Rate Preferred.

Initial

Dividend Payment

Number of Days of

Dividend

Date for Initial

Initial Dividend

Rate

Dividend Period

Period

Series G Auction Rate Preferred

[ ]

[DATE], 2006

[7]

For subsequent dividend periods, the Series G Auction Rate Preferred will make distributions based on a rate set at auctions, normally held weekly. In most instances, distributions are payable weekly, on the first business day following the end of the dividend period. If the day on which distributions otherwise would be paid is not a business day, then distributions will be made on the first business day after the end of the dividend

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period. The Fund may, subject to certain conditions, designate special dividend periods of more (or less) than seven days. The dividend payment date for any such special dividend period will be set out in the notice designating the special dividend period. Distributions on shares of the Series G Auction Rate Preferred will be cumulative from the date such stock is issued and will be paid out of legally available funds.

Any designation of a special dividend period will be effective only if, among other things, proper notice has been given, the auction immediately preceding the special dividend period was not a failed auction and the Fund has confirmed that it has assets with an aggregate discounted value at least equal to the Basic Maintenance Amount (as described under “Description of the Series F Preferred and Series G Auction Rate Preferred — Rating Agency Guidelines”). See “Description of the Series F Preferred and Series G Auction Rate Preferred — Distributions on the Series G Auction Rate Preferred” and “The Auction of Series G Auction Rate Preferred.”

There is no minimum rate with respect to any dividend period. There is a maximum rate. The maximum rate for any dividend period other than a default period will be the greater of (i) the applicable percentage of the reference rate set forth in the table below and (ii) the applicable spread set forth in the table below plus the reference rate. The reference rate is the applicable LIBOR Rate (as defined below) (for a dividend period or a special dividend period of fewer than 365 days), or the applicable Treasury Index Rate (for a special dividend period of 365 days or more). The applicable percentage and applicable spread will be determined based on the lower of the credit ratings assigned to the Series G Auction Rate Preferred by Moody’s and S&P.

The applicable percentages and applicable spreads are as follows:


Credit Ratings		Applicable			Applicable
Moody’s	S&P	Percentage			Spread
Aaa	AAA		150	%		1.50	%
Aa3 to Aa1	AA- to AA+		250	%		2.50	%
A3 to A1	A- to A+		350	%		3.50	%
Baa1 or lower	BBB+ or lower		550	%		5.50	%

Assuming the Fund maintains an “Aaa” and “AAA” rating on the Series G Auction Rate Preferred, the practical effect of the different methods used to determine the maximum applicable rate is shown in the table below:


							Method
				Maximum			Used to
	Maximum Applicable			Applicable Rate			Determine the
Reference	Rate Using the			Using the			Maximum Applicable
Rate	Applicable Percentage			Applicable Spread			Rate
1%		1.50	%		2.50	%	Spread
2%		3.00	%		3.50	%	Spread
3%		4.50	%		4.50	%	Either
4%		6.00	%		5.50	%	Percentage
5%		7.50	%		6.50	%	Percentage
6%		9.00	%		7.50	%	Percentage

See “Description of the Series F Preferred and Series G Auction Rate Preferred — Distributions on the Series G Auction Rate Preferred — Maximum Rate.” For example, calculated as of June 30, 2005 and December 31, 2005, respectively, the maximum rate for the Series G Auction Rate Preferred (assuming a rating of “Aaa” by Moody’s and “AAA” by S&P) would have been approximately [ ]% and [ ]%, for dividend periods of

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90 days, and approximately [ ]% and [ ]% for dividend periods of two years.¹ There is no minimum rate with respect to any dividend period.

Preferred Stock Distributions. Under current Maryland law, all preferred stock 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 stock of the Fund for any dividend period, or part thereof, unless full cumulative dividends due through the most recent dividend payment dates for all series of outstanding preferred stock of the Fund are declared and paid. If full cumulative distributions due have not been declared and made on all outstanding preferred stock of the Fund ranking on a parity with the Series F Preferred and the Series G Auction Rate Preferred as to distributions, any distributions on such preferred stock (including any outstanding Series F Preferred and Series G Auction Rate Preferred) 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 stock on the relevant dividend date.

In the event that for any calendar year the total distributions on shares of the Fund’s preferred stock exceed the Fund’s 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 stockholder’s tax basis in his or her shares). The amount treated as a tax-free return of capital will reduce a stockholder’s adjusted tax basis in his or her preferred stock, thereby increasing the stockholder’s potential gain or reducing his or her potential loss on the sale of the shares.

Common Stock Distributions. In order to allow its common stockholders 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 Directors, of paying a minimum annual distribution of 10% of the average net asset value of the Fund to common stockholders. For the fiscal year ending December 31, 2005, the Fund made distributions of $0.85 per share of common stock, none of which constituted a return of capital. The Fund has made quarterly distributions with respect to its common stock since 1987. A portion of the returns during nine of the fiscal years since the Fund’s inception have constituted a return of capital. The composition of distributions is based on earnings as of the record date for the distribution. The actual composition of the distribution may change based on the Fund’s investment activity in 2006.

Auction Procedures.

You may buy, sell or hold Series G Auction Rate Preferred in the auction. The following is a brief summary of the auction procedures, which are described in more detail elsewhere in this prospectus and in the SAI. These auction procedures are complicated, and there are exceptions to these procedures. Many of the terms in this section have a special meaning as set forth in this prospectus or the SAI.

Provided that the Fund has not defaulted on its payment obligations to holders of the Series G Auction Rate Preferred, the auctions determine the dividend rate for the Series G Auction Rate Preferred, except that no dividend rate resulting from the auction process will be higher than the then-maximum rate. See “Description of the Series F Preferred and Series G Auction Rate Preferred - Distributions on the Series G Auction Rate Preferred.”

If you own shares of Series G Auction Rate Preferred, 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.

If you enter a sell order, you indicate that you want to sell Series G Auction Rate Preferred at $25,000 per share, no matter what the next dividend period’s rate will be.


¹		Dividend periods are presented for illustrative purposes only. Actual dividend periods may be of greater or lesser duration.

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If you enter a bid order, which must specify a dividend rate, you indicate that you want to purchase or hold the indicated number of shares of Series G Auction Rate Preferred at $25,000 per share if the dividend rate for the Series G Auction Rate Preferred for the next dividend period is not less than the rate specified in the bid. A bid order will be deemed an irrevocable offer to sell Series G Auction Rate Preferred if the next dividend period’s rate is less than the rate you specify.

If you enter a hold order you indicate that you want to continue to own Series G Auction Rate Preferred, no matter what the next dividend period’s rate will be.

You may enter different types of orders for different portions of your Series G Auction Rate Preferred. All orders must be for whole shares. All orders you submit are irrevocable after the submission deadline. There is a fixed number of Series G Auction Rate Preferred, and the dividend rate likely will vary from auction to auction depending on the number of bidders, the number of shares the bidders seek to buy, the rating of the Series G Auction Rate Preferred and general economic conditions, including current interest rates. If you own Series G Auction Rate Preferred and submit a bid order specifying a rate that is higher than the then-maximum rate, your bid order will be treated as a sell order. If you do not enter an order, the broker-dealer will ordinarily assume that you want to continue to hold your Series G Auction Rate Preferred, but if you fail to submit an order and the dividend period is a special dividend period, the broker-dealer will treat your failure to submit an order as a sell order.

If you do not then own Series G Auction Rate Preferred, or want to buy more shares, you may instruct a broker-dealer to enter a bid order to buy shares in an auction at $25,000 per share at or above the dividend rate you specify. If you bid for shares you do not already own at a rate higher than the then-maximum rate, your bid will not be considered.

Broker-dealers will submit orders from existing and potential holders of Series G Auction Rate Preferred to the auction agent. Neither the Fund nor the auction agent will be responsible for a broker-dealer’s failure to submit orders from existing or potential holders of Series G Auction Rate Preferred. A broker-dealer’s failure to submit orders for Series G Auction Rate Preferred held by it or its customers will be treated in the same manner as a holder’s failure to submit an order to the broker-dealer. A broker-dealer may submit orders to the auction agent for its own account provided that the broker-dealer is not an affiliate of the Fund. If a broker-dealer submits an order for its own account in any auction, it may have knowledge of orders placed through it in that auction and therefore have an advantage over other bidders, but such broker-dealer would not have knowledge of orders submitted by other broker-dealers in that auction. As a result of bidding by the broker-dealer in an auction, the auction rate may be higher or lower than the rate that would have prevailed had the broker-dealer not bid. The Fund may not submit an order in any auction.

The auction agent after each auction for the Series G Auction Rate Preferred will pay to each broker-dealer, from funds provided by the Fund, a service charge equal to, in the case of any auction immediately preceding a dividend period of less than one year, the product of (i) a fraction, the numerator of which is the number of days in such dividend period and the denominator of which is 360, times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the aggregate number of Series G Auction Rate Preferred placed by such broker-dealer at such auction. In the case of any auction immediately preceding a dividend period of one year or longer, the service charge shall be determined by mutual consent of the Fund and any such broker-dealer and shall be based upon a selling concession that would be applicable to an underwriting of fixed or variable rate preferred stock with a similar final maturity or variable rate dividend period, respectively, at the commencement of the dividend period with respect to such action. A broker-dealer may share a portion of any such fees with non-participating broker-dealers that submit orders to the broker-dealer for an auction that are placed by that broker-dealer in such auction.

There are sufficient clearing bids for shares of Series G Auction Rate Preferred in an auction if the number of Series G Auction Rate Preferred subject to bid orders by broker-dealers for potential holders with a dividend rate equal to or lower than the then-maximum rate is at least equal to the aggregate of the number of Series G Auction Rate Preferred subject to sell orders and the number of shares of Series G Auction Rate Preferred subject to bids specifying rates higher than the then-maximum rate for the Series G Auction Rate Preferred submitted or deemed submitted to the auction agent by broker-dealers for existing holders. If there are

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sufficient clearing bids for shares of Series G Auction Rate Preferred, then the dividend rate for the next dividend period will be the lowest rate submitted which, when taking into account that rate and all lower rate bids submitted from existing and potential holders, would result in existing and potential holders owning all the Series G Auction Rate Preferred available for purchase in the auction.

If there are not sufficient clearing bids for shares of Series G Auction Rate Preferred, then the auction is considered to be a failed auction, and the dividend rate for the next period will be the maximum rate. If the Fund has declared a special dividend period and there are not sufficient clearing bids, then the special dividend rate will not be effective and the dividend rate for the next period will be the same as during the current rate period. In either event, existing holders that have submitted sell orders (or are treated as having submitted sell orders) may not be able to sell any or all of the Series G Auction Rate Preferred for which they submitted sell orders.

The auction agent will not consider a bid above the then-maximum rate. The purpose of the maximum rate is to place an upper limit on distributions with respect to the Series G Auction Rate Preferred and in so doing to help protect the earnings available to pay distributions on the Fund’s common stock, and to serve as the dividend rate in the event of a failed auction (that is, an auction where there are more shares of Series G Auction Rate Preferred offered for sale than there are buyers for those shares).

The auction procedures include a pro rata allocation of Series G Auction Rate Preferred shares for purchase and sale. This allocation process may result in an existing holder selling, or a potential holder buying, fewer shares than the number of Series G Auction Rate Preferred in its order. If this happens, broker-dealers that have designated themselves as existing holders or potential holders in respect of customer orders will be required to make appropriate pro rata allocations among their respective customers.

Settlement of purchases and sales will be made through DTC on the next business day after the auction date (which also is a dividend payment date). Purchasers will pay for their Series G Auction Rate Preferred through broker-dealers in same-day funds to DTC against delivery to the broker-dealers. DTC will make payment to the sellers’ broker-dealers in accordance with its normal procedures, which require broker-dealers to make payment against delivery in same-day funds. As used in this prospectus, a business day is a day on which the NYSE is open for trading, and which is not a Saturday, Sunday or any other day on which banks in New York City are authorized or obligated by law to close.

The first auction for Series G Auction Rate Preferred will be held on [DATE], 2006, the business day preceding the dividend payment date for the initial dividend period. Thereafter, except during special dividend periods, auctions for Series G Auction Rate Preferred normally will be held every Wednesday (or the next preceding business day if Wednesday is a holiday), and each subsequent dividend period for the Series G Auction Rate Preferred normally will begin on the following Thursday.

Tax Treatment of Preferred Share Distributions

The Fund expects that distributions on the Series F Preferred and the Series G Auction Rate Preferred will consist of (i) long-term capital gain (gain from the sale of a capital asset held longer than 12 months), (ii) qualified dividend income (dividend income from certain domestic and foreign corporations) and (iii) investment company taxable income (other than qualified dividend income), including interest income, short-term capital gain and income from certain hedging and interest rate transactions. For individuals, the maximum federal income tax rate on long-term capital gain is currently 15%, on qualified dividend income is currently 15%, and on ordinary income (such as distributions from investment company taxable income that are not eligible for treatment as qualified dividend income) is currently 35%. These tax rates are scheduled to apply through 2010. We cannot assure you, however, as to what percentage of the distributions paid on the Series F Preferred or the Series G Auction Rate Preferred will consist of long-term capital gain and qualified dividend

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income, which are taxed at lower rates for individuals than ordinary income. For a more detailed discussion, see “Taxation.”

Rating and Asset Coverage Requirements

Series F Preferred. In order to be issued, the Series F Preferred must receive a rating of “Aaa” from Moody’s. The Fund’s Articles Supplementary, setting forth the rights and preferences of the Series F Preferred, contain certain tests that the Fund must satisfy to obtain and maintain a rating of “Aaa” from Moody’s on the Series F Preferred. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Rating Agency Guidelines.”

Series G Auction Rate Preferred. In order to be issued, the Series G Auction Rate Preferred must receive both a rating of “Aaa” from Moody’s and a rating of “AAA” from S&P. As with the Series F Preferred, the Series G Articles Supplementary contains certain tests that the Fund must satisfy to obtain and maintain a rating of “Aaa” from Moody’s and “AAA” from S&P. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Rating Agency Guidelines.”

Asset Coverage Requirements. Under the asset coverage tests to which each of the Series F Preferred and the Series G Auction Rate Preferred is subject, the Fund is required to maintain (i) assets having in the aggregate a discounted value greater than or equal to a Basic Maintenance Amount (as described under “Description of the Series F Preferred and Series G Auction Rate Preferred — Rating Agency Guidelines”) for each such series calculated pursuant to the applicable rating agency guidelines and (ii) an asset coverage of at least 200% (or such higher or lower percentage as may be required at the time under the Investment Company Act of 1940 (the “1940 Act”)) with respect to all outstanding preferred stock of the Fund, including the Series F Preferred and the Series G Auction Rate Preferred. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Asset Maintenance Requirements.”

The Fund estimates that if the shares offered hereby had been issued and sold as of June 30, 2006, the asset coverage under the 1940 Act would have been approximately [ ]% immediately following such issuance (and after giving effect to the deduction of the estimated underwriting discounts of $[ ] and estimated offering expenses for such shares of $[ ]). The asset coverage would have been computed as follows:


Value of Fund assets less liabilities not constituting senior securities	=	$

Senior securities representing indebtedness plus liquidation preference of each class of preferred stock			%

The Articles Supplementary for each of the Series F Preferred and the Series G Auction Rate Preferred, which contain the technical provisions of the various components of the asset coverage tests, will be filed as exhibits to this registration statement and may be obtained through the web site of the Commission (http://www.sec.gov).

Redemption

Mandatory Redemption. The Series F Preferred and the Series G Auction Rate Preferred may be subject to mandatory redemption by the Fund to the extent the Fund fails to maintain the asset coverage requirements in accordance with the rating agency guidelines or the 1940 Act described above and does not cure such failure by the applicable cure date. If the Fund redeems preferred stock mandatorily, it may, but is not required to, redeem a sufficient number of such shares so that after the redemption the Fund exceeds the asset coverage required by the guidelines of each of the applicable rating agencies and the 1940 Act by 10%.

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With respect to the Series F Preferred, any such redemption will be made for cash at a redemption price equal to $25 per share, plus an amount equal to accumulated and unmade distributions (whether or not earned or declared) to the redemption date.

With respect to the Series G Auction Rate Preferred, any such redemption will be made for cash at a redemption price equal to $25,000 per share, plus an amount equal to accumulated but unmade distributions (whether or not earned or declared) to the redemption date, plus, in the case of the Series G Auction Rate Preferred having a dividend period of more than one year, any applicable redemption premium determined by the Board of Directors. See “Description of the Series F Preferred and the Series G Auction Rate Preferred — Redemption.”

In the event of a mandatory redemption, such redemption will be made from the Series F Preferred, the Series G Auction Rate Preferred or other preferred stock of the Fund in such proportions as the Fund may determine, subject to the limitations of the Charter, the 1940 Act and Maryland law.

Optional Redemption. Subject to the limitations of the 1940 Act and Maryland law, the Fund may, at its option, redeem the Series F Preferred and the Series G Auction Rate Preferred as follows:

Series F Preferred. Commencing [ ] and at any time thereafter, the Fund at its option may redeem the Series F Preferred, in whole or in part, for cash at a redemption price per share equal to $25, plus an amount equal to accumulated and unmade distributions (whether or not earned or declared) to the redemption date. If fewer than all of the shares of the Series F Preferred are to be redeemed, such redemption will be made pro rata in accordance with the number of such shares held. Prior to [ ] the Series F Preferred will be subject to optional redemption by the Fund at the redemption price only to the extent necessary for the Fund to continue to qualify for tax treatment as a regulated investment company. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Redemption — Optional Redemption of the Series F Preferred.”

Series G Auction Rate Preferred. The Fund generally may redeem the Series G Auction Rate Preferred, 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 declare a non-call period during a dividend period of more than seven days. If fewer than all of the shares of the Series G Auction Rate Preferred are to be redeemed, such redemption will be made pro rata among investors in accordance with the number of such shares held. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Redemption — Optional Redemption of the Series G Auction Rate Preferred.”

The redemption price per share of Series G Auction Rate Preferred will equal $25,000, plus an amount equal to any accumulated but unmade distributions thereon (whether or not earned or declared) to the redemption date, plus, in the case of the Series G Auction Rate Preferred having a dividend period of more than one year, any redemption premium applicable during such dividend period.

See “Description of the Series F Preferred and Series G Auction Rate Preferred — Redemption - Optional Redemption of the Series G Auction Rate Preferred.”

Series A Preferred, Series B Preferred, Series C Auction Rate Preferred, Series D Preferred, and Series E Auction Rate Preferred.

The Fund redeemed 100% of its outstanding Series A Preferred on June 17, 2003. The Fund redeemed 25% of its then outstanding Series B Preferred on June 26, 2006. The Fund’s outstanding Series B Preferred became redeemable at the option of the Fund beginning June 20, 2006. The Fund generally may redeem the outstanding Series C Auction Rate Preferred, in whole or in part, at any time other than during a non-call period. The Fund’s outstanding Series D Preferred is redeemable at the option of the Fund beginning September 26, 2008. The Fund generally may redeem the outstanding Series E Auction Rate Preferred, in whole or in part, at any time other than during a non-call period. Such redemptions are subject to the limitations of the 1940 Act and Maryland law. See “Description of the Series F Preferred and Series G Auction Rate Preferred - Redemption.”

Voting Rights

At all times, holders of the Fund’s outstanding preferred stock (including the Series F Preferred and the Series G Auction Rate Preferred), voting as a single class, will be entitled to elect two members of the Fund’s Board of Directors, and holders of the preferred stock and common stock, voting as a single class, will elect the remaining directors. However, upon a failure by the Fund to make distributions on any of its shares of preferred stock in an amount equal to two full years of distributions, holders of the preferred stock, voting as a single class, will have the right to elect additional directors that would then constitute a simple majority of the Board of Directors until all cumulative distributions on all shares of preferred stock have been made or provided for. Holders of outstanding shares of Series F Preferred, Series G Auction Rate Preferred and any other preferred

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stock will vote separately as a class on certain other matters as required under the charter (together with any amendments or supplements thereto, including any articles supplementary, the “Charter”), the 1940 Act and Maryland law. Except as otherwise indicated in this prospectus and as otherwise required by applicable law, holders of Series F Preferred and Series G Auction Rate Preferred will be entitled to one vote per share on each matter submitted to a vote of stockholders and will vote together with holders of common stock and any other preferred stock as a single class. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Voting Rights.”

Liquidation Preference

The liquidation preference of the Series F Preferred is $25. The liquidation preference of the Series G Auction Rate Preferred is $25,000 per share. Upon liquidation, holders of preferred stock will be entitled to receive the liquidation preference with respect to their shares of preferred stock plus an amount equal to accumulated but unmade distributions with respect to such shares (whether or not earned or declared) to the date of liquidation. See “Description of the Series F Preferred and Series G Auction Rate Preferred — Liquidation Rights.”

Use of Proceeds

Listing of the Series F Preferred

Following its issuance (if issued), the Series F Preferred is expected to be listed on the NYSE. However, during an initial period which is not expected to exceed 30 days after the date of its initial issuance, the Series F Preferred will not be listed on any securities exchange and consequently may be illiquid during that period. There can be no assurance that a secondary market will provide owners with liquidity.

Limitation on Secondary Market Trading of the Series G Auction Rate Preferred

The Series G Auction Rate Preferred will not be listed on an exchange. Broker-dealers may, but are not obligated to, maintain a secondary trading market in the Series G Auction Rate Preferred outside of auctions. There can be no assurance that a secondary market will provide owners with liquidity. You may transfer Series G Auction Rate Preferred outside of auctions only to or through a broker-dealer that has entered into an agreement with the auction agent or such other persons as the Fund permits.

Special Characteristics and Risks

Risk is inherent in all investing. Therefore, before investing in the Series F Preferred or the Series G Auction Rate Preferred you should consider the risks carefully. See “Risk Factors and Special Considerations.”

Series F Preferred. Primary risks specially associated with an investment in the Series F Preferred include:

The market price for the Series F Preferred will be influenced by changes in interest rates, the perceived credit quality of the Series F Preferred and other factors. See “Risk Factors and Special Considerations — Special Risks of the Series F Preferred — Fluctuations in Market Price.”

Prior to the offering, there has been no public market for the Series F Preferred. In the event the Series F Preferred is issued, prior application will have been made to list the Series F Preferred on the NYSE. However, during an initial period, which is not expected to exceed 30 days after the date of its issuance, the

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Series D Preferred will not be listed on any securities exchange. During such 30-day period, the underwriters may make a market in the Series F Preferred; however, they have no obligation to do so. Consequently, the Series F Preferred may be illiquid during such period. No assurances can be provided that listing on any securities exchange or market making by the underwriters will result in the market for Series F Preferred being liquid at any time. See “Risk Factors and Special Considerations — Special Risks of the Series F Preferred — Illiquidity Risk.”

Series G Auction Rate Preferred. Primary risks specifically associated with an investment in Series G Auction Rate Preferred include:

You may not be able to sell your Series G Auction Rate Preferred at an auction if the auction fails, i.e., if there are more shares offered for sale than there are buyers for those shares. Also, if you place an order at an auction to retain Series G Auction Rate Preferred only at a specified rate that exceeds the rate set at the auction, you will not retain your 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. Finally, the dividend period may be changed, subject to certain conditions and with notice to the holders of the affected series of Series G Auction Rate Preferred, which could also affect the liquidity of your investment. See “Risk Factors and Special Considerations — Special Risks of the Series G Auction Rate Preferred — Auction and Secondary Market Risk.”

If you try to sell your Series G Auction Rate Preferred between auctions, you may not be able to sell them for $25,000 per share or $25,000 per share plus accumulated distributions. 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 may maintain a secondary trading market for Series G Auction Rate Preferred are not required to maintain this market, and the Fund is not required to redeem Series G Auction Rate Preferred if either an auction or an attempted secondary market sale fails because of a lack of buyers. In addition, a broker-dealer may, in its own discretion, decide to sell Series G Auction Rate Preferred in the secondary market to investors at any time and at any price, including at prices equivalent to, below or above the par value of the Series G Auction Rate Preferred. The Series G Auction Rate Preferred are not listed on a stock exchange.

If you sell your Series G Auction Rate Preferred to a broker-dealer between auctions, you may receive less than the price you paid for the shares, especially when market interest rates have risen since the last auction or during a special dividend period. See “Risk Factors and Special Considerations — Special Risks of the Series G Auction Rate Preferred — Auction and Secondary Market Risk.”

Both the Series F Preferred and Series G Auction Rate Preferred. An investment in either the Series F Preferred or the Series G Auction Rate Preferred also includes the following primary risks:

You will have no right to require the Fund to repurchase or redeem your shares of Series F Preferred or Series G Auction Rate Preferred at any time.

The market value for the Series F Preferred and the Series G Auction Rate Preferred will be influenced by changes in interest rates, the perceived credit quality of the Series F Preferred or the Series G Auction Rate Preferred and other factors.

The credit rating on the Series F Preferred and the Series G Auction Rate Preferred could be reduced or withdrawn while an investor holds shares, and the credit rating does not eliminate or mitigate the risks of investing in the Series F Preferred and Series G Auction Rate Preferred. A reduction or withdrawal of the credit rating would likely have an adverse effect on the market value of the Series F Preferred and Series G Auction Rate Preferred.

The Fund may not meet the asset coverage requirements or earn sufficient income from its investments to make distributions on the Series F Preferred and/or the Series G Auction Rate Preferred.

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The value of the Fund’s investment portfolio may decline, reducing the asset coverage for the Series F Preferred and the Series G Auction Rate Preferred. Further, if an issuer of a common stock in which the Fund invests experiences financial difficulties or if an issuer’s preferred stock or debt security is downgraded or defaults or if an issuer in which the Fund invests is affected by other adverse market factors, there may be a negative impact on the income and asset value of the Fund’s investment portfolio. In such circumstances, the Fund may be forced to mandatorily redeem shares of Series F Preferred and/or Series G Auction Rate Preferred.

The Fund generally may redeem the Series G Auction Rate Preferred, 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, and may redeem your Series F Preferred at any time after [ ], and may at any time redeem shares of either or both series to meet regulatory or rating agency requirements. Because of historically low interest rates, the current low cost of the Series G Auction Rate Preferred to the Fund may rise dramatically, which in turn may prompt the Fund to redeem the Series G Auction Rate Preferred earlier than it otherwise might. The Series F Preferred and the Series G Auction Rate Preferred are subject to redemption under specified circumstances and investors may not be able to reinvest the proceeds of any such redemption in an investment providing the same or a better rate than that of the Series F Preferred or the Series G Auction Rate Preferred. Subject to such circumstances, the Series F Preferred and the Series G Auction Rate Preferred are perpetual.

The Series F Preferred and the Series G Auction Rate Preferred are not obligations of the Fund. The Series F Preferred and the Series G Auction Rate Preferred would be junior in respect of distributions and liquidation preference to any indebtedness incurred by the Fund. Although unlikely, precipitous declines in the value of the Fund’s assets could result in the Fund having insufficient assets to redeem all of the Series F Preferred and/or the Series G Auction Rate Preferred for the full redemption price.

The Fund currently uses, and intends to continue to use, financial leverage for investment purposes by issuing preferred stock. It is currently anticipated that, taking into account the Series F Preferred and the Series G Auction Rate Preferred being offered in this prospectus, the amount of leverage will represent approximately [ ] % of the Fund’s managed assets (as defined below). The Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset coverage for the Series F Preferred and the Series G Auction Rate Preferred. 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 stock, or to redeem preferred stock when it may be disadvantageous to do so. Also, if the Fund is utilizing leverage, a decline in net asset value could affect the ability of the Fund to make common stock distributions and such a failure to make distributions could result in the Fund ceasing to qualify as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”). See “Taxation.”

Because the fee paid to the Investment Adviser will be calculated on the basis of the Fund’s assets, which include for this purpose assets attributable to the aggregate net asset value of the common stock plus assets attributable to any outstanding senior securities, with no deduction for the liquidation preference of any preferred stock, the fee may be higher when leverage in the form of preferred stock is utilized, giving the Investment Adviser an incentive to utilize such leverage. However, the Investment Adviser has agreed to reduce the management fee on the incremental assets attributable to the Existing Preferred and the Series F Preferred or Series G Auction Rate Preferred during the fiscal year if the total return of the net asset value of the common stock, including distributions and advisory fees subject to reduction for that year, does not exceed the stated dividend rate or corresponding swap rate of each particular series of preferred stock for the period. The Fund’s total return on the net asset value of the common stock is monitored on a monthly basis to assess whether the total return on the net asset value of the common stock exceeds the stated dividend rate or corresponding swap rate of each particular series of preferred stock for the period. The test to confirm the accrual of the management fee on the assets attributable to each particular series of preferred stock is annual. The Fund will accrue for the management fee on these assets during the fiscal year if it appears probable that the Fund will incur the management fee on those additional assets. See “Risk Factors and Special Considerations — Risks Associated with both Series F Preferred and the Series G Auction Rate Preferred — Leverage Risk.”

Restrictions imposed on the declaration and payment of dividends or other distributions to the holders of the common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating

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agencies, might impair the Fund’s ability to maintain its qualification as a regulated investment company for federal income tax purposes. While the Fund intends to redeem shares of its preferred stock (including the Series F Preferred and the Series G Auction Rate Preferred) to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification as a regulated investment company under the Code, there can be no assurance that such actions can be effected in time to meet the Code requirements. See “Taxation” in the SAI.

Certain of the underwriters have advised the Fund that they and various other broker-dealers and other firms that participate in the auction rate securities market received letters from the staff of the Commission in the spring of 2004. The letters requested that each of these firms voluntarily conduct an investigation regarding its respective practices and procedures in that market. Pursuant to these requests, each underwriter conducted its own voluntary review and reported its findings to the staff of the Commission. At the request of the staff of the Commission, these underwriters are engaging in discussions with the staff concerning its inquiry. Neither they nor the Fund can predict the ultimate outcome of the inquiry or how that outcome will affect the market for the auction rate securities or the auctions.

The Fund has adopted a policy, which may be changed at any time by the Board of Directors, of paying a minimum annual distribution of 10% of the average net asset value of the Fund to common stockholders. In the event investment returns do not provide sufficient amounts to fund such distributions, the Fund may be required to return capital as part of such distribution, which may have the effect of decreasing the asset coverage per share with respect to the Fund’s Series F Preferred and Series G Auction Rate Preferred. For the fiscal year ended December 31, 2005 the Fund made distributions of $0.85 per share of common stock, none of which constituted a return of capital. The Fund has made quarterly distributions with respect to its shares of common stock since 1987. A portion of the returns during nine fiscal years since the Fund’s inception have constituted a return of capital. The composition of distributions is based on earnings as of the record date for the distribution. The actual composition of the distribution may change based on the Fund’s investment activity through the end of the year.

As a non-diversified, closed-end management investment company under the 1940 Act, the Fund may invest a greater portion of its assets in a more limited number of issuers than may a diversified fund, and accordingly, an investment in the Fund may, under certain circumstances, present greater risk to an investor than an investment in a diversified company. See “Risk Factors and Special Considerations — Risks of Investing in the Fund — Non-Diversified Status.”

The Fund may invest up to 25% of its assets in the securities of companies principally engaged in a single industry. In the event the Fund makes substantial investments in a single industry, the Fund would become more susceptible to adverse economic or regulatory occurrences affecting that industry. See “Risk Factors and Special Considerations — Risks of Investing in the Fund — Industry Concentration Fund.”

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, also sometimes referred to as “junk bonds.” Such securities are subject to greater risks than investment grade securities, which reflect their speculative character, including (i) greater volatility; (ii) greater credit risk; (iii) potentially greater sensitivity to general economic or industry conditions; (iv) potential lack of attractive resale opportunities (illiquidity); and (v) additional expenses to seek recovery from issuers who default. See “Risk Factors and Special Considerations — Risks of Investing in the Fund — Lower Rated Securities.”

The Fund may invest up to 35% of its total assets in securities of foreign issuers. Investing in securities of foreign companies (or foreign governments), which are generally denominated in foreign currencies, may involve certain risks and opportunities not typically associated with investing in domestic companies and could cause the Fund to be affected favorably or unfavorably by changes in currency exchange rates and revaluation of currencies. See “Risk Factors and Special Considerations — Risks of Investing in the Fund — Foreign Securities.”

The Fund has entered into an interest rate swap transaction with respect to its outstanding Series C Preferred and is authorized to enter into an interest rate swap or cap transaction with respect to its outstanding Series E Auction Rate Preferred. The Fund may enter into an interest rate swap or cap transaction with respect to all or

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a portion of the Series G Auction Rate Preferred. The use of interest rate swaps and caps is a highly specialized activity that involves certain risks to the Fund including, among others, counterparty risk and early termination risk. See “Risk Factors and Special Considerations — Risks of Investing in the Fund.”

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 Considerations-Risks of Investing in the Fund-Management Risk.”

The Investment Adviser is dependent upon the expertise of Mr. Mario J. Gabelli in providing advisory services with respect to the Fund’s investments. If the Investment Adviser were to lose the services of Mr. Gabelli, its ability to service the Fund could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr. Gabelli in the event of his death, resignation, retirement or inability to act on behalf of the Investment Adviser. See “Risk Factors and Special Considerations — Risks of Investing in the Fund — Dependence on Key Personnel.”

The Fund’s Charter and By-laws 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 Charter and By-laws.”

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 shares of common stock if the Fund fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize the Fund’s ability to meet the distribution requirements. The Fund presently intends, however, to purchase or redeem preferred stock to the extent necessary in order to maintain compliance with such asset coverage requirements. See “Taxation” for a more complete discussion of these and other federal income tax considerations.

Management and Fees

Gabelli Funds, LLC serves as the Fund’s investment adviser and its fee is calculated on the basis of the Fund’s assets, which includes for this purpose assets attributable to the aggregate net asset value of the common stock plus assets attributable to any outstanding senior securities, with no deduction for the liquidation preference of any preferred stock. The fee may be higher when leverage in the form of preferred stock is utilized, giving the Investment Adviser an incentive to utilize such leverage. However, the Investment Adviser has agreed to reduce the management fee on the incremental assets attributable to the Existing Preferred and the Series F Preferred or Series G Auction Rate Preferred during the fiscal year if the total return of the net asset value of the common stock, including distributions and management fees subject to reduction for that year, does not exceed the stated dividend rate or corresponding swap rate of each particular series of preferred stock of the period. The Fund’s total return on the net asset value of common stock is monitored on a monthly basis to assess whether the total return on the net asset value of the common stock exceeds the stated dividend rate or corresponding swap rate of each particular series of preferred stock for the period. The test to confirm the accrual of the management fee on the assets attributable to each particular series of preferred stock is annual. The Fund will accrue for the management fee on these assets during the fiscal year if it appears probable that the Fund will incur the additional management fee on those additional assets.

For the year ended December 31, 2005, the Fund’s total return on the net asset value of the common stock exceeded the stated dividend rate or net swap expense of the Series C Auction Rate Preferred and Series E Auction Rate Preferred. Thus, management fees were accrued on these assets. The Fund’s total return on the net asset value of the common stock did not exceed the stated dividend rate or net swap expense of the Series B Preferred and Series D Preferred. Thus, management fees with respect to the liquidation value of the preferred stock assets in the amount of $2,387,425 were not accrued. See “Risk Factors and Special Considerations — Risks Associated with both Series F Preferred and the Series G Auction Rate Preferred — Leverage Risk.”

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Repurchase of Common Stock and Anti-takeover Provisions

The Fund’s Board of Directors has authorized the Fund to repurchase its shares of common stock in the open market when the shares are trading at a discount of 10% or more from net asset value. Such repurchases are subject to certain notice and other requirements under the 1940 Act. Through June 30, 2006, the Fund has repurchased zero shares of its common stock under this authorization.

Certain provisions of the Fund’s Charter and By-Laws may be regarded as “anti-takeover” provisions. Pursuant to these provisions, only one of the three classes of directors is elected each year, and the affirmative vote of the holders of 66²/₃% of the Fund’s outstanding shares of each class (voting separately) is required to authorize the conversion of the Fund from a closed-end to an open-end investment company or generally to authorize any of the following transactions:

(1) the merger or consolidation of the Fund with any entity;

(2) the issuance of any securities of the Fund for cash to any entity or person;

(3) the sale, lease or exchange of all or any substantial part of the assets of the Fund to any entity or person (except assets having an aggregate fair market value of less than $1,000,000); or

(4) the sale, lease or exchange to the Fund, in exchange for its securities, of any assets of any entity or person (except assets having an aggregate fair market value of less than $1,000,000);

if such person or entity is directly, or indirectly through affiliates, the beneficial owner of more than 5% of the outstanding shares of any class of capital stock of the Fund. However, such vote would not be required when, under certain conditions, the Board of Directors approves the transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger with, or the assumption of control by, a principal stockholder, or the conversion of the Fund to open-end status. These provisions may have the effect of depriving Fund stockholders of an opportunity to sell their stock at a premium above the prevailing market price. See “Anti-Takeover Provisions of the Charter and By-Laws.”

Custodian, Transfer Agent, Auction Agent, and Dividend Disbursing Agent

Mellon Trust of New England, N.A. (the “Custodian”), located at 135 Santilli Highway, Everett, Massachusetts 02149, serves as the custodian of the Fund’s assets pursuant to a custody agreement. Under the custody agreement, the Custodian holds the Fund’s assets in compliance with the 1940 Act. For its services, the Custodian receives a monthly fee based upon the average weekly value of the total assets of the Fund, plus certain charges for securities transactions.

Computershare Trust Company, N.A. (“Computershare”), located at 250 Royall Street, Canton, Massachusetts 02021, serves as the Fund’s dividend disbursing agent, as agent under the Fund’s automatic dividend reinvestment and voluntary cash purchase plan (the “Plan”) and as transfer agent and registrar with respect to the common stock of the Fund.

Series F Preferred. Computershare will also serve as the transfer agent, registrar, dividend paying agent and redemption agent with respect to the Series F Preferred. Computershare currently serves in such capacities with respect to the Series B Preferred and the Series D Preferred.

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Series G Auction Rate Preferred. The Bank of New York, located at 100 Church Street, New York, New York 10286, will serve as the auction agent, transfer agent, registrar, dividend paying agent and redemption agent with respect to the Series G Auction Rate Preferred. The Bank of New York currently serves in such capacities with respect to the Series C Auction Rate Preferred and the Series E Auction Rate Preferred.

Interest Rate Transactions

The Fund has entered into an interest rate swap transaction with respect to its outstanding Series C Auction Rate Preferred, and may enter into an interest rate swap or cap transaction with respect to all or a portion of its outstanding Series E Auction Rate Preferred or Series G Auction Rate Preferred. Through these transactions the Fund may, for example, obtain the equivalent of a fixed rate for a series of the Series C Auction Rate Preferred, the Series E Auction Rate Preferred (collectively, the “Existing Auction Rate Preferred”) or Series G Auction Rate Preferred that is lower than the Fund would have to pay if it issued fixed rate preferred stock. The use of interest rate swaps and caps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions.

In an interest rate swap, the Fund would agree to pay to the other party to the interest rate swap (which is known as the “counterparty”) periodically a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund periodically a variable rate payment that is intended to approximate the Fund’s variable rate payment obligation on a series of the Existing Auction Rate Preferred or Series G Auction Rate Preferred. In an interest rate cap, the Fund would pay a premium to the counterparty to the interest rate cap and, to the extent that a specified variable rate index exceeds a predetermined fixed rate, the Fund would receive from the counterparty payments of the difference based on the notional amount of such cap. Interest rate swap and cap transactions introduce additional risk because the Fund would remain obligated to pay preferred stock distributions when due in accordance with the Articles Supplementary of each of the series of Existing Auction Rate Preferred or Series G Auction Rate Preferred even if the counterparty defaulted. Depending on the general state of short-term interest rates and the returns on the Fund’s portfolio securities at that point in time, such a default could negatively affect the Fund’s ability to make distributions on its preferred stock. In addition, at the time an interest rate swap or cap transaction reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or that the terms of the replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on the Fund’s ability to make distributions on its preferred stock.

A sudden and dramatic decline in interest rates may result in a significant decline in the asset coverage. If the Fund fails to maintain the required asset coverage on its outstanding preferred stock or fails to comply with other covenants, the Fund may, at its option (and in certain circumstances must) require, consistent with its Charter and the requirements of the 1940 Act, that some or all of its outstanding shares of preferred stock (including the Series F Preferred or the Series G Auction Rate Preferred) be redeemed. Such redemption likely would result in the Fund seeking to terminate early all or a portion of any swap or cap transaction. Early termination of a swap could require the Fund to make a termination payment to the counterparty.

The Fund intends to segregate cash or liquid securities having a value at least equal to the value of the Fund’s net payment obligations under any swap transaction, marked to market daily. The Fund does not presently intend to enter into interest rate swap or cap transactions relating to the Series G Auction Rate Preferred in a notional amount in excess of the outstanding amount of the Series G Auction Rate Preferred. The Fund will monitor any such swap with a view to ensuring that the Fund remains in compliance with all applicable regulatory investment policy and tax requirements. See “How the Fund Manages Risk — Interest Rate Transactions.”

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FINANCIAL HIGHLIGHTS

The table below sets forth selected financial data for the periods presented. The per share operating performance and ratios for the fiscal periods ended December 31, 2005, 2004, 2003, 2002 and 2001, have been audited by [AUDITOR], the Fund’s Independent Registered Public Accounting Firm (“[AUDITOR]”), as stated in its report which is incorporated by reference into the SAI. The following information should be read in conjunction with the Financial Statements and Notes thereto, which are incorporated by reference into the SAI.

Year Ended December 31,

2005

2004

2003

2002

2001

OPERATING PERFORMANCE:

Net asset value, beginning of period

Net investment income (loss)

Net realized and unrealized gain (loss) on investments

Total from investment operations

DISTRIBUTIONS TO HOLDERS OF PREFERRED STOCK

Net investment income

Net realized gain on investments

Total distributions to holders of preferred stock

NET INCREASE (DECREASE) IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF COMMON STOCK RESULTING FROM OPERATIONS

DISTRIBUTIONS TO HOLDERS OF COMMON STOCK

Net investment income

Net realized gain on investments

Return of capital

Total distributions to holders of common stock

CAPITAL STOCK TRANSACTIONS:

Increase in net asset value from common stock transactions

Decrease in net asset value from stock issued in rights offering

Increase in net asset value from repurchase of preferred stock

Offering costs for preferred stock charged to paid-in capital

Total capital stock transactions

NET ASSET VALUE ATTRIBUTABLE TO HOLDERS OF COMMON STOCK, END OF PERIOD

Net Asset Value Total Return†

Market Value, End of Period

Total Investment Return††

RATIOS AND SUPPLEMENTAL DATA:

Net assets including liquidation value of preferred stock, end of period (in 000’s)

Net assets attributable to common stock, end of period (in 000’s)

Ratio of net investment income to average net assets attributable to common stock

Ratio of operating expenses to average net assets attributable to common stock

Ratio of operating expenses to average net assets including liquidation value of preferred stock

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Year Ended December 31,

2005

2004

2003

2002

2001

Portfolio turnover rate

PREFERRED STOCK:

7.25% CUMULATIVE PREFERRED STOCK

Liquidation value, end of period (in 000’s)