Edgar Filing: GABELLI CONVERTIBLE & INCOME SECURITIES FUND INC

PROSPECTUS

8,291,884 Rights for up to 4,145,942 Shares of Common Stock

[Gabelli Convertible and Income Securities Fund Inc. LOGO]

The Gabelli
Convertible and Income
Securities Fund Inc.
Common Stock

The Gabelli Convertible and Income Securities Fund Inc. (the
"Fund") is issuing transferable rights ("Rights") to its common
stockholders. These Rights will allow you to subscribe for new shares of
common stock of the Fund. For every three Rights that you receive, you may
buy one new share of common stock of the Fund plus, in certain
circumstances, additional shares of common stock pursuant to an
over-subscription privilege. You will receive one Right for each
outstanding share of common stock of the Fund you own on November 14, 2002
(the "Record Date") rounded up to the nearest number of Rights evenly
divisible by three. Fractional shares will not be issued upon the exercise
of the Rights. Accordingly, new shares may be purchased only pursuant to
the exercise of Rights in integral multiples of three.

The Rights are transferable and will be admitted for trading on
the New York Stock Exchange ("NYSE") under the symbol "GCVRT." The Fund's
shares of common stock are presently listed on the NYSE under the symbol
"GCV." The new stock issued in this Rights offering (the "Offer" or
"Offering") will also be listed under the symbol "GCV." On November 13,
2002 (the last trading date prior to the Fund's shares trading ex-rights),
the last reported net asset value per share of the Fund's common stock was
$8.31 and the last reported sales price per share of common stock on the
NYSE was $9.44. The purchase price per share (the "Subscription Price")
will be $8.00. The offer will expire at 5:00 p.m., New York time, on
December 13, 2002, unless the Offer is extended as described in this
Prospectus (the "Expiration Date").

The Fund is a diversified, closed-end management investment
company registered under the Investment Company Act of 1940, as amended
(the "1940 Act"). The Fund's investment objective is a high level of total
return on its assets. The Fund seeks to achieve its investment objective
through a combination of current income and capital appreciation. Under
normal circumstances the Fund will invest at least 80% of the value of its
total assets in securities that are convertible into or represent the right
to acquire common stock, and in other securities that are expected to
periodically accrue or generate income for their holders. Gabelli Funds,
LLC (the "Investment Adviser") serves as investment adviser to the Fund. An
investment in the Fund is not appropriate for all investors. No assurances
can be given that the Fund's objectives will be achieved. For a discussion
of certain risk factors and special considerations with respect to owning
common stock of the fund, see "Risk Factors and Special Considerations" on
page 37 of this Prospectus. The address of the Fund is One Corporate
Center, Rye, New York 10580 and its telephone number (914) 921-5070.

This Prospectus sets forth certain information about the Fund an
investor should know before investing. Accordingly, this Prospectus should
be retained for future reference.

A Statement of Additional Information dated November 14, 2002 (the
"SAI") has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus. The table of contents of the
SAI appears on page 61 of this Prospectus. A copy of the SAI may be
obtained without charge by writing to the Fund at: One Corporate Center,
Rye, New York 10580-1434 or calling the Fund toll-free at (800) 422-3554.

_________________________________

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 crime.

SUBSCRIPTION PROCEEDS
PRICE SALES LOAD TO FUND(1)
----------------------- --------------------- ---------------------

Per Share............................ $8.00 None $8.00
Total................................ $8.00 None $33,167,536(2)

(1) Before deduction of expenses incurred by the Fund, estimated at
$450,000.

(2) 1,381,981 of the shares offered by this Registration Statement,
representing $11,055,848 of the proceeds to the Fund, can only be
issued in the event that on the Expiration Date the Fund's per share
net asset value is equal to or less than the Subscription Price. In
the event the Fund's per share net asset value on the Expiration Date
is greater than the Subscription Price the maximum proceeds to the
Fund will be $22,111,688.

_________________________________

Common Stockholders who do not exercise their Rights should expect
that they will, at the completion of the offer, own a smaller proportional
interest in the Fund than if they exercised their rights. As a result of
the Offer you may experience dilution or accretion of the aggregate net
asset value of your common stock depending upon whether the Fund's net
asset value per share of common stock is above or below the Subscription
Price on the Expiration Date. The Fund cannot state precisely the extent of
any dilution or accretion at this time because the Fund does not know what
the net asset value per share of common stock will be when the Offer
expires or what proportion of the Rights will be exercised. The Investment
Adviser's parent company, Gabelli Asset Management Inc. and its affiliates
(the "Affiliated Parties") may purchase stock through the primary
subscription and the over- subscription privilege. Mr. Mario J. Gabelli,
who may be deemed to control the Fund's Investment Adviser, or his
affiliated entities may also purchase additional stock through the primary
subscription and the over-subscription privilege on the same terms as other
stockholders.

_________________________________

This Prospectus sets forth concisely certain information about the
Fund that a prospective investor should know before investing. Investors
are advised to read and retain it for future reference. A Statement of
Additional Information dated November 14, 2002 (the "SAI") containing
additional information about the Fund has been filed with the SEC and is
incorporated by reference in its entirety into this Prospectus. A copy of
the SAI, the table of contents of which appears on page 61 of this
Prospectus, may be obtained without charge by contacting the Fund at (800)
GABELLI ((800) 422-3554) or (914) 921-5070. The SAI will be sent within two
business days of receipt of a request. Investors may also obtain the SAI,
material incorporated by reference, and other information about the Fund
from the SEC's website (http://www.sec.gov). Stockholder inquiries should
be directed to the Subscription Agent, Equiserve, at (800) 336-6983 or
(781) 575-2000.

_________________________________

November 14, 2002

PROSPECTUS SUMMARY

This summary highlights some information that is described more
fully elsewhere in this Prospectus. It may not contain all of the
information that is important to you. To understand the Offer fully, you
should read the entire document carefully, including the risk factors,
which can be found on page 37, under the heading "Risk Factors and Special
Considerations."

Purpose of the Offer

The Board of Directors of the Fund has determined that it would be
in the best interests of the Fund and its existing common stockholders to
increase the assets of the Fund so that the Fund may be in a better
position to take advantage of investment opportunities that may arise. The
Offer seeks to reward existing common stockholders by giving them the
opportunity to purchase additional shares of common stock at a price that
may be below market and/or net asset value without incurring any commission
charge. The distribution of the Rights, which themselves may have intrinsic
value, will also give non- participating common stockholders the potential
of receiving a cash payment upon the sale of their Rights, which may be
viewed as partial compensation for the possible dilution of their interests
in the Fund as a result of the Offer.

The Board of Directors believes that increasing the size of the
Fund may lower the Fund's expenses as a proportion of average net assets
because the Fund's fixed costs can be spread over a larger asset base.
There can be no assurance that by increasing the size of the Fund, the
Fund's expense ratio will be lowered. The Board of Directors also believes
that a larger number of outstanding shares of common stock and a larger
number of beneficial owners of shares of common stock could increase the
level of market interest in and visibility of the Fund and improve the
trading liquidity of the Fund's stock on the NYSE.

Important Terms of the Offer

Total number of shares of common stock
available for primary subscription...............................................................2,763,961
Total number of shares of common stock
reserved for secondary over-
subscription if subscription price
equals or exceeds net asset value per
share of common stock ...........................................................................1,381,981
Number of Rights you will receive for
each outstanding share of common
stock you own on the Record Date............................................One Right for every one share*
Number of shares of common stock you
may purchase with your Rights
at the Subscription Price per share.....................................One share for every three Rights**
Subscription Price............................................................................................$8.00

______________

* The number of Rights to be issued to a common stockholder on the
Record Date will be rounded up to the nearest number of Rights evenly
divisible by three.

** Record Date Stockholders will be able to acquire additional stock
pursuant to an over- subscription privilege in certain circumstances.

================================================================================
Stockholders' inquiries should be directed to:
Equiserve
(800) 336-6983 or (781) 575-2000
or Gabelli
(800) GABELLI (422-3554)
================================================================================

Over-Subscription Privilege

Common stockholders on the Record Date (the "Record Date
Stockholders") who fully exercise all Rights initially issued to them are
entitled to buy those shares of common stock, referred to as "primary
subscription stock," that were not bought by other Rights holders. If
enough stock is available, all such requests will be honored in full. If
such requests for primary subscription stock exceed the shares available,
the available shares will be allocated pro rata among those fully
exercising Record Date Stockholders who over-subscribe based on the number
of Rights originally issued to them by the Fund. Stock acquired pursuant to
the over-subscription privilege is subject to allotment, which is more
fully discussed under "The Offer -- Over-Subscription Privilege."

In addition, in the event that the Fund's per share net asset
value on the Expiration Date is equal to or less than the Subscription
Price, the Fund may determine to issue up to 1,381,981 shares of additional
new common stock, referred to as "secondary over-subscription stock," to
satisfy over- subscription requests in excess of the new common stock
available for primary subscription. The Fund would also be able to issue
additional shares of common stock in an amount of up to 20% of the sum of
shares issued pursuant to the primary subscription and secondary
over-subscription. Any such additional common stock will be allocated and
issued in conjunction with the secondary over-subscription stock only to
Record Date Stockholders who submitted over-subscription requests. Rights
holders who are not Record Date Stockholders may not participate in the
secondary over-subscription. Secondary over- subscription stock and any
additional stock issue in conjunction with it will be allocated pro rata
among those fully exercising Record Date Stockholders who over-subscribe
based on the number of Rights originally issued to them by the Fund.

Method for Exercising Rights

Except as described below, subscription certificates evidencing
the Rights ("Subscription Certificates") will be sent to Record Date
Stockholders or their nominees. If you wish to exercise your Rights, you
may do so in the following ways:

(1) Complete and sign the Subscription Certificate. Mail it
in the envelope provided or deliver it, together with
payment in full to Equiserve, Providence, Rhode Island
(the "Subscription Agent") at the address indicated on
the Subscription Certificate. Your completed and signed
Subscription Certificate and payment must be received by
the Expiration Date.

(2) Contact your broker, banker or trust company, which can
arrange, on your behalf, to guarantee delivery of payment
and delivery of a properly completed and executed
Subscription Certificate by the close of business on the
third Business Day after the Expiration Date pursuant to
a of guaranteed delivery. A fee may be charged for this
service. The notice of guaranteed delivery must be
received by the Expiration Date.

Rights holders will have no right to rescind a purchase after the
Subscription Agent has received payment. See "The Offer -- Method of
Exercise of Rights" and "The Offer -- Payment for Shares."

Sale of Rights

The Rights are transferable until the Expiration Date and have
been admitted for trading on the New York Stock Exchange. Although no
assurance can be given that a market for the Rights will develop, trading
in the Rights on the NYSE will begin two Business Days prior to the Record
Date and may be conducted until the close of trading on the last NYSE
trading day prior to the Expiration Date. The value of the Rights, if any,
will be reflected by the market price. Rights may be sold by individual
holders or may be submitted to the Subscription Agent for sale. Any Rights
submitted to the Subscription Agent for sale must be received by the
Subscription Agent on or before December 11, 2002, one Business Day prior
to the last trading date for Rights, due to normal settlement procedures.
Trading of the Rights on the NYSE will be conducted on a when-issued basis
beginning one Business Day prior to the Record Date until and including the
date on which the Subscription Certificates are mailed to Record Date
Stockholders and thereafter will be conducted on a regular-way basis until
and including the last NYSE trading day prior to the Expiration Date.
Shares of common stock will begin trading ex- Rights on the Record Date.
Rights will trade with due bills for two Business Days prior to the Record
Date. If the Subscription Agent receives Rights for sale in a timely
manner, it will use its best efforts to sell the Rights on the NYSE. The
Subscription Agent will also attempt to sell any Rights (i) a Rights holder
is unable to exercise because the Rights represent the right to subscribe
for less than one new share of common stock or (ii) attributable to
stockholders whose record addresses are outside the United States or who
have an AFO or FPO address as described below under " -- Restrictions on
Foreign Stockholders." Any commissions will be paid by the selling Rights
holders. Neither the Fund nor the Subscription Agent will be responsible if
Rights cannot be sold and neither has guaranteed any minimum sales price
for the Rights. Any such sales will be deemed to have been effected at the
weighted average price received by the Subscription Agent on the day the
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses. The Subscription Agent will mail any amounts realized form the
sale of Rights two Business Days after the Expiration Date. For purposes of
this Prospectus, a "Business Day" shall mean any day on which trading is
conducted on the NYSE.

================================================================================
Common stockholders are urged to obtain a recent trading price for the
Rights on the New York Stock Exchange from their broker, bank,
financial advisor or the financial press.
================================================================================

Offering Fees and Expenses

Offering expenses incurred by the Fund are estimated to be $450,000.

Restrictions on Foreign Stockholders

The Fund will not mail Subscription Certificates to stockholders
whose record addresses are outside the United States or who have an APO or
FPO address. Stockholders whose addresses are outside the United States or
who have an APO or FPO address and who wish to subscribe to the Offer
either in part or in full should contact the Subscription Agent, Equiserve,
by written instruction or recorded telephone conversation no later than
5:00 p.m., New York time, December 9, 2002. The Fund will determine whether
the offering may be made to any such stockholder. If the Subscription Agent
has received no instruction by the 5:00 p.m., New York time, December 9,
2002, or the Fund has determined that the offering may not be made to a
particular stockholder, the Subscription Agent will attempt to sell all of
such stockholder's Rights and remit the net proceeds, if any, to such
stockholder. Any such sales will be deemed to have been effected at the
weighted average price received by the Subscription Agent on the day the
Rights are sold, less any applicable brokerage commissions, taxes and other
expenses.

Use of Proceeds

We estimate the net proceeds of the Offer to be approximately
$32,717,536. This figure is based on the per share Subscription Price of
$8.00 and assumes all new stock offered is sold and that the expenses
related to the Offer estimated at approximately $450,000 are paid.

The Investment Adviser expects to invest such proceeds in
accordance with the Fund's investment objectives and policies within six
months after receipt of such proceeds, depending on market conditions for
the types of securities in which the Fund principally invests. Pending such
investment, the proceeds will be held in high quality short-term debt
securities and instruments.

Important Dates to Remember

Please note that the dates in the table below may change if the
Offer is extended.

EVENT DATE

Record Date...................................................................................November 14, 2002
Subscription Period...................................................November 14, 2002 through December 13, 2002**
Expiration of the Offer*........................................................................December 13, 2002**
Payment for Guarantees of Delivery Due*.........................................................December 18, 2002**
Confirmation to Participants..................................................................December 31, 2002

------------------------------------

* A Rights holder exercising Rights must deliver by 5 p.m., New York
Time, on December 13, 2002 either (i) a Subscription Certificate and
payment for stock or (ii) a notice of guaranteed delivery.

** Unless the offer is extended to a date no later than December 30,
2002.

Information Regarding the Fund

The Fund is a closed-end, diversified, management investment
company. Prior to March 31, 1995, the Fund operated as an open-end,
diversified, management investment company. The Fund was incorporated in
Maryland on December 19, 1988. The Fund's investment objective is to seek a
high level of total return on its assets. The Fund will seek to achieve
this objective through a combination of current income and capital
appreciation by investing primarily in convertible and other income
producing securities. No assurance can be given that the Fund's investment
objectives will be achieved. See "Investment Objectives and Policies." The
Fund's outstanding shares of common stock, par value $.001 per share, are
listed and traded on the NYSE. The average weekly trading volume of the
Fund's common stock on the NYSE during the period from January 1, 2001
through December 31, 2001 was 41,990 shares. As of September 30, 2002, the
net assets of the Fund were approximately $97.622 million.

Information Regarding the Investment Adviser

The Investment Adviser has served as the investment adviser to the
Fund since its inception. The Investment Adviser also provides certain
administrative services to the Fund. The Investment Adviser and its
affiliates have been engaged in the business of providing investment
advisory and portfolio management services for over 25 years and as of
September 30, 2002, managed total assets of approximately $20.2 billion.
The Fund pays the Investment Adviser a monthly fee at the annual rate of
1.00% of the Fund's average weekly net assets. See "Management of the
Fund." Since the Investment Adviser's fees are based on the net assets of
the Fund, the Investment Adviser will benefit from the Offer. In addition,
two Directors who are "interested persons" of the Fund could benefit
indirectly from the Offer because of their interests in the Investment
Adviser. See "The Offer -- Purpose of the Offer."

Risk Factors and Special Considerations

The following summarizes some of the matters that you should
consider before investing in the Fund through the Offer.

Dilution.................................Common stockholders who do not exercise their Rights should
expect that they will, at the completion of the Offer, own a smaller
proportional interest in the Fund than if they exercised their Rights.
As a result of the Offer you may experience dilution of the
aggregate net asset value of your stock. If the Subscription Price
per share is below the Fund's net asset value per share of common
stock on the Expiration Date you will experience an immediate
dilution of the aggregate net asset value of your common stock if
you do not participate in the Offer. The Fund cannot state precisely
at this time the extent of dilution (if any) if you do not exercise your
Rights because the Fund does not know what the net asset value per
share of common stock will be when the Offer expires or what
proportion of the Rights will be exercised. For example, assuming
that all Rights are exercised, the Subscription Price is $8.00 and the
Fund's net asset value per share of common stock at the expiration
of the Offer increased to $8.50, the Fund's net asset value per share
of common stock (after payment of estimated offering expenses)
would be reduced by approximately $0.18 (2.12%) per share. If,
however, the Subscription Price is above the Fund's net asset value
per share on the Expiration Date you will experience an immediate
accretion of the aggregate net asset value of your common stock,
even if you do not exercise your Rights. See "Risk Factors and
Special Considerations -- Dilution." If you do not wish to exercise
your Rights, you should consider selling them as set forth in this
Prospectus. The Fund cannot give any assurance, however, that a
market for the Rights will develop or that the Rights will have any
marketable value.

Market Loss..............................Common stock of closed-end funds frequently trades at a market
price per share that is less than the value of the net assets
attributable to those shares, although for approximately the last 18
months the Fund's common stock has traded at a premium over its
per share net asset value. The possibility that common stock of the
Fund will trade at a discount from net asset value or at premiums
that are unsustainable over the long term are risks separate and
distinct from the risk that the Fund's net asset value will decrease.
The risk of purchasing common stock of a closed-end fund that
might trade at a discount or unsustainable premium is more
pronounced for investors who wish to sell their common stock in a
relatively short period of time because, for those investors,
realization of a gain or loss on their investment is likely to be more
dependent on the existence of a premium or discount than on
portfolio performance. The Fund's common stock has traded at
discounts of as much as 19 percent in the past. See "Risk Factors
and Special Considerations -- Market Value and Net Asset Value."

Share Repurchases........................You will be free to dispose of your common stock on the NYSE or
other markets on which the common stock may trade, but, because
the Fund is a closed-end fund, you do not have the right to redeem
your common stock. The Fund is authorized to repurchase up to
500,000 shares of its common stock in the open market when the
common stock is trading at a discount of 10% or more (or such
other percentage as the Board may determine from time to time)
from net asset value. Through June 30, 2002, the Fund has
repurchased in the open market 305,200 shares of its common stock
under this authorization. There is no assurance that any action
undertaken to repurchase common stock will result in the Fund's
common stock trading at a price that approximates its net asset
value. Share repurchases by the Fund would decrease the capital of
the Fund and could have the effect of increasing the Fund's expense
ratio.

Anti-Takeover Provisions.................Certain provisions of the Fund's charter (the "Charter") and the
Fund's by-laws (the "By-Laws") may be regarded as "anti-takeover"
provisions. Pursuant to these provisions, only one of three classes
of directors is elected each year, and the affirmative vote of the
holders of 75% of the outstanding shares of the Fund is necessary to
authorize the conversion of the Fund from a closed-end to an open-
end investment company. The overall effect of these provisions is
to render more difficult the accomplishment of a merger with, or the
assumption of control by, a principal stockholder. These provisions
may have the effect of depriving Fund stockholders of an
opportunity to sell their stock at a premium to the prevailing market
price. See "Capitalization -- Anti-Takeover Provisions of the
Charter and Amended and Restated By-Laws of the Fund."
Characteristics and Risks of
Convertible Securities...................Convertible securities are not usually rated within the four highest
categories by nationally recognized statistical rating agencies and
are, therefore, not generally investment grade. These securities and
securities rated BB or lower by Standard & Poor's Ratings Group
("S&P") or Ba or lower by Moody's Investor Service ("Moody's")
are often referred to in the financial press as "junk bonds" and may
include securities of issuers in default. "Junk bonds" are considered
by the rating agencies to be predominantly speculative and may
involve major risk exposure to adverse conditions. There is no
minimum rating that is acceptable for investment by the Fund;
however, it is expected that not more than 50% of the Fund's
portfolio will consist of securities rated CCC or lower by S&P or
Caa or lower by Moody's or, if unrated, of comparable quality as
determined by the Fund's Investment Adviser. See "Risk Factors
and Special Considerations-- Asset Class Risks." The Fund will
limit its investments in securities of issuers in default to not more
than 5% of its total assets. In addition to rated convertible securities
and income securities, the Fund may also invest in, among other
things, unregistered convertible securities and convertible securities
of issuers involved in corporate reorganizations. See "Investment
Objectives and Policies-- Convertible Securities" and "Investment
Objectives and Policies-- Special Investment Methods."

Characteristics and Risks of Income
Securities...............................The Fund will invest in two types of income securities: fixed
income securities and equity securities that are expected to
periodically generate income for their holders. As with its
convertible securities, there is no minimum rating required for the
fixed income securities in which the Fund will invest, although the
Fund does not expect to invest more than 50% of its total assets in
securities rated CCC or lower by S&P or Caa or lower by Moody's
or, if unrated, of comparable quality as determined by the Fund's
Investment Adviser. These securities are commonly described as
"junk bonds." See "-- Characteristics and Risks of Convertible
Securities" and "Risk Factors and Special Considerations-- Asset
Class Risks." Along with credit downgrades and defaults, the
primary risk associated with fixed income securities is interest rate
risk. A decrease in interest rates will generally result in an increase
in the value of a fixed income security, while increases in interest
rates will generally result in a decline in its value. This effect is
generally more pronounced for longer term securities and for fixed
rate securities whose income rate is not periodically reset.

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 pay periodic dividends on their equity
securities, such dividends generally may be discontinued at the
issuer's discretion. See "Risk Factors and Special Considerations --
Asset Class Risks."

Other Fund Investments...................In addition to investing in convertible securities and income
securities, the Fund may also invest in, among other things,
securities of issuers involved in corporate reorganizations, warrants,
rights, securities of foreign issuers and forward commitments for
securities purchased on a "when issued" or "delayed delivery" basis.
See "Investment Objectives and Policies-- Special Investment
Methods." In addition, the Fund may purchase or sell options,
engage in transactions in financial futures and options thereon,
engage in short sales of securities it owns or has the right to acquire,
enter into repurchase agreements and forward foreign currency
exchange contracts, lend its portfolio securities to securities broker-
dealers or financial institutions and borrow money for short-term
credit from banks as may be necessary for the clearance of portfolio
transactions and for temporary or emergency purposes. See
"Investment Objective and Policies-- Special Investment
Methods." Some of theses techniques may involve special risks.
See "Risks Factors and Special Considerations."

Temporary Defensive Periods . . . . . During periods when it is deemed necessary for temporary
defensive purposes, the Fund may invest without limit in high
quality money market instruments, obligations issued or guaranteed
by the United States Government, its instrumentalities or agencies
and, subject to statutory limitations, unaffiliated money market
mutual funds and, if permitted by an exemptive order, in affiliated
money market funds. The yield on these securities will, as a general
matter, tend to be lower than the yield on other securities to be
purchased by the Fund. See "Investment Objectives and Policies--
Temporary Defensive Investments."

Foreign Securities......................The Fund may invest up to 25% of its total assets in securities of
foreign issuers. Investing in securities of foreign companies and
foreign governments, which generally are denominated in foreign
currencies, may involve certain risk and opportunity considerations
not typically associated with investing in domestic companies and
could cause the Fund to be affected favorably or unfavorably by
changes in currency exchange rates and revaluations of currencies.
The Fund may also purchase sponsored American Depository
Receipts or U.S. denominated securities of foreign issuers, which
shall not be included in the 25% foreign securities limitation. See
"Investment Objectives and Policies -- Special Investment Methods
-- Foreign Securities" and "Risk Factors and Special
Considerations -- Foreign Securities."

Leverage.................................As provided in the 1940 Act and subject to certain exceptions, the
Fund may issue additional preferred stock or debt so long as the
Fund's total assets immediately after such issuance, less certain
ordinary course liabilities, exceed 300% of the amount of the debt
outstanding and exceed 200% of the sum of the amount of preferred
stock and debt outstanding. Such debt or preferred stock may be
convertible in accordance with SEC staff guidelines, which may
permit the Fund to obtain leverage at attractive rates. Use of
leverage may magnify the impact on the holders of common stock of
changes in net asset value and the cost of leverage may exceed the
return on the securities acquired with the proceeds of leverage,
thereby diminishing rather than enhancing the return to such
stockholders and generally making the Fund's total return to such
stockholders more volatile. See "Capitalization -- Effects of
Leverage." In addition, the Fund may be required to sell
investments in order to meet dividend or interest payment
obligations on the debt or preferred stock when it may be
disadvantageous to do so. Leveraging through the issuance of
preferred stock requires that the holders of the preferred stock have
class voting rights on various matters that could make it more
difficult for the holders of the common stock to change the
investment objectives or fundamental policies of the fund, to
convert it to an open-end fund or make certain other changes. See
"Investment Objectives and Policies -- Special Investment Methods
-- Leverage" and "Risk Factors and Special Considerations --
Risks to Common Stockholders of Leveraging and Issuance of
Senior Securities."

The Fund has authorized the issuance of 2,000,000 shares of
preferred stock, 1,200,000 shares of which were outstanding on
September 30, 2002. On October 7, 2002 the Fund announced that
it was calling 50% of its outstanding preferred stock. The called
shares will be redeemed by the Fund on November 12, 2002.
Following the redemption, the Fund will have 600,000 shares of
preferred stock outstanding.

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

Taxation.................................The Fund intends to continue to be treated and qualify as a regulated
investment company for U.S. federal income tax purposes. Such
qualification requires, among other things, compliance by the Fund
with certain distribution requirements. The Fund is also, however,
subject to certain statutory limitations on distributions on its
common stock if it fails to satisfy the 1940 Act's asset coverage
requirements, which could jeopardize the Fund's ability to meet the
regulated investment company distribution requirements. See
"Taxation" for a more complete discussion of these and other U.S.
federal income tax considerations.

TABLE OF FEES AND EXPENSES

Registrant
STOCKHOLDER TRANSACTION EXPENSES

Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan voluntary cash purchase fees (1).......................... $0.75
Automatic Dividend Reinvestment and Voluntary Cash
Purchase Plan sales fees (1)............................................ $2.50
ANNUAL OPERATING EXPENSES (as a percentage of net
assets attributable to Common Stock)
Management Fees......................................................... 1.00%
Other Expenses (2) ..................................................... 0.50%
----------------------------
Total Annual Operating Expenses................................ 1.50%
----------------------------

(1) Stockholders participating in the Fund's Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plan would pay $0.75 per
transaction to purchase shares through voluntary cash contributions
and $2.50 per transaction to sell shares. See "Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plan" in the SAI. The $0.75
per transaction purchase fee does not apply to automatic dividend
reinvestment transactions.

(2) As of June 30, 2002, annualized for the current fiscal year ending
December 31, 2002.

EXAMPLE

The following examples illustrate the projected dollar amount of
cumulative expenses that would be incurred over various periods with
respect to a hypothetical investment in the Fund. These amounts are based
upon payment by the Fund of Annual Operating Expenses at levels set forth
in the above table with dividends being reinvested through the Fund's
automatic dividend reinvestment option.

You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return:(3)

1 YEAR 3 YEARS 5 YEARS 10 YEARS
$15 $47 $82 $179

(3) Amounts are exclusive of purchase fees discussed in Note (1)
above, which do not apply to the share purchases made as automatic dividend
reinvestments.

The foregoing table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The assumed 5% annual return is not a prediction of, and does
not represent, the projected or actual performance of the common stock.
Actual expenses and annual rates of return may be more or less than those
assumed for purposes of the Example.

[INTENTIONALLY LEFT BLANK]

FINANCIAL HIGHLIGHTS

The following table sets forth selected financial data for a share of
common stock outstanding throughout the periods presented. The per share
operating performance and ratios for the fiscal years ended December 31, 2001,
2000, 1999, 1998, and 1997 have been audited by PricewaterhouseCoopers LLP, the
Fund's independent accountants, as stated in their report, which is incorporated
by reference into the SAI. The per share operating performance and ratios for
the period commencing January 1, 2002 and concluding June 30, 2002 are
unaudited. The following information should be read in conjunction with the
Financial Statements and Notes thereto, which are incorporated by reference into
the SAI.

THE GABELLI CONVERTIBLE
AND INCOME SECURITIES FUND INC.
FINANCIAL HIGHLIGHTS

Selected data for a Fund common share Six Months
outstanding throughout each period: Ended June Year Ended December 31,
30, 2002 --------------------------------------------------------------------
Operating performance: (Unaudited) 2001 2000 1999 1998 1997
----------- ---------- ----------- ------------ ----------- ------------

Net asset value, beginning of period..... $ 9.92 $ 10.02 $ 11.4 $ 11.45 $ 11.48 $ 11.08
----------- ---------- ----------- ------------ ----------- ------------
Net investment income.................... 0.27 0.68 0.72 0.51 0.53 0.49
Net realized and unrealized gain (loss)
on investments......................... (0.53) 0.32 (0.52) 0.77 0.65 1.23
----------- ---------- ----------- ------------ ----------- ------------
Total from investment operations......... (0.26) 1.00 0.20 1.28 1.18 1.72
----------- ---------- ----------- ------------ ----------- ------------
Distributions to preferred stock
shareholders:
Net investment income.................... (0.15) (0.18) (0.13) (0.11) (0.13) (0.08)
Net realized gain on investments......... -- (0.12) (0.17) (0.19) (0.17) (0.11)
----------- ---------- ----------- ------------ ----------- ------------
Total distributions to preferred stock
shareholders........................ (0.15) (0.30) (0.30) (0.30) (0.30) (0.19)
----------- ---------- ----------- ------------ ----------- ------------
Net increase (decrease) in net assets
attributable to common stock shareholders
resulting from operations................ (0.41) 0.70 (0.10) 0.98 0.88 1.53
----------- ---------- ----------- ------------ ----------- ------------
Distributions to common stock shareholders:
Net investment income.................... (0.12) (0.48) (0.57) (0.39) (0.39) (0.40)
Net realized gain on investments......... -- (0.33) (0.73) (0.64) (0.53) (0.56)
Paid in capital.......................... (0.28) -- -- -- -- --
----------- ---------- ----------- ------------ ----------- ------------
Total distributions to common stock
shareholders........................ (0.40) (0.81) (1.30) (1.03) (0.92) (0.96)
----------- ---------- ----------- ------------ ----------- ------------
Capital share transactions:
Increase in net asset value from common
transactions.......................... 0.01 0.01 0.02 -- 0.01 0.01
Preferred share offering costs charged to
paid-in capital....................... -- -- -- -- -- (0.18)
----------- ---------- ----------- ------------ ----------- ------------
Total capital share transactions......... 0.01 0.01 0.02 0.00 0.01 (0.17)
----------- ---------- ----------- ------------ ----------- ------------
Net asset value attributable to common stock
shareholders, end of period.............. $ 9.12 $ 9.92 $ 10.02 $ 11.40 $ 11.45 $ 11.48
=========== ========== =========== ============ =========== ============
Net asset value total return+............ (4.2)% 7.0% 0.0% 9.4% 8.3% 13.5%
=========== ========== =========== ============ =========== ============
Market value, end of period.............. $ 10.45 $ 10.90 $ 9.13 $ 10.56 $ 11.25 $ 10.31
=========== ========== =========== ============ =========== ============
Total investment return++................ (0.3)% 29.1% (1.7)% 3.2% 18.4% 22.2%
=========== ========== =========== ============ =========== ============
Ratios and supplemental data:
Net assets including liquidation value of
preferred shares, end of period
(in 000's)............................ $ 104,935 $ 110,074 $ 108,066 $ 120,179 $ 120,726 $ 122,382
Net assets attributable to common shares,
period (in 000's)..................... $ 74,93 80,074 $ 78,066 $ 90,179 $ 90,726 $ 92,382
Ratio of net investment income to average
assets attributable to common shares.. 5.44%(c) 6.58% 6.49% 4.35% 4.54% 4.23%
Ratio of operating expenses to average net
assets attributable to common
shares(a)............................. 1.50(c) 1.46% 1.48% 1.80% 1.83% 1.68%
Ratio of operating expenses to average
total net assets including liquidation
value of preferred shares (d)......... 1.09%(c) 1.07% 1.10% 1.36% 1.38% 1.39%
Portfolio turnover rate.................. 47% 59% 169% 175% 149% 243%
Cumulative Preferred Stock:
8.00% Cumulative Preferred Stock Liquida-
tion value, end of period
(in 000's)............................ $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000 $ 30,000
Total shares outstanding (in 000's)...... 1,200 1,200 1,200 1,200 1,200 1,200
Liquidation preference per share......... $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00
Average market value (b)................. $ 25.98 $ 25.80 $ 24.31 $ 25.36 $ 26.84 $ 25.69
Asset coverage........................... 350% 367% 360% 401% 402% 408%
Asset coverage per share................. $ 87.47 $ 91.72 $ 90.05 $ 100.15 $ 100.60 $ 101.99

_____________________________________________

+ Based on net asset value per share, adjusted for reinvestment of
distributions. Total return for the period of less than one year is not
annualized.

++ Based on market value per share, adjusted for reinvestment of
distributions. Total return for the period of less than one year is not
annualized

(a) The ratio of operating expenses to average net assets attributable to
common stock for the fiscal year ended December 31, 1997 does not include a
reduction of expenses for custodian fee credits on cash balances maintained
with the custodian. Including the custodian fee credit, the ratio of
operating expenses to average net assets attributable to common stock for
the year would have been 1.67%.

(b) Based on weekly prices.

(d) Amounts are attributable to both common and preferred stock assets.

Year Ended December 31,
-----------------------

1996+ 1995+ 1994+ 1993+ 1992+
---------- ------------- ------------ ------------ ------------

Operating Performance:
Net asset value, beginning of period........ $ 11.01 $ 10.60 $ 11.52 $ 11.45 $ 10.91
---------- ------------- ------------ ------------ ------------
Net investment income....................... 0.49 0.53 0.69 0.76 0.65
Net realized and unrealized gain (loss)
on securities............................ 0.31 1.03 (0.71) 0.74 0.76
----------- ------------- ------------ ------------ ------------
Total from investment operations............ 0.80 1.56 (0.02) 1.50 1.41
----------- ------------- ------------ ------------ ------------
Distributions to common stock shareholders:
Net investment income....................... (0.49) (0.53) (0.69) (0.76) (0.65)
Net realized gain on investments............ (0.24) (0.56) (0.21) (0.67) (0.22)
Distributions in excess of net investment
income................................... - (0.02) - - -
Distributions in excess of net realized
gains........ - (0.01) - - -
Paid-in capital............................. - (0.03) - - -
---------- ------------- ------------ ------------ ------------
Net asset value, end of period.............. $ 11.08 $ 11.01 $ 10.60 $ 11.52 $ 11.45
========== ============= ============ ============ ============
Market value, end of period................. $ 9.25 $ 10.75 - - -
========== ============= ============ ============ ============
Total Net Asset Value Return ++ (a)......... 8.4% 15.0% (0.2)% 13.1% 13.0%
Total Investment Return ++(b)................ (7.3)% 12.3% - - -

Ratios to average net assets/supplemental data:
Net assets, end of period (in thousands).... $ 89,659 $ 89,137 $ 112,090 $ 108,674 $ 92,541
Ratio of operating expenses to average
net assets(c)............................ 1.45% 1.56% 1.31% 1.38% 1.40%
Ratio of net investment income (loss) to
average net assets 4.33% 4.60% 4.77% 4.58% 5.53%
Portfolio turnover rate..................... 114% 140% 67% 45% 32%
Average commission rate (d)................. $ 0.0423 - - - -

___________________________________________

+ No preferred stock outstanding during this period.

++ Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of distributions.

(a) Based on net asset value per share, adjusted for reinvestment of all
distributions.

(b) Based on net asset value per share through March 31, 1995, the date of
conversion of the Fund to closed-end status, and market value thereafter,
adjusted for reinvestment of all distributions.

(c) Includes, for 1995, a current period expense associated with the conversion
of the Fund to closed-end Status. Without the conversion expense, this
ratio would have been 1.28% in 1995.

(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate paid per share for
purchases and sales of investment securities.

The following table provides information about the Fund's 8% Cumulative
Preferred stock since its issuance in May 1997. The information has been audited
by PricewaterhouseCoopers LLP, independent accountants.

Involuntary
Liquidation Average
Year ended Shares Asset Coverage Preference Market
December 31, Outstanding Per Share Per Share Value Per Share

2001 1,200,000 $91.72 $25.00 $25.80
2000 1,200,000 $90.05 $25.00 $24.31
1999 1,200,000 $100.15 $25.00 $25.36
1998 1,200,000 $100.60 $25.00 $26.84
1997 1,200,000 $101.99 $25.00 $25.69

For purposes of the foregoing table, the Asset Coverage Per Share is
calculated by dividing the total value of the Fund's assets on December 31 of
the relevant year by the number of shares of 8% Cumulative Preferred Stock
outstanding on that date. Involuntary Liquidation Preference Per Share refers to
the amount holders of 8% Cumulative Preferred Stock are entitled to receive per
share in the event of liquidation of the Fund prior to the holders of common
stock being entitled to receive any amounts in respect of the assets of the
Fund. The Average Market Value Per Share is the average of the weekly closing
prices of the 8% Cumulative Preferred Stock on the NYSE each week during the
relevant year.

THE OFFER

Terms of the Offer

The Fund is issuing to Record Date Stockholders Rights to
subscribe for additional shares of the Fund's common stock (the "Shares").
Each Record Date Stockholder is being issued one transferable Right for
each share of common stock owned on the Record Date. The Right entitles the
holder to acquire at the Subscription Price one Share for each three Rights
held rounded up to the nearest number of Rights evenly divisible by three.
Fractional shares will not be issued upon the exercise of the Rights.
Accordingly, Shares may be purchased only pursuant to the exercise of
Rights in integral multiples of three. In the case of shares of common
stock held of record by Cede & Co., as nominee for the Depository Trust
Company, or any other depository or nominee, the number of Rights issued to
Cede & Co. or such other depository or nominee will be adjusted to permit
rounding up (to the nearest number of Rights evenly divisible by three) of
the Rights to be received by beneficial owners for whom it is the holder of
record only if Cede & Co. or such other depository or nominee provides to
the Fund on or before the close of business on November 21, 2002 a written
representation of the number of Rights required for such rounding. Rights
may be exercised at any time during the period that commences on November
14, 2002, and ends at 5:00 p.m., New York time, on December 13, 2002 (the
"Subscription Period"), unless extended by the Fund to a date not later
than December 30, 2002, 5:00 p.m., New York time. The Right to acquire one
Share for each three Rights held during the Subscription Period at the
Subscription Price will be referred to in the remainder of this Prospectus
as the "Primary Subscription."

In addition, common stockholders on the Record Date (the "Record
Date Stockholders") that fully exercise their Rights are entitled to
subscribe for Shares available for Primary Subscription (the "Primary
Subscription Shares") that were not subscribed for by other Rights holders
on Primary Subscription. In addition, in the event that the Fund's per
share net asset value on the Expiration Date is equal to or less than the
Subscription Price, the Fund may issue up to an additional 1,381,981 Shares
(the "Secondary Over-Subscription Shares") to satisfy over-subscription
requests in excess of the available Primary Subscription Shares. The Fund
would also be able to issue additional shares in an amount of up to 20% of
the sum of the Primary Subscription Shares and Secondary Over-Subscription
Shares. The entitlement to subscribe for un-subscribed Primary Subscription
Shares, any Secondary Over- Subscription Shares and any additional Shares
will be referred to in the remainder of this Prospectus as the
"Over-Subscription Privilege." For purposes of determining the maximum
number of Shares a Record Date Stockholder may acquire pursuant to the
Offer, broker-dealers whose shares are held of record by Cede & Co., Inc.,
nominee for The Depository Trust Company, or by any other depository or
nominee, will be deemed to be the holders of the Rights that are issued to
Cede & Co. or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege are subject to
allotment, which is more fully discussed below under " -- Over-Subscription
Privilege."

Officers of the Investment Adviser have advised the Fund that the
Affiliated Parties, as Record Date Stockholders, have been authorized to
purchase Shares through the Primary Subscription and the Over-Subscription
Privilege to the extent the Shares become available to them in accordance
with the Primary Subscription and the allotment provisions of the
Over-Subscription Privilege. In addition, Mario J. Gabelli individually or
his affiliated entities, as a Record Date Stockholder, may also purchase
Shares through the Primary Subscription and the Over-Subscription
Privilege. Such over-subscriptions by the Affiliated Parties and Mr.
Gabelli may disproportionately increase their already existing ownership
resulting in a higher percentage ownership of outstanding shares of common
stock of the Fund, if any Record Date Stockholder fails to fully exercise
its Rights. Any Shares acquired, whether by Primary Subscription or the
Over-Subscription Privilege, by the Affiliated Parties or Mr. Gabelli as
"affiliates" of the Fund, as that term is defined under the Securities Act
of 1933, as amended (the "Securities Act"), may only be sold in accordance
with Rule 144 under the Securities Act or another applicable exemption, or
pursuant to an effective registration statement under the Securities Act.
In general, under Rule 144, as currently in effect, an "affiliate" of the
Fund is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of
common stock or the average weekly reported trading volume of the common
stock during the four calendar weeks preceding such sale. Sales under Rule
144 are also subject to certain restrictions on the manner of sale, to
notice requirements and to the availability of current public information
about the Fund. In addition, any profit resulting from the sale of Shares
under Rule 144, if the Shares are held for a period of less than six
months, will be returned to the Fund.

Rights will be evidenced by Subscription Certificates. The number
of Rights issued to each holder will be stated on the Subscription
Certificate delivered to the holder. The method by which Rights may be
exercised and Shares paid for is set forth below in " -- Method of Exercise
of Rights" and " -- Payment for Shares." A Rights holder will have no right
to rescind a purchase after the Subscription Agent has received payment.
See " -- Payment for Shares." Shares issued pursuant to an exercise of
Rights will be listed on the NYSE.

The Rights are transferable until the Expiration Date and will be
admitted for trading on the NYSE. Assuming a market exists for the Rights,
the Rights may be purchased and sold through usual brokerage channels and
sold through the Subscription Agent. Although no assurance can be given
that a market for the Rights will develop, trading in the Rights on the
NYSE will begin two Business Days before the Record Date and may be
conducted until the close of trading on the last NYSE trading day prior to
the Expiration Date. Trading of the Rights on the NYSE will be conducted on
a when-issued basis beginning one Business Day prior to the Record Date
until and including the date on which the Subscription Certificates are
mailed to Record Date Stockholders and thereafter will be conducted on a
regular-way basis until and including the last NYSE trading day prior to
the Expiration Date. The method by which Rights may be transferred is set
forth below under " -- Method of Transferring Rights." The common stock
will begin trading ex-Rights on the Record Date. Rights will trade with due
bills for two Business Days prior to the Record Date. For purposes of this
Prospectus, a "Business Day" shall mean any day on which trading is
conducted on the NYSE.

Nominees that hold shares of the Fund's common stock for the
account of others, such as banks, brokers, trustees or depositories for
securities, should notify the respective beneficial owners of such shares
as soon as possible to ascertain such beneficial owners' intentions and to
obtain instructions with respect to the Rights. If the beneficial owner so
instructs, the nominee will complete the Subscription Certificate and
submit it to the Subscription Agent with proper payment. In addition,
beneficial owners of the Fund's common stock or Rights held through such a
nominee should contact the nominee and request the nominee to effect
transactions in accordance with such beneficial owner's instructions.

Purpose of the Offer

The Board of Directors of the Fund has determined that it would be
in the best interests of the Fund and its common stockholders to increase
the assets of the Fund available for investment, thereby permitting the
Fund to be in a better position to more fully take advantage of investment
opportunities that may arise. The Offer seeks to reward existing common
stockholders by giving them the right to purchase Shares at a price that
may be below market and/or net asset value without incurring any commission
charge. The distribution to common stockholders of transferable Rights,
which themselves may have intrinsic value, will also afford non-subscribing
common stockholders the potential of receiving a cash payment upon sale of
such Rights, receipt of which may be viewed as partial compensation for the
possible dilution of their interests in the Fund.

The Fund's Investment Adviser will benefit from the Offer because
the Investment Adviser's fee is based on the average net assets of the
Fund. See "Management of the Fund." It is not possible to state precisely
the amount of additional compensation the Investment Adviser will receive
as a result of the Offer because the proceeds of the Offer will be invested
in additional portfolio securities, which will fluctuate in value. However,
assuming all Rights are exercised and the Fund receives the maximum
proceeds of the Offer, the annual compensation to be received by the
Investment Adviser would be increased by approximately $331,675. Two of the
Fund's directors, including Mario J. Gabelli, who voted to authorize the
Offer are "interested persons" of the Investment Adviser within the meaning
of the 1940 Act and may benefit indirectly from the Offer because of their
interest in the Investment Adviser. See "Management of the Fund" in the
SAI. In determining that the Offer was in the best interest of the common
stockholders, the Fund's Board of Directors was cognizant of this benefit
as well as the possible participation of the Affiliated Parties and Mr.
Gabelli in the Offer as common stockholders on the same basis as other
common stockholders.

The Fund may, in the future and at its discretion, choose to make
additional rights offerings from time to time for a number of shares and on
terms that may or may not be similar to the Offer. Any such future rights
offering will be made in accordance with the 1940 Act. Under the laws of
Maryland, the state in which the Fund is organized, and the Fund's Charter,
the Fund is authorized to make rights offerings without obtaining
stockholder approval. The staff of the Securities and Exchange Commission
("SEC") has interpreted the 1940 Act as not requiring stockholder approval
of a rights offering at a price below the then current net asset value so
long as certain conditions are met, including a good faith determination by
the Fund's Board of Directors that such an offering would result in a net
benefit to existing stockholders.

Over-Subscription Privilege

If all of the Rights initially issued are not exercised, any
Primary Subscription Shares for which subscriptions have not been received
will be offered, by means of the Over-Subscription Privilege, to Record
Date Stockholders who have exercised all the Rights initially issued to
them and who wish to acquire additional Shares. Record Date Stockholders
who exercise all the Rights initially issued to them will have the
opportunity to indicate on the Subscription Certificate how many Shares
they are willing to acquire pursuant to the Over-Subscription Privilege. If
sufficient Primary Subscription Shares remain after the Primary
Subscriptions have been exercised, all over-subscription requests will be
honored in full. If sufficient Primary Subscription Shares are not
available to honor all over-subscription requests, the available Shares
will be allocated among those Record Date Stockholders who over-subscribe
based on the number of Rights originally issued to them by the Fund.

In addition, the Board of Directors of the Fund has established a
Pricing Committee which is authorized, in the event that the Fund's per
share net asset value on the Expiration Date is equal to or less than the
Subscription Price, to direct the Fund to issue Secondary Over-Subscription
Shares to satisfy over-subscription requests in excess of the available
Primary Subscription Shares. The Fund would also be able to issue
additional Shares in an amount of up to 20% of the sum of the Primary
Subscription Shares and Secondary Over-Subscription Shares. Any Secondary
Over-Subscription Shares and any additional Shares issued in conjunction
with the Secondary Over-Subscription Shares will be allocated pro rata only
among those fully exercising Record Date Stockholders who over-subscribe
based on the number of Rights originally issued to them by the Fund. Rights
Holders who are not Record Date Stockholders may not participate in the
secondary over-subscription. Any Secondary Over-Subscription Shares issued
by the Fund, collectively with any Primary Subscription Shares not
subscribed for through the Primary Subscription and any additional Shares,
will be referred to in this Prospectus as the "Excess Shares."

The percentage of Excess Shares each over-subscribing Record Date
Stockholder may acquire will be rounded down to result in delivery of whole
Shares; provided, however, that if a pro rata allocation results in any
holder being allocated a greater number of Excess Shares than the holder
subscribed for pursuant to the exercise of such holder's Over-Subscription
Privilege, then such holder will be allocated only such number of Excess
Shares as such holder subscribed for and the remaining Excess Shares will
be allocated among all other holders then entitled to receive Excess Shares
whose over-subscription requests have not been fully honored. The
allocation process may be iterative in order to assure that the total
number of Excess Shares is distributed in accordance with the method
described above.

The formula to be used in allocating the Excess Shares is as follows:

Record Date Stockholder's Position x Excess Shares Remaining
---------------------------------------
Total Record Date Position
of All Over-Subscribers

The Fund will not offer or sell any Shares that are not subscribed
for under the Primary Subscription or the Over-Subscription Privilege.

The Subscription Price

The Subscription Price for the Shares to be issued pursuant to the
Rights will be $8.00.

The Fund announced the Offer on August 28, 2002. The net asset
value per share of common stock at the close of business on August 27, 2002
(the last trading date prior to the Fun's announcement of the Offer) and
November 13, 2002 (the last trading date prior to the Fund's shares trading
ex-Rights), was $8.60 and $8.31, respectively. The last reported sale price
of a share of the Fund's common stock on the NYSE on those dates was $10.95
and $9.44, respectively, representing a 27.33% and 13.60% premium,
respectively, in relation to the net asset value per share of common stock
at the close of business on these dates and a 36.88% and 18.00% premium,
respectively in relation to the Subscription Price.

Sales by Subscription Agent

Holders of Rights who are unable or do not wish to exercise any or
all of their Rights may instruct the Subscription Agent to sell any
unexercised Rights. The Subscription Certificates representing the Rights
to be sold by the Subscription Agent must be received on or before December
11, 2002. Upon timely receipt of the appropriate instructions to sell
Rights, the Subscription Agent will use its best efforts to complete the
sale and will remit the proceeds of sale, net of commissions, to the
holders. If the Rights can be sold, sales of the Rights will be deemed to
have been effected at the weighted average price received by the
Subscription Agent on the day such Rights are sold. The selling Rights
holder will pay all brokerage commissions incurred by the Subscription
Agent. These sales may be effected by the Subscription Agent through
Gabelli & Company, Inc., a registered broker-dealer and an affiliate of the
Investment Adviser, at a commission of up to $0.02 per Right, provided
that, if the Subscription Agent is able to negotiate a lower brokerage
commission with an independent broker, the Subscription Agent will execute
these sales through that independent broker. Gabelli & Company, Inc. may
also act on behalf of its clients to purchase or sell Rights in the open
market and be compensated for its services.

The Subscription Agent will automatically attempt to sell any
unexercised Rights that remain unclaimed as a result of Subscription
Certificates being returned by the postal authorities as undeliverable as
of the fourth Business Day prior to the Expiration Date. These sales will
be made net of commissions on behalf of the nonclaiming holders of Rights.
Proceeds from those sales will be held by Equiserve, in its capacity as the
Fund's transfer agent, for the account of the nonclaiming holder of rights
until the proceeds are either claimed or escheated. There can be no
assurance that the Subscription Agent will be able to complete the sale of
any of these Rights and neither the Fund nor the Subscription Agent has
guaranteed any minimum sales price for the Rights. All of these Rights will
be sold at the market price, if any, on the NYSE or through an unaffiliated
market maker if no market exists on the NYSE.

Method of Transferring Rights

The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer
in accordance with the accompanying instructions. A portion of the Rights
evidenced by a single Subscription Certificate (but not fractional Rights)
may be transferred by delivering to the Subscription Agent a Subscription
Certificate properly endorsed for transfer, with instructions to register
the portion of the Rights evidenced thereby in the name of the transferee
(and to issue a new Subscription Certificate to the transferee evidencing
the transferred Rights). In this event, a new Subscription Certificate
evidencing the balance of the Rights will be issued to the Rights holder
or, if the Rights holder so instructs, to an additional transferee.

Holders wishing to transfer all or a portion of their Rights (but
not fractional Rights) should allow at least three Business Days prior to
the Expiration Date for (i) the transfer instructions to be received and
processed by the Subscription Agent, (ii) a new Subscription Certificate to
be issued and transmitted to the transferee or transferees with respect to
transferred Rights, and to the transferor with respect to retained rights,
if any, and (iii) the Rights evidenced by the new Subscription Certificates
to be exercised or sold by the recipients thereof. Neither the Fund nor the
Subscription Agent shall have any liability to a transferee or transferor
of Rights if Subscription Certificates are not received in time for
exercise or sale prior to the Expiration Date.

Except for the fees charged by the Subscription Agent (which will
be paid by the Fund as described below), all commissions, fees and other
expenses (including brokerage commissions and transfer taxes) incurred in
connection with the purchase, sale or exercise of Rights will be for the
account of the transferor of the Rights, and none of these commissions,
fees or expenses will be paid by the Fund or the Subscription Agent.

The Fund anticipates that the Rights will be eligible for transfer
through, and that the exercise of the Primary Subscription and
Over-Subscription may be effected through, the facilities of the Depository
Trust Company. Rights exercised through the Depository Trust Company will
for the remainder of this Prospectus be referred to as "DTC Exercised
Rights."

Expiration of the Offer

The Offer will expire at 5:00 p.m., New York time, on December 13,
2002, unless extended by the Fund to a date not later than December 30,
2002, 5:00 p.m., New York time (the "Expiration Date"). Rights will expire
on the Expiration Date and thereafter may not be exercised.

Subscription Agent

The subscription agent is Equiserve, Att: Corporate Actions, PO
Box 43025, Providence, RI 02940-3025 (the "Subscription Agent"). The
Subscription Agent will receive from the Fund an amount estimated to be
$125,000 comprised of the fee for its services and the reimbursement for
certain expenses related to the Offer. INQUIRIES BY ALL HOLDERS OF RIGHTS
SHOULD BE DIRECTED TO P.O. BOX 9573, BOSTON, MASSACHUSETTS 02205-9573
(TELEPHONE (800) 336-6983 OR (781) 575- 2000); HOLDERS MAY ALSO CONSULT
THEIR BROKERS OR NOMINEES.

Method of Exercise of Rights

Rights may be exercised by filling in and signing the reverse side
of the Subscription Certificate and mailing it in the envelope provided, or
otherwise delivering the completed and signed Subscription Certificate to
the Subscription Agent, together with payment for the Shares as described
below under "Payment for Shares." Rights may also be exercised through a
Rights holder's broker, who may charge the Rights holder a servicing fee in
connection with such exercise.

Completed Subscription Certificates must be received by the
Subscription Agent prior to 5:00 p.m., New York time, on the Expiration
Date (unless payment is effected by means of a notice of guaranteed
delivery as described below under " -- Payment for Shares"). The
Subscription Certificate and payment should be delivered to Equiserve at
the following address:

If By Mail: PO Box 43025
Reporting Services, Inc.
Providence, RI 02940-3025

If By Hand: Securities Transfer and Reporting Services,
Inc.
c/o Equiserve
100 Williams St. Galleria
New York, NY 10038

If By Overnight Courier: Equiserve
Attn: Corporate Actions
40 Campanelli Drive
Braintree, MA 02184

Method of Exercise of Rights by Individual Retirement Accounts

Individuals who hold an interest in common shares of the Fund
through an "individual retirement account" (an "IRA", and such holders
being "IRA Holders"), within the meaning of Section 408(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), will also have the
opportunity to direct their IRAs to exercise the Rights offered directly to
the IRAs. However, due to limitations imposed by the Code, the exercise of
such Rights by IRAs will be subject to the procedures outlined below.

If the Fund receives a Subscription Certificate and the full
payment from the IRA, the Fund will exercise the IRA's rights to the extent
indicated on the Subscription Certificate. It is the responsibility of the
IRA Holder to ensure that the funds used to exercise the Rights are
available in the IRA at the time payment for the Rights is due. In the
event sufficient funds to exercise the Rights are not available through the
IRA, additional sources of funds may be contributed to the IRA by means of
(i) a deductible contribution pursuant to section 408(a)(1) of the Code;
(ii) a nondeductible contribution pursuant to Section 408(o) of the Code;
(iii) a trust-to-trust transfer from another IRA account; (iv) a rollover
contribution within the meaning of Section 408(d)(3) of the Code; or (v) a
combination of any of the foregoing. IRA Holders should note that the
maximum deductible IRA contribution for 2002 is $3,000, and may be less
depending on an individual's particular circumstances.

If an IRA Holder has not contacted the Fund by 5:00 pm, New York
time, on December 9, 2002, or the IRA does not contain sufficient funds to
exercise the Right, such IRA's Rights will be sold for the prevailing price
on the NYSE, provided that a market for the Rights develops. If the Fund is
able to sell all the Rights, proceeds from the sale will be deposited in a
Gabelli money market account held on behalf of the IRA in the name of the
IRA Holder. If the Fund is able to sell only a portion of the IRA Rights of
non-exercising IRA Holders, any proceeds from such sales will be allocated
pro rata among the non- exercising IRA Holders based on the number of IRA
Rights originally issued to them by the Fund.

The Subscription Certificate and payment should be delivered to
Equiserve at the addresses indicated above, under " -- Method of Exercise
of Rights."

The information set forth above is a discussion of certain of the
United States federal income tax issues concerning the use of IRAs. This
discussion is based on the present provisions of the Code, the regulations
promulgated hereunder, and judicial and administrative ruling authorities,
all of which are subject to change, which change may be retroactive. This
discussion does not purport to be complete or to deal with all aspects of
U.S. federal income taxation that may be relevant to investors in light of
their particular circumstances. Prospective investors should consult with
their own tax advisers with regard to the U.S. federal income tax
consequences of the purchase, ownership and disposition of the Rights, as
well as the tax consequences arising under the laws of any state, foreign
country, or other taxing jurisdiction.

Payment for Shares

Holders of Rights who acquire Shares on Primary Subscription or
pursuant to the Over- Subscription Privilege may choose between the
following methods of payment:

(1) A subscription will be accepted by the Subscription Agent
if, prior to 5:00 p.m., New York time, on the Expiration
Date, the Subscription Agent has received a notice of
guaranteed delivery by telegram or otherwise from a bank,
a trust company, or a NYSE member, guaranteeing delivery
of (i) payment of the full Subscription Price for the
Shares subscribed for on Primary Subscription and any
additional Shares subscribed for pursuant to the
Over-Subscription Privilege and (ii) a properly completed
and executed Subscription Certificate. The Subscription
Agent will not honor a notice of guaranteed delivery if a
properly completed and executed Subscription Certificate
and full payment is not received by the Subscription
Agent by the close of business on the third Business Day
after the Expiration Date. The notice of guaranteed
delivery may be delivered to the Subscription Agent in
the same manner as Subscription Certificates at the
addresses set forth above, or may be transmitted to the
Subscription Agent by facsimile transmission (fax number
(781) 380-3388; telephone number to confirm receipt (781)
575-4816).

(2) Alternatively, a holder of Rights can send the
Subscription Certificate together with payment in the
form of a check for the Shares subscribed for on Primary
Subscription and additional Shares subscribed for
pursuant to the Over-Subscription Privilege to the
Subscription Agent based on the Subscription Price of
$8.00 per Share. To be accepted, the payment, together
with the executed Subscription Certificate, must be
received by the Subscription Agent at the addresses noted
above prior to 5:00 p.m., New York time, on the
Expiration Date. The Subscription Agent will deposit all
Share purchase checks received by it prior to the final
due date into a segregated interest-bearing account
pending proration and distribution of Shares. The
Subscription Agent will not accept cash as a means of
payment for Shares. Except as otherwise set forth below,
a payment pursuant to this method must be in United
States dollars by money order or check drawn on a bank
located in the continental United States, must be payable
to The Gabelli Convertible and Income Securities Fund
Inc. and must accompany an executed Subscription
Certificate to be accepted. If the aggregate Subscription
Price paid by a Record Date Stockholder is insufficient
to purchase the number of Shares that the holder
indicates are being subscribed for, or if a Record Date
Stockholder does not specify the number of Shares to be
purchased, then such holder will be deemed to have
exercised first the Primary Subscription Rights (if not
already fully exercised), and second the
Over-Subscription Privilege to the full extent of the
payment tendered. If the aggregate Subscription Price
paid by a Record Date Stockholder is greater than the
Shares he has indicated an intention to subscribe, then
the Rights holder will be deemed to have exercised first
the Primary Subscription Rights (if not already fully
subscribed), and second the Over-Subscription Privilege
to the full extent of the excess payment tendered.

(3) IRA Holders who wish to exercise their shares should call
the Fund at (800) 442-3554 or (914) 921-5246 to obtain a
Subscription Certificate and then follow the instructions
in paragraph (2) above.

Any payment required from a holder of Rights must be received by
the Subscription Agent on the Expiration Date, or if the Rights holder has
elected to make payment by means of a notice of guaranteed delivery, on the
third Business Day after the Expiration Date. All payments by a holder of
Rights must be in United States dollars by money order or check drawn on a
bank located in the continental United States of America and payable to The
Gabelli Convertible and Income Securities Fund Inc. Whichever of the two
methods of payment described above is used, issuance and delivery of
certificates for the Shares purchased are subject to collection of checks
and actual payment pursuant to any notice of guaranteed delivery.

Within ten Business Days following the Expiration Date (the
"Confirmation Date"), a confirmation will be sent by the Subscription Agent
to each holder of Rights (or, in the case of the Fund's common stock held
by Cede & Co. or any other depository or nominee, to Cede & Co. or such
other depository or nominee), showing (i) the number of Shares acquired
pursuant to the Primary Subscription, (ii) the number of Shares, if any,
acquired pursuant to the Over-Subscription Privilege, (iii) the per Share
and total purchase price for the Shares and (iv) any excess to be refunded
by the Fund to such holder as a result of payment for Shares pursuant to
the Over-Subscription Privilege that the holder is not acquiring. Any
excess payment to be refunded by the Fund to a holder of Rights, or to be
paid to a holder of Rights as a result of sales of Rights on such holder's
behalf by the Subscription Agent or exercises by Rights holders of their
Over-Subscription Privileges, and all interest accrued on the holder's
excess payment will be mailed by the Subscription Agent to the holder
within fifteen Business Days after the Expiration Date. Interest on the
excess payment will accrue through the date that is one Business Day prior
to the mail date of the reimbursement check.

A Rights holder will have no right to rescind a purchase after the
Subscription Agent has received payment either by means of a notice of
guaranteed delivery or a check.

If a holder of Rights who acquires Shares pursuant to the Primary
Subscription or the Over- Subscription Privilege does not make payment of
any amounts due, the Fund reserves the right to take any or all of the
following actions: (i) find other purchasers for such subscribed-for and
unpaid-for Shares; (ii) apply any payment actually received by it toward
the purchase of the greatest whole number of Shares that could be acquired
by such holder upon exercise of the Primary Subscription or the Over-
Subscription Privilege; (iii) sell all or a portion of the Shares purchased
by the holder, in the open market, and apply the proceeds to the amounts
owed; and (iv) exercise any and all other rights or remedies to which it
may be entitled, including, without limitation, the right to set off
against payments actually received by it with respect to such subscribed
Shares and to enforce the relevant guaranty of payment.

Holders who hold shares of common stock for the account of others,
such as brokers, trustees or depositories for securities, should notify the
respective beneficial owners of the common stock they hold as soon as
possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the Rights. If a beneficial owner so
instructs, the record holder of the Rights should complete Subscription
Certificates and submit them to the Subscription Agent with the proper
payment. In addition, beneficial owners of common stock or Rights held
through such a holder should contact the holder and request the holder to
effect transactions in accordance with the beneficial owner's instructions.

The instructions accompanying the Subscription Certificates should
be read carefully and followed in detail.

Do Not Send Subscription Certificates to the Fund.

The method of delivery of Subscription Certificates and payment of
the subscription price to the Subscription Agent will be at the election
and risk of the Rights holders, but if sent by mail it is recommended that
the certificates and payments be sent by registered mail, properly insured,
with return receipt requested, and that a sufficient number of days be
allowed to ensure delivery to the subscription agent and clearance of
payment prior to 5:00 p.m., New York City time, on the Expiration Date.
Because uncertified personal checks may take at least five business days to
clear, you are strongly urged to pay, or arrange for payment, by means of a
certified or cashier's check or money order.

All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Fund, whose
determinations will be final and binding. The Fund in its sole discretion
may waive any defect or irregularity, or permit a defect or irregularity to
be corrected within such time as it may determine, or reject the purported
exercise of any Right. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured
within such time as the Fund determines in its sole discretion. Neither the
Fund nor the Subscription Agent will be under any duty to give notification
of any defect or irregularity in connection with the submission of
Subscription Certificates or incur any liability for failure to give such
notification.

Delivery of Stock Certificates

Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to registered Record Date Shareholders as
soon as practicable after the corresponding Rights have been validly
exercised and full payment for the Shares has been received and cleared.
Certificates representing Shares purchased pursuant to the
Over-Subscription Privilege will be delivered to subscribers as soon as
practicable after the Expiration Date and after all allocations have been
effected. Participants in the Fund's Automatic Dividend Reinvestment and
Voluntary Cash Purchase Plan (the "Plan") will be issued Rights for the
shares of common stock held in their accounts in the Plan. Participants
wishing to exercise these Rights must exercise the Rights in accordance
with the procedures set forth above in " -- Method of Exercise of Rights"
and " -- Payment for Shares." Rights will not be exercised automatically by
the Plan. Plan participants exercising their Rights will receive their
Primary and Over-Subscription Shares via an uncertificated credit to their
existing account. To request a stock certificate, participants in the Plan
should check the appropriate box on the Subscription Certificate. These
Shares will remain subject to the same investment option as previously
selected by the Plan participant.

Foreign Restrictions

Subscription Certificates will only be mailed to Record Date
Stockholders whose addresses are within the United States (other than an
APO or FPO address). Record Date Stockholders whose addresses are outside
the United States or who have an APO or FPO address and who wish to
subscribe to the Offer either in part or in full should contact the
Subscription Agent, Equiserve, by written instruction or recorded telephone
conversation no later than three Business Days prior to the Expiration
Date. The Fund will determine whether the offering may be made to any such
stockholder. If the Subscription Agent has received no instruction by the
third Business Day prior to the Expiration Date or the Fund has determined
that the Offering may not be made to a particular stockholder, the
Subscription Agent will attempt to sell all of such common stockholder's
Rights and remit the net proceeds, if any, to such common stockholder. If
the Rights can be sold, sales of these Rights will be deemed to have been
effected at the weighted average price received by the Subscription Agent
on the day the Rights are sold, less any applicable brokerage commissions,
taxes and other expenses.

Federal Income Tax Consequences to Stockholders

For U.S. federal income tax purposes, neither the receipt nor the
exercise of the Rights will result in taxable income to you. Moreover, you
will not realize a loss if you do not exercise the Rights. The holding
period for a Share acquired upon exercise of a Right begins with the date
of exercise. The basis for determining gain or loss upon the sale of a
Share acquired upon the exercise of a Right will be equal to the sum of:

o the subscription price per Share;

o any servicing fee charged to you by your broker, bank or trust
company; and

o the basis, if any, in the Rights that you exercised.

A gain or loss recognized upon a sale of a Share acquired upon the
exercise of a Right will be a capital gain or loss assuming the Share is
held as a capital asset at the time of sale. This gain or loss will be a
long-term capital gain or loss if the Share has been held at the time of
sale for more than one year.

As noted above, your basis in Shares issued under the Offer
includes your basis in the Rights underlying that stock. Assuming that, as
the Fund expects, the aggregate fair market value of the Rights at the time
they are distributed is less than 15% of the aggregate fair market value of
the Fund's common stock at such time, the basis of the Rights issued to you
will be zero unless you elect to allocate a portion of your basis of
previously owned common stock to the Rights issued to you in the Offer.
This allocation is based upon the relative fair market value of such common
stock and the Rights as of the date of distribution of the Rights. Thus, if
you make such an election and the Rights are later exercised, the basis in
the common stock you originally owned will be reduced by an amount equal to
the basis allocated to the Rights. This election must be made in a
statement attached to your federal income tax return for the year in which
the Rights are distributed. If the Rights expire without exercise, you will
realize no loss and you will not be permitted to allocate a portion of your
basis in the common stock to the unexercised Rights.

The foregoing is a general summary of the material United States
federal income tax consequences of the receipt and exercise of Rights. The
discussion is based upon applicable provisions of the Code, U.S. Treasury
regulations thereunder and other authorities currently in effect, and does
not cover state, local or foreign taxes. The Code and Treasury regulations
thereunder are subject to change by legislative or administrative action,
possibly with retroactive effect. You should consult your tax advisors
regarding specific questions as to federal, state, local or foreign taxes.
You should also review the discussion of certain tax considerations
affecting yourself and the Fund set forth under "Taxation."

Employee Plan Considerations

Rights holders that are employee benefit plans subject to the
Code, including corporate savings and 401(k) plans, Keogh Plans of
self-employed individuals and IRAs (each a "Benefit Plan" and collectively,
"Benefit Plans"), should be aware that additional contributions of cash in
order to exercise Rights may be treated as Benefit Plan contributions and,
when taken together with contributions previously made, may subject a
Benefit Plan to excise taxes for excess nondeductible contributions. In the
case of Benefit Plans qualified under Sections 401(a) or 408(k) of the
Code, additional cash contributions could cause the maximum contribution
limitations of Section 415 of the Code or other qualification rules to be
violated. Benefit Plans contemplating making additional cash contributions
to exercise Rights should consult with their counsel prior to making such
contributions.

Benefit Plans and other tax exempt entities, including
governmental plans, should also be aware that if they borrow in order to
finance their exercise of Rights, they may become subject to the tax on
unrelated business taxable income ("UBTI") under Section 511 of the Code.
If any portion of an IRA is used as security for a loan, the portion so
used is also treated as distributed to the IRA depositor.

ERISA contains prudence and diversification requirements and ERISA
and the Code contain prohibited transaction rules that may impact the
exercise of Rights. Among the prohibited transaction exemptions issued by
the Department of Labor that may exempt a Benefit Plan's exercise of Rights
are Prohibited Transaction Exemption 84-24 (governing purchases of stock in
investment companies) and Prohibited Transaction Exemption 75-1 (covering
sales of securities).

Due to the complexity of these rules and the penalties for
noncompliance, Benefit Plans should consult with their counsel regarding
the consequences of their exercise of Rights under ERISA and the Code.

USE OF PROCEEDS

The net proceeds of the Offer, assuming all offered Shares are
sold, are estimated to be approximately $33,167,536 million, before
deducting expenses payable by the Fund estimated at approximately $450,000.
The Investment Adviser anticipates that investment of the proceeds, in
accordance with the Fund's investment objectives and policies, will be
invested promptly as investment opportunities are identified, depending on
market conditions and the availability of appropriate securities, and is
anticipated to take not more than approximately six months.

INVESTMENT OBJECTIVES AND POLICIES

The Fund was incorporated in Maryland on December 19, 1988 as an
open-end, diversified, management investment company and converted to
closed-end status after receiving stockholder approval of its Charter on
February 21, 1995 and filing of the Charter in Maryland on March 31, 1995.

The investment objective of the Fund is to seek a high level of
total return on its assets. The Fund seeks to achieve its investment
objective through a combination of current income and capital appreciation.
There is no assurance that this objective will be achieved. It is, however,
a fundamental policy of the Fund and cannot be changed without stockholder
approval. Under normal circumstances the Fund will invest at least 80% of
the value of its total assets (taken at current value) in "convertible
securities," i.e., securities (bonds, debentures, corporate notes,
preferred stocks and other similar securities) that are convertible into
common stock or other equity securities, and "income securities," i.e.,
nonconvertible securities having a history of regular payments to holders.
Securities received upon conversion of a convertible security will not be
included in the calculation of the percentage of Fund assets invested in
convertible securities. These securities may be retained in the Fund's
portfolio to permit orderly disposition or to establish long-term holding
periods for federal income tax purposes. The Fund expects to continue its
practice of investing in convertible securities to the extent attractive
opportunities are available.

The Fund may invest up to 20% of its total assets (taken at
current value and subject to any restrictions appearing elsewhere in this
Registration Statement) in any combination and quantity of securities that
do not generate any income, such as common stocks that do not pay
dividends. In selecting any of the foregoing securities for investment, the
factors that will be considered by the Investment Adviser include the
Investment Adviser's evaluation of the underlying value of the assets and
business of the issuers of the securities, the potential for capital
appreciation, the price of the securities, the issuer's balance sheet
characteristics and the perceived skills and integrity of the issuer's
management.

During periods when it is deemed necessary for temporary defensive
purposes, the Fund may invest without limit in high quality money market
instruments, including commercial paper of domestic and foreign
corporations, certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks and obligations issued or
guaranteed by the United States government, its instrumentalities or
agencies and, subject to statutory limitations, unaffiliated money market
mutual funds, unless an exemptive order permits the Fund to invest in
affiliated money market funds. The yield on these securities will, as a
general matter, tend to be lower than the yield on other securities to be
purchased by the Fund. See "-- Temporary Defensive Investments."

Investment Methodology of the Fund

In selecting securities for the Fund, the Investment Adviser
normally will consider the following factors, among others:

o the Investment Adviser's own evaluations of the private
market value, cash flow, earnings per share and other
fundamental aspects of the underlying assets and business
of the company;

o the interest or dividend income generated by the
securities;

o the potential for capital appreciation of the securities
and any underlying common
stocks;

o the prices of the securities relative to any underlying
common stocks;

o the prices of the securities relative to other comparable
securities;

o whether the securities are entitled to the benefits of
sinking funds or other protective conditions or
covenants;

o the existence of any anti-dilution protections or
guarantees of the security; and

o the diversification of the Fund's portfolio as to
issuers.

The Investment Adviser's investment philosophy with respect to debt and
equity securities seeks to identify assets that are selling in the public
market at a discount to their private market value. The Investment Adviser
defines private market value as the value informed purchasers are willing
to pay to acquire assets with similar characteristics. The Investment
Adviser also normally evaluates the issuers' free cash flow and long-term
earnings trends. Finally, the Investment Adviser looks for a catalyst -
something indigenous to the company, its industry or country that will
surface additional value.

Convertible Securities

A convertible security is a bond, debenture, corporate note,
preferred 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 corporation's capital
structure and, therefore, generally entail less risk than the corporation's
common stock, although the extent to which such risk is reduced depends in
large measure upon the degree to which the convertible security sells above
its value as a fixed income security.

The Fund believes that the characteristics of convertible
securities make them appropriate investments for an investment company
seeking a high level of total return on its assets. These characteristics
include the potential for capital appreciation if the value of the
underlying common stock increases, the relatively high yield received from
dividend or interest payments as compared to common stock dividends and
decreased risks of decline in value, relative to the underlying common
stock due to their fixed income nature. As a result of the conversion
feature, however, the interest rate or dividend preference on a convertible
security is generally less than would be the case if the securities were
not convertible. During periods of rising interest rates, it is possible
that the potential for capital gain on a convertible security may be less
than that of a common stock equivalent if the yield on the convertible
security is at a level that causes it to sell at a discount.

Every convertible security may be valued, on a theoretical basis,
as if it did not have a conversion privilege. This theoretical value is
determined by the yield it provides in comparison with the yields of other
securities of comparable character and quality that do not have a
conversion privilege. This theoretical value, which may change with
prevailing interest rates, the credit rating of the issuer and other
pertinent factors, often referred to as the "investment value," represents
the security's theoretical price support level.

"Conversion value" is the amount a convertible security would be
worth in market value if it were to be exchanged for the underlying equity
security pursuant to its conversion privilege. Conversion value fluctuates
directly with the price of the underlying equity security, usually common
stock. If, because of low prices for the common stock, the conversion value
is substantially below the investment value, the price of the convertible
security is governed principally by the factors described in the preceding
paragraph. If the conversion value rises near or above its investment
value, the price of the convertible security generally will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. This premium represents the price investors are willing
to pay for the privilege of purchasing a fixed-income security with a
possibility of capital appreciation due to the conversion privilege.
Accordingly, the conversion value of a convertible security is subject to
equity risk, that is, the risk that the price of an equity security will
fall due to general market and economic conditions, perceptions regarding
the industry in which the issuer participates or the issuing company's
particular circumstances. If the appreciation potential of a convertible
security is not realized, its conversion value premium may not be
recovered.

In its selection of convertible securities for the Fund, the
Investment Adviser will not emphasize either investment value or conversion
value, but will consider both in light of the Fund's overall investment
objective. The Fund may convert a convertible security that it holds:

o when necessary to permit orderly disposition of the
investment when a convertible security approaches
maturity or has been called for redemption;

o to facilitate a sale of the position;

o if the dividend rate on the underlying common stock
increases above the yield on the convertible security; or

o whenever the Investment Adviser believes it is otherwise
in the best interests of the Fund.

Convertible securities are generally not investment grade, that
is, not rated within the four highest categories by S&P and Moody's. To the
extent that such convertible securities and other nonconvertible debt
securities, which are acquired by the Fund consistent with the factors
considered by the Investment Adviser as described in this Prospectus, are
rated lower than investment grade or are not rated, there would be a
greater risk as to the timely repayment of the principal of, and timely
payment of interest or dividends on, those securities. It is expected that
not more than 50% of the Fund's portfolio will consist of securities rated
CCC or lower by S&P or Caa or lower by Moody's or, if unrated, are of
comparable quality as determined by the Investment Adviser. Those
securities and securities rated BB or lower by S&P or Ba or lower by
Moody's are often referred to in the financial press as "junk bonds" and
may include securities of issuers in default. "Junk bonds" are considered
by the rating agencies to be predominantly speculative and may involve
major risk exposure to adverse conditions. See "Risk Factors and Special
Considerations -- Asset Class Risks." Securities rated BBB by S&P or Baa by
Moody's, in the opinion of the rating agencies, also have speculative
characteristics. Securities need not meet a minimum rating standard in
order to be acceptable for investment by the Fund. See "Appendix A --
Description of Corporate Bond Ratings."

The Fund's investments in securities of issuers in default will be
limited to not more than 5% of the total assets of the Fund. Further, the
Fund will invest in securities of issuers in default only when the
Investment Adviser believes that such issuers will emerge from bankruptcy
and the value of such securities will appreciate. By investing in
securities of issuers in default the Fund bears the risk that such issuers
will not emerge from bankruptcy or that the value of such securities will
not appreciate.

The Fund has no independent limit on the amount of its net assets
it may invest in unregistered and otherwise illiquid securities and other
investments. The current intention of the Investment Adviser is not to
invest in excess of 15% of the Fund's net assets in illiquid convertible
securities or income securities. Common stockholders will be notified if
the Investment Adviser changes its intention. Investments in unregistered
or otherwise illiquid securities entails certain risks related to the fact
that they cannot be sold publicly in the United States without registration
under the Securities Act. See "Risk Factors and Special Considerations --
Asset Class Risks."

Income Securities

Although it is the Fund's policy to invest in convertible
securities to the extent attractive opportunities are available, the Fund
may also invest in income securities other than convertible 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, corporate notes, preferred 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 stocks
of issuers that have historically paid 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 the security. Fixed income securities generally are senior to
an issuer's 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 issuer's 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 issuer's call and redemption rights.
In addition, it is possible that the issuer of fixed income securities may
not be able to meet its obligations on interest or principal obligations.
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 agency's 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.

The Fund also may invest in common stock of issuers that have
historically paid dividends or otherwise made distributions to common
stockholders. Unlike payments on fixed income securities, common stock
dividend payments generally are not guaranteed and so may be discontinued
by the issuer at its discretion or because of the issuer's inability to
satisfy its liabilities. Further, an issuer's 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.

Special Investment Methods

Subject to guidelines established by the Board of Directors, the
Investment Adviser, on behalf of the Fund, may employ the following special
investment methods.

Options

The Fund may purchase or sell (i.e., write) options on securities,
securities indices and foreign currencies that are listed on a national
securities exchange or in the U.S. over-the-counter ("OTC") markets as a
means of achieving additional return or of hedging the value of the Fund's
portfolio. The Fund may write covered call options on common stocks that it
owns or has an immediate right to acquire through conversion or exchange of
other securities in an amount not to exceed 25% of total assets or invest
up to 10% of its total assets in the purchase of put options on common
stocks that the Fund owns or may acquire through the conversion or exchange
of other securities that it owns. The Fund may not write covered call
options in an amount exceeding 25% of the value of its total assets. The
Fund's investment in OTC options is limited to 5% of its total assets.

A call option is a contract that gives the holder of the option
the right, in return for a premium paid, to buy from the writer (seller) of
the call option the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call
option has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price during the option
period.

A put option is a contract that gives the holder of the option the
right, in return for the premium paid, to sell to the writer (seller) of
the put option the underlying security at a specified price during the term
of the option. The writer of the put, who receives the premium, has the
obligation to buy the underlying security upon exercise, at the exercise
price during the option period.

If the Fund has written an option, it may terminate its obligation
by effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously written.
There can be no assurance that a closing purchase transaction can be
effected when the Fund so desires.

An exchange traded option may be closed out only on an exchange
that provides a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that
a liquid secondary market on an exchange will exist for any particular
option.

The Fund will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 10% of the Fund's total assets. See
"Investment Objectives and Policies -- Investment Practices -- Derivative
Instruments" in the SAI.

Futures Contracts and Options Thereon

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,
in accordance with regulations of the Commodity Futures Trading Commission
("CFTC"). These futures contracts and related options may be on debt
securities, financial indices, securities indices, U.S. government
securities and foreign currencies. A financial futures contract is an
agreement to purchase or sell an agreed amount of securities or currencies
at a set price for delivery in the future.

Under the CFTC regulations, the Investment Adviser on behalf of
the Fund (i) may purchase and sell futures contracts and options thereon
for bona fide hedging purposes, as defined under CFTC regulations, without
regard to the percentage of the Fund's assets committed to margin and
option premiums and (ii) may enter into non-hedging transactions, provided
that, immediately thereafter, the sum of the amount of the initial margin
deposits on the Fund's existing futures positions and option premiums does
not exceed 5% of the market value of the Fund's total assets.

Forward Currency Exchange Contracts

The Fund may enter into forward foreign currency exchange
contracts to protect the value of its portfolio against future changes in
the level of currency exchange rates. The Fund may enter into such
contracts on a spot, i.e., cash, basis at the rate then prevailing in the
currency exchange market or on a forward basis, by entering into a forward
contract to purchase or sell currency. A forward contract on foreign
currency is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days agreed upon by the
parties from the date of the contract at a price set on the date of the
contract. The Fund's dealings in forward contracts will be limited to
hedging involving either specific transactions or portfolio positions, and
the amount the Fund may invest in forward currency contracts is limited to
the amount of its aggregate investments in foreign currencies. The Fund
will only enter into forward currency contracts with parties that it
believes to be creditworthy.

Short Sales Against the Box

The Fund may make short sales of securities it owns or has the
right to acquire through conversion or exchange of other securities it
owns. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short. In a short sale, the Fund does
not immediately deliver the securities sold or receive the proceeds from
the sale. The Fund may not make short sales or maintain a short position if
it would cause more than 25% of the Fund's total assets, taken at market
value, to be held as collateral for such sales.

To secure its obligations to deliver the securities sold short,
the Fund will deposit in escrow in a separate account with its custodian an
equal amount to the securities sold short or securities convertible into,
or exchangeable for, such securities. The Fund may close out a short
position by purchasing and delivering an equal amount of the securities
sold short, rather than by delivering securities already held by the Fund,
because the Fund may want to continue to receive interest and dividend
payments on securities in its portfolio that are convertible into the
securities sold short.

The Fund may make a short sale in order to hedge against market
risks when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security
convertible into, or exchangeable for, such security, or when the Fund does
not want to sell the security it owns, because, among other reasons, it
wishes to defer recognition of gain or loss for U.S. federal income tax
purposes. Additionally, the Fund may use short sales in conjunction with
the purchase of a convertible security when it is determined that a
convertible security can be bought at a small conversion premium and has a
yield advantage relative to the underlying common stock sold short.

Repurchase Agreements

The Fund may enter into repurchase agreements with primary
government securities dealers recognized by the Federal Reserve Bank of New
York and member banks of the Federal Reserve System that furnish collateral
at least equal in value or market price to the amount of their repurchase
obligation. In a repurchase agreement, the Fund purchases a debt security
from a seller that undertakes to repurchase the security at a specified
resale price on an agreed future date. Repurchase agreements are generally
for one business day but may have a duration of up to a week. Repurchase
agreements may be seen to be loans by the Fund collateralized by the
underlying debt obligation. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the holding
period. The value of the underlying securities will be at least equal to
all times to the total amount of the repurchase obligation, including
interest. 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. In the event of a default or bankruptcy by a seller,
the Fund will promptly seek to liquidate the collateral. The Board of
Directors will monitor the creditworthiness of the counter party to the
repurchase agreements.

If the financial institution that is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the United States
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As
a result, under extreme circumstances, there may be a restriction on the
Fund's ability to sell the collateral and the Fund would suffer a loss.

Loans of Portfolio Securities

To increase income, the Fund may lend its portfolio securities to
securities broker-dealers or financial institutions if (i) the loan is
collateralized in accordance with applicable regulatory requirements and
(ii) no loan will cause the value of all loaned securities to exceed 33% of
the value of the Fund's total assets.

If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates and the Fund could use the
collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over the value of the collateral. As with
any extension of credit, there are risks of delay in recovery and in some
cases even loss of rights in collateral should the borrower of the
securities fail financially. There can be no assurance that borrowers will
not fail financially. On termination of the loan, the borrower is required
to return the securities to the Fund, and any gain or loss in the market
price during the loan would inure to the Fund. If the other party to the
loan petitions for bankruptcy or becomes subject to the United States
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As
a result, under extreme circumstances, there may be a restriction on the
Fund's ability to sell the collateral and the Fund would suffer a loss. See
"Investment Objectives and Policies -- Investment Practices -- Loans of
Portfolio Securities" in the SAI.

Leverage

As provided in the 1940 Act and subject to compliance with the
Fund's investment objectives, policies and restrictions, the Fund is
permitted to issue additional preferred stock or debt so long as the Fund's
total assets immediately after such issuance, less certain ordinary course
liabilities, exceed 300% of the amount of the debt outstanding and exceed
200% of the sum of the amount of preferred stock and debt outstanding. Such
debt or preferred stock may be convertible in accordance with SEC staff
guidelines that may permit the Fund to obtain leverage at attractive rates.
The Fund has authorized the issuance of 2,000,000 shares of preferred
stock, of which 1,200,000 shares were outstanding on September 30, 2002.
The Fund's outstanding preferred stock has a stated dividend rate of 8% per
annum.

Corporate Reorganizations

The Fund may invest without limit in securities of companies for
which a tender or exchange offer has been made or announced and in
securities of companies for which a merger, consolidation, liquidation or
similar reorganization proposal has been announced if, in the judgment of
the Investment Adviser, there is a reasonable prospect of capital
appreciation significantly greater than the added portfolio turnover
expenses inherent in the short term nature of such transactions. The
principal risk is that such offers or proposals may not be consummated
within the time and under the terms contemplated at the time of the
investment, in which case, unless such offers or proposals are replaced by
equivalent or increased offers or proposals that are consummated, the Fund
may sustain a loss.

Warrants and Rights

The Fund may invest without limit in warrants or rights (other
than those acquired in units or attached to other securities) that entitle
the holder to buy equity securities at a specific price for a specific
period of time but will do so only if such equity securities are deemed
appropriate by the Investment Adviser for inclusion in the Fund's
portfolio.

Other Investment Companies

The Fund may invest up to 5% of its total assets in no more than
3% of the securities of any one investment company, including small
business investment companies, and may invest up to 10% of its total assets
in the securities of other investment companies in the aggregate. The
purchase of securities in investment companies will result indirectly in
the payment of duplicative management fees by the Fund. The Fund will not
purchase the securities of affiliated investment companies.

Foreign Securities

The Fund may invest up to 25% of its total assets in securities of
foreign issuers, which are generally denominated in foreign currencies. See
"Risk Factors and Other Considerations -- Foreign Securities."

The Fund may purchase sponsored American Depository Receipts
("ADRs") or U.S. denominated securities of foreign issuers, which shall not
be included in this foreign securities limitation. ADRs are receipts issued
by United States banks or trust companies in respect of securities of
foreign issuers held on deposit for use in the United States securities
markets.

When Issued, Delayed Delivery Securities and Forward Commitments

The Fund may enter into forward commitments for the purchase of
securities. Such transactions may include purchases on a "when issued" or
"delayed delivery" basis. 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 the Fund 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 maintain a segregated account
of cash or liquid high-grade debt securities with the Fund's custodian in
an aggregate amount at least equal to the amount of its forward commitments
as long as the obligation to purchase continues.

Temporary Defensive Investments

During temporary defensive periods and during periods when the
Fund's normal asset allocation is not optimal, the Fund may invest more
heavily in securities of U.S. government sponsored instrumentalities and in
money market mutual funds that invest in those securities, which, in the
absence of an exemptive order, will not be affiliated with the Investment
Adviser. Obligations of certain agencies and instrumentalities of the U.S.
government, such as the Government National Mortgage Association, are
supported by the "full faith and credit" of the U.S. government; others,
such as those of the Export- Import Bank of the U.S., are supported by the
right of the issuer to borrow from the U.S. Treasury; others, such as those
of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. government to purchase the agency's
obligations; and still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the 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. During temporary defensive periods, the Fund may
be less likely to achieve its investment objective.

Further information on the investment objective and policies of
the Fund are set forth in the SAI.

Investment Restrictions

The Fund has adopted certain investment restrictions as
fundamental policies of the Fund. Under the 1940 Act, a fundamental policy
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act. The Fund's investment
restrictions are more fully discussed under "Investment Restrictions" in
the SAI.

Portfolio Turnover

The Fund will buy and sell securities to accomplish its investment
objective. The investment policies of the Fund may lead to frequent changes
in investments, particularly in periods of rapidly fluctuating interest or
currency exchange rates. The portfolio turnover may be higher than that of
other investment companies.

Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities and
may result in taxable gains being passed to shareholders. 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).

Long-Term Objective

The Fund is intended for investors seeking long-term capital
growth and income. The Fund is not meant to provide a vehicle for those who
wish to play short-term swings in the stock market. An investment in stock
of the Fund should not be considered a complete investment program. Each
stockholder should take into account the stockholder's investment
objectives as well as the stockholder's other investments when considering
the Offering.

RISK FACTORS AND SPECIAL CONSIDERATIONS

There are a number of risks that an investor should consider in
evaluating the Fund. You should read this entire Prospectus and the SAI
before you decide whether to exercise your Rights. In addition, you should
consider the matters set forth below.

Dilution

If you do not exercise all of your Rights, you will likely own a
smaller proportional interest in the Fund when the Offer is over. In
addition, whether or not you exercise your Rights, if the Subscription
Price is below the Fund's net asset value per share of common stock on the
Expiration Date the net asset value of your common stock will be diluted
(reduced) immediately as a result of the Offer because:

o the offered stock is being sold at less than its current
net asset value;

o you will indirectly bear the expenses of the Offer; and

o the number of shares of common stock outstanding after
the Offer will have increased proportionately more than
the increase in the amount of the Fund's net assets.

On the other hand, if the Subscription Price is above the Fund's
net asset value per share on the Expiration Date after deducting the
expenses of the Offer, the Fund's net asset value per share of common stock
will be accreted (increased) immediately as a result of the Offer whether
or not you participate in the Offer because:

o the offered stock is being sold at more than its current
net asset value after deducting the expenses of the
Offer; and

o the number of shares of common stock outstanding after
the Offer will have increased proportionately less than
the increase in the amount of the Fund's net assets.

Furthermore, if you do not participate in the Over-Subscription
Privilege, your percentage ownership may also be diluted. The Fund cannot
state precisely the amount of any dilution because it is not known at this
time what the net asset value per share of common stock will be on the
Expiration Date or what proportion of the Rights will be exercised. The
impact of the Offer on net asset value per share of common stock is shown
by the following examples, assuming a $8.00 Subscription Price:

Scenario 1: (assumes net asset value per share is above subscription price)(1)

NAV.............................................................$8.50
Subscription Price..............................................$8.00
Reduction in NAV($)(2)..........................................$(0.18)
Reduction in NAV(%).............................................(2.12)%

Scenario 2: (assumes net asset value is below subscription price)(1)

NAV..............................................................$7.50
Subscription Price...............................................$8.00
Increase in NAV($)(2)............................................$0.08
Increase in NAV(%)................................................1.07%

------------------------------------

(1) Both examples are based on a fully exercised primary subscription
only. Actual amounts may vary due to rounding.

(2) Assumes $450,000 in estimated offering expenses.

If you do not wish to exercise your Rights, you should consider
selling them as set forth in this Prospectus. Any cash you receive from
selling your Rights should serve as partial compensation for any possible
dilution of your interest in the Fund. The Fund cannot give assurance,
however, that a market for the Rights will develop or that the Rights will
have any marketable value.

Market Risk

The market value of a security may move up and down, sometimes
rapidly and unpredictably. These fluctuations, which are often referred to
as "volatility," may cause a security to be worth less than it was worth at
an earlier time. Market risk may affect a single issuer, industry, sector
of the economy or the market as a whole. Market risk is common to most
investments, including stocks and bonds and the investment funds that
invest in them.

Asset Class Risks

Credit Risk for Convertible Securities and Fixed Income Securities

Many convertible securities are not investment grade, that is, not
rated within the four highest categories by S&P and Moody's. To the extent
that the Fund's convertible securities and any other fixed income
securities are rated lower than investment grade or are not rated, there
would be a greater risk as to the timely repayment of the principal of, and
timely payment of interest or dividends on, those securities. It is
expected that not more than 50% of the Fund's portfolio will consist of
securities rated CCC or lower by S&P or Caa or lower by Moody's or, if
unrated, are of comparable quality as determined by the Investment Adviser.

Securities rated BB or lower by S&P or Ba or lower by Moody's are
often referred to in the financial press as "junk bonds" and may include
securities of issuers in default. "Junk bonds" are considered by the rating
agencies to be predominantly speculative and may involve major risk
exposures such as:

o greater volatility and credit risk;

o vulnerability to economic downturns and changes in
interest rates;

o sensitivity to adverse economic changes and corporate
developments;

o additional expenses to pursue recovery from issuers that
default;

o redemption or call provisions that may be exercised at
inopportune times;

o difficulty in accurately valuing or disposing of such
securities;

o subordination to other debt of the issuer; and

o junk bonds are generally unsecured.

Convertible securities and other income securities need not meet a minimum
rating standard in order to be acceptable for investment by the Fund. See
"Appendix A -- Description of Corporate Bond Ratings."

In addition, securities ratings are relative and subjective and
are not absolute standards of quality. They are based largely on an
issuer's historical financial condition and the rating agency's analysis at
the time of the rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current financial
condition.

Dilution Risk for Convertible Securities

In the absence of adequate anti-dilution provisions in a
convertible security, dilution in the value of the Fund's holding may occur
in the event the underlying stock is subdivided, additional equity
securities are issued for below market value, a stock dividend is declared,
or the issuer enters into another type of corporate transaction that has a
similar effect.

Call Provision Risk

Many Convertible Securities in which the Fund will invest have
call provisions entitling the issuer to redeem the security at a specified
time and at a specified price. As a general matter, call provisions
contained in convertible securities may limit the Fund's ability to
participate in upside equity gains associated with the underlying common
stock in excess of the call price. In addition, if long-term interest rates
decline, the interest rates of new Convertible Securities will also
decline. Therefore, in a falling interest rate environment companies may be
expected to call Convertible Securities with high coupons and the Fund
would have to invest the proceeds from such called issues in securities
with lower coupons. Thus, Convertible Securities without superior call
protection may limit the Fund's ability to maintain a high yield in a
falling interest rate environment.

Illiquid Securities

The Fund has no limit on the amount of its net assets it may
invest in unregistered and otherwise illiquid investments. Unregistered
securities are securities that cannot be sold publicly in the United States
without registration under the Securities Act. Unregistered securities
generally can be resold only in privately negotiated transactions with a
limited number of purchasers or in a public offering registered under the
Securities Act. Considerable delay could be encountered in either event
and, unless otherwise contractually provided for, the Fund's proceeds upon
sale may be reduced by the costs of registration or underwriting discounts.
The difficulties and delays associated with such transactions could result
in the Fund's inability to realize a favorable price upon disposition of
unregistered securities, and at times might make disposition of such
securities impossible.

Unregistered convertible securities or the securities obtained
upon conversion normally may be resold publicly under certain volume and
other restrictions beginning two years following the acquisition of the
unregistered convertible securities and without any restrictions beginning
three years after the acquisition of the unregistered convertible
securities. Unregistered securities that are freely salable among qualified
institutional investors under special rules adopted by the Securities and
Exchange Commission (the "SEC") may be treated as liquid if they satisfy
institutional liquidity standards established by the Board of Directors.
The continued liquidity of such securities is not as well assured as that
of publicly traded securities, and accordingly, the Board of Directors will
monitor their liquidity.

Interest Rate Risk for Fixed Income Securities

The primary risk associated with fixed income securities is interest
rate risk. A decrease in interest rates will generally result in an increase in
the value of a fixed income security, while increases in interest rates will
generally result in a decline in its value. This effect is generally more
pronounced for fixed rate securities than for securities whose income rate is
periodically reset.

Further, while longer term fixed rate securities may pay higher
interest rates than shorter term securities, longer term fixed rate securities
also tend to be more sensitive to interest rate changes and, accordingly, tend
to experience larger changes in value as a result of interest rate changes.

Distribution Risk for Equity Income Securities

In selecting equity income securities in which the Fund will invest,
the Investment Adviser will consider the issuer's history of making regular
periodic distributions (i.e., dividends) to its equity holders. An issuer's
history of paying dividends, however, does not guarantee that the issuer will
continue to pay dividends in the future. The dividend income stream associated
with equity income securities generally is not guaranteed and will be
subordinate to payment obligations of the issuer on its debt and other
liabilities. Accordingly, in the event the issuer does not realize sufficient
income in a particular period both to service its liabilities and to pay
dividends on its equity securities, it may forgo paying dividends on its equity
securities. In addition, because in most instances issuers are not obligated to
make periodic distributions to the holders of their equity securities, such
distributions or dividends generally may be discontinued at the issuer's
discretion.

Equity Risk

The principal risk of investing in equity securities is equity risk.
Equity risk is the risk that the price of an equity security will fall due to
general market and economic conditions, perceptions regarding the industry in
which the issuer participates or the issuing company's particular circumstances.
Common stock in which the Fund will invest or receive upon conversion of
convertible securities is subject to such equity risk. In the case of
convertible securities, it is the conversion value of a convertible security
that is subject to the equity risk; that is, if the appreciation potential of a
convertible security is not realized, the premium paid for its conversion value
may not be recovered. See "Investment Objectives and Policies -- Convertible
Securities."

Ratings Risk

The rating received by the Fund on its outstanding preferred stock, or
on any other senior security that it may issue, is an assessment by the
applicable rating agency of the capacity of the Fund to satisfy its obligations
on its outstanding senior securities. However, an AAA rating on the Fund's
outstanding preferred stock does not eliminate or mitigate the risks associated
with investing in the Fund's common stock. In addition, should the rating on the
Fund's preferred stock be lowered or withdrawn by the relevant rating agency,
there may be an adverse effect on the market value of the Fund's preferred stock
and the Fund may also be required to redeem all or part of its outstanding
preferred stock. If the Fund were required to redeem its outstanding preferred
stock (in whole or part) as a result of the change in or withdrawal of the
rating, the common stock of the Fund will lose the benefits associated with a
leveraged capital structure.

Portfolio Turnover Risk

The Fund may buy and sell securities on a frequent basis resulting in a
portfolio turnover rate that is higher than that of other investment companies.
In such a case the Fund may incur incremental portfolio turnover expenses (such
as brokerage commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities) that negatively impact
the Fund's return on its investments. In addition, portfolio turnover may result
in taxable gains being passed to stockholders.

Market Value and Net Asset Value

The Fund is a diversified, closed-end management investment company.
Closed-end funds are bought and sold in the securities markets and may trade at
either a premium or discount from net asset value. Shares of closed-end
investment companies frequently trade at a discount from net asset value. This
characteristic of stock of a closed-end fund is a risk separate and distinct
from the risk that the Fund's net asset value will decrease. The Fund cannot
predict whether its stock will trade at, below or above net asset value.
Stockholders desiring liquidity may, subject to applicable securities laws,
trade their stock in the Fund on the New York Stock Exchange or other markets on
which such stock may trade at the then current market value, which may differ
from the then current net asset value. Stockholders will incur brokerage or
other transaction costs to sell stock.

Foreign Securities

Investments in the securities of foreign issuers involve certain
considerations and risks not ordinarily associated with investments in
securities of domestic issuers. Foreign companies are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. companies. Foreign securities exchanges, brokers and
listed companies may be subject to less government supervision and regulation
than exists in the United States. Dividend and interest income may be subject to
withholding and other foreign taxes, which may adversely affect the net return
on such investments. There may be difficulty in obtaining or enforcing a court
judgment abroad. In addition, it may be difficult to effect repatriation of
capital invested in certain countries. In addition, with respect to certain
countries, there are risks of expropriation, confiscatory taxation, political or
social instability or diplomatic developments that could affect assets of the
Fund held in foreign countries.

There may be less publicly available information about a foreign
company than a U.S. company. Foreign securities markets may have substantially
less volume than U.S. securities markets and some foreign company securities are
less liquid than securities of otherwise comparable U.S. companies. A portfolio
of foreign securities may also be adversely affected by fluctuations in the
rates of exchange between the currencies of different nations and by exchange
control regulations. Foreign markets also have different clearance and
settlement procedures that could cause the Fund to encounter difficulties in
purchasing and selling securities on such markets and may result in the Fund
missing attractive investment opportunities or experiencing loss. In addition, a
portfolio that includes foreign securities can expect to have a higher expense
ratio because of the increased transaction costs on non- U.S. securities markets
and the increased costs of maintaining the custody of foreign securities. The
Fund may invest up to 25% of its total assets in securities of foreign issuers.

The Fund may purchase sponsored American Depository Receipts ("ADRs")
or U.S. denominated securities of foreign issuers, which will not be included in
the Fund's 25% foreign securities limitation. ADRs are receipts issued by United
States banks or trust companies in respect of securities of foreign issuers held
on deposit for use in the United States securities markets. While ADRs may not
necessarily be denominated in the same currency as the securities into which
they may be converted, many of the risks associated with foreign securities may
also apply to ADRs.

Special Risks of Derivative Transactions

Participation in the options or futures markets and in currency
exchange transactions involves investment risks and transaction costs to which
the Fund would not be subject absent the use of these strategies. If the
Investment Adviser's prediction of movements in the direction of the securities,
foreign currency and interest rate markets is inaccurate, the consequences to
the Fund may leave the Fund in a worse position than if it had not used such
strategies. Risks inherent in the use of options, foreign currency, futures
contracts and options on futures contracts, securities indices and foreign
currencies include:

o dependence on the Investment Adviser's ability to predict
correctly movements in the direction of interest rates,
securities prices and currency markets;

o imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of
the securities or currencies being hedged;

o the fact that skills needed to use these strategies are
different from those needed to select portfolio securities;

o the possible absence of a liquid secondary market for any
particular instrument at any time;

o the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences;

o the possible inability of the Fund to purchase or sell a
security at a time that otherwise would be favorable for it to
do so, or the possible need for the Fund to sell a security at
a disadvantageous time due to a need for the Fund to maintain
"cover" or to segregate securities in connection with the
hedging techniques; and

o the creditworthiness of counterparties.

For a further description, see "Risk Factors and Special Considerations --
Futures Transactions" and "Risk Factors and Special Considerations -- Forward
Currency Exchange Contracts."

Futures Transactions

Futures and options on futures entail certain risks, including but not
limited to the following:

o no assurance that futures contracts or options on futures can
be offset at favorable prices;

o possible reduction of the yield of the Fund due to the use of
hedging;

o possible reduction in value of both the securities hedged and
the hedging instrument;

o possible lack of liquidity due to daily limits on price
fluctuation;

o imperfect correlation between the contracts and the securities
being hedged; and

o losses from investing in futures transactions that are
potentially unlimited and the segregation requirements for
such transactions.

For a further description, see "Investment Objectives and Policies -- Investment
Practices" in the SAI.

Forward Currency Exchange Contracts

The use of forward currency contracts may involve certain risks,
including the failure of the counter party to perform its obligations under the
contract and that the use of forward contracts may not serve as a complete hedge
because of an imperfect correlation between movements in the prices of the
contracts and the prices of the currencies hedged or used for cover. For a
further description of such investments, see "Investment Objectives and Policies
-- Investment Practices" in the SAI.

Risks to Common Stockholders of Leveraging and Issuance of Senior Securities

Leverage entails two primary risks. The first risk is that the use of
leverage magnifies the impact on the common stockholders of changes in net asset
value. For example, a fund that uses 33% leverage (that is, $50 of leverage per
$100 of common equity) will show a 1.5% increase or decline in net asset value
for each 1% increase or decline in the value of its total assets. The second
risk is that the cost of leverage will exceed the return on the securities
acquired with the proceeds of leverage, thereby diminishing rather than
enhancing the return to common stockholders. If the Fund were to reduce its use
of leverage, these two risks would dissipate and would generally make the Fund's
total return to common stockholders less volatile. In addition, the Fund might
be required to sell investments in order to meet dividend or interest payments
on the debt or preferred stock when it may be disadvantageous to do so.

As provided in the 1940 Act and subject to certain exceptions, the Fund
may issue additional preferred stock or debt so long as the Fund's total assets
immediately after such issuance, less certain ordinary course liabilities,
exceed 300% of the amount of the debt outstanding and exceed 200% of the sum of
the amount of the preferred stock and debt outstanding. Such debt or preferred
stock may be convertible in accordance with SEC guidelines, which may permit the
registrant to obtain leverage at attractive rates.

A leveraged capital structure creates certain special risks and
potential benefits not associated with unleveraged funds having similar
investment objectives and policies. Any investment income or gains from the
capital represented by preferred stock or debt that is in excess of the
dividends payable thereon will cause the total return of the common stock to be
higher than would otherwise be the case. Conversely, if the investment
performance of the capital represented by preferred stock or debt fails to cover
the dividends payable thereon, the total return of the common stock would be
less or, in the case of negative returns, would result in higher negative
returns to a greater extent than would otherwise be the case. The requirement
under the 1940 Act to pay in full dividends on preferred stock or interest on
debt before any dividends may be paid on the common stock means that dividends
on the common stock from earnings may be reduced or eliminated. Although an
inability to pay dividends on the common stock could conceivably result in the
Fund ceasing to qualify as a regulated investment company under the Code, which
would be materially adverse to the holders of the common stock, such inability
can be avoided through the use of mandatory redemption requirements designed to
ensure that the Fund maintains the necessary asset coverage.

The class voting rights of the preferred stock could make it more
difficult for the Fund to take certain actions that may, in the future, be
proposed by the Board and/or the holders of common stock, such as (i) a merger,
exchange of securities, liquidation or alteration of the rights of a class of
the Fund's securities if such actions would be adverse to the preferred stock,
or (ii) changing to an open-end investment company or acting inconsistently with
its fundamental investment restrictions or other fundamental policies or (iii)
seeking to operate other than as an investment company.

The issuance of preferred stock convertible into common stock might
also reduce the net income and net asset value per share of the common stock
upon conversion. Such income dilution would occur if the Fund could not, from
the investments made with the proceeds of the preferred stock, earn an amount
per share of common stock issuable upon conversion greater than the dividend
required to be paid on the amount of preferred stock convertible into one share
of common stock. Such net asset value dilution would occur if preferred stock
were converted at a time when the net asset value per share of common stock was
greater than the conversion price.

The Fund currently has preferred stock outstanding and may issue
additional preferred stock or preferred stock convertible into common stock in
the future in the event the Board concludes that the issuance of additional
preferred stock would be likely to enable the Fund to earn an incremental return
for the common stockholders. See "Capitalization -- Preferred Stock."

Dependence on Key Personnel

The Investment Adviser is dependent upon the expertise of Mr. Mario J.
Gabelli in providing advisory services with respect to the Fund's investments.
If the Investment Adviser were to lose the services of Mr. Gabelli, its ability
to service the Fund could be adversely affected. There can be no assurance that
a suitable replacement could be found for Mr. Gabelli in the event of his death,
resignation, retirement or inability to act on behalf of the Investment Adviser.

MANAGEMENT OF THE FUND

The Fund's Board of Directors (who, with its officers, are described in
the SAI) has overall responsibility for the management of the Fund. The Board
decides upon matters of general policy and reviews the actions of the Investment
Adviser and the Administrator (as defined below). Pursuant to an Investment
Advisory Contract with the Fund, the Investment Adviser, under the supervision
of the Fund's Board of Directors, provides a continuous investment program for
the Fund's portfolio; provides investment research and makes and executes
recommendations for the purchase and sale of securities; and provides all
facilities and personnel, including officers required for its administrative
management and pays the compensation of all officers and directors of the Fund
who are its affiliates. As compensation for its services and the related
expenses borne by the Investment Adviser, the Fund pays the Investment Adviser a
fee, computed daily and payable monthly, equal, on an annual basis, to 1.00% of
the Fund's average weekly net assets. However, the Investment Adviser will waive
the portion of its investment advisory fee attributable to an amount of assets
of the Fund equal to the aggregate stated value of its outstanding preferred
stock for any calendar year in which the net asset value total return of the
Fund allocable to the common stock, including distributions and the advisory fee
subject to potential waiver, is less than the stated annual dividend rate of
such preferred stock, prorated during the year such preferred stock is issued
and the final year it is outstanding. For purposes of the calculation of the
fees payable to the Investment Adviser by the Fund, average weekly net assets of
the Fund are determined at the end of each month on the basis of its average net
assets for each week during the month. The assets for each weekly period are
determined by averaging the net assets at the end of a week with the net assets
at the end of the prior week.

The Investment Adviser, together with other affiliated investment
advisers, has assets under management totaling over $20.2 billion as of
September 30, 2002. The Investment Adviser was organized in 1999 and is the
successor to the investment advisory division of Gabelli Funds, Inc., which was
organized in 1980. As of September 30, 2002, the Investment Adviser and its
affiliate, Gabelli Advisers, Inc., acted as primary investment adviser to 20
management investment companies with aggregate net assets of $8.8 billion. GAMCO
Investors, Inc., an affiliate of the Investment Adviser, acts as investment
adviser for individuals, pension trusts, profit sharing trusts and endowments,
and as investment sub-adviser to management investment companies having
aggregate assets of $9.3 billion under management as of September 30, 2002.
Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as
investment adviser for the Treasurer's Fund and separate accounts having
aggregate assets of $1.5 billion under management as of September 30, 2002.

The Investment Adviser is a wholly-owned subsidiary of Gabelli Asset
Management Inc., a New York corporation, whose Class A Common Stock is traded on
the New York Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be
deemed a "controlling person" of the Investment Adviser on the basis of his
ownership of a majority of the stock of the Gabelli Group Capital Partners,
Inc., which owns a majority of the capital stock of Gabelli Asset Management
Inc.

The Investment Adviser is obligated to pay expenses associated with
providing the services contemplated by the Investment Advisory Agreement between
the Fund and the Investment Adviser (the "Advisory Agreement") including
compensation of and office space for its officers and employees connected with
investment and economic research, trading and investment management and
administration of the Fund, as well as the fees of all directors of the Fund who
are affiliated with the Investment Adviser. The Fund pays all other expenses
incurred in its operation including, among other things, expenses for legal and
independent accountants' services, costs of printing proxies, stock certificates
and stockholder reports, expenses of personnel performing stockholder servicing
functions, charges of the custodian, any subcustodian and transfer and dividend
paying agent, expenses in connection with its respective Automatic Dividend
Reinvestment and Voluntary Cash Purchase Plan, SEC fees, fees and expenses of
unaffiliated directors, accounting and pricing costs, membership fees in trade
associations, fidelity bond coverage for its officers and employees, directors'
and officers' errors and omission insurance coverage, interest, brokerage costs,
taxes, stock exchange listing fees and expenses, expenses of qualifying its
stock for sale in various states, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the Fund.

The Investment Advisory Contract contains provisions relating to the
selection of securities brokers to effect the portfolio transactions of the
Fund. Under those provisions, the Investment Adviser may (i) direct Fund
portfolio brokerage to Gabelli & Company, Inc. or other broker-dealer affiliates
of the Investment Adviser and (ii) pay commissions to brokers other than Gabelli
& Company, Inc. that are higher than might be charged by another qualified
broker to obtain brokerage and/or research services considered by the Investment
Adviser to be useful or desirable for its investment management of the Fund
and/or its other advisory accounts or those of any investment adviser affiliated
with it. The SAI contains further information about the Investment Advisory
Contract including a more complete description of the advisory and expense
arrangements, exculpatory and brokerage provisions, as well as information on
the brokerage practices of the Fund.

Portfolio Manager

Mario J. Gabelli is responsible for the day-to-day management of the
Fund. Mr. Gabelli has served as Chairman, President and Chief Investment Officer
of the Investment Adviser since 1980. Mr. Gabelli also serves as Portfolio
Manager for several other funds in the Gabelli fund family. Because of the
diverse nature of Mr. Gabelli's responsibilities, he will devote less than all
of his time to the day-to- day management at the Fund. Over the past five years,
Mr. Gabelli has served as Chairman of the Board and Chief Executive Officer of
Gabelli Asset Management Inc.; Chief Investment Officer of GAMCO Investors,
Inc.; Chairman of the Board and Chief Executive Officer of Lynch Corporation, a
diversified manufacturing company, and Lynch Interactive Corporation, a
multimedia and communications services company; and Director of Spinnaker
Industries, Inc., a manufacturing company.

Non-Resident Directors

Karl Otto Pohl and Anthonie C. van Ekris, directors of the Fund, reside
outside the United States and all or a significant portion of their assets are
located outside the United States. Neither director has an authorized agent in
the United States to receive service of process. As a result, it may not be
possible for investors to effect service of process within the United States or
to enforce against either director in United States courts judgments predicated
upon civil liability provisions of United States securities laws. It may also
not be possible to enforce against either director in foreign courts judgments
of United States courts or liabilities in original actions predicated upon civil
liability provisions of the United States securities laws.

Administrator

The Investment Adviser has entered into sub-administration agreement
with PFPC Inc. (the "Sub- Administrator") pursuant to which the
Sub-Administrator provides certain administrative services necessary for the
Fund's operations which do not include the investment advisory and portfolio
management services provided by the Investment Adviser. For these services and
the related expenses borne by the Sub-Administrator, the Investment Adviser pays
a prorated monthly fee at the annual rate of .0275% of the first $10.0 billion
of the aggregate average net assets of the Fund and all other funds advised by
the Investment Adviser and administered by the Sub-Administrator, .0125% of the
aggregate average net assets exceeding $10 billion and .01% of the aggregate
average net assets in excess of $15 billion. The Sub-Administrator has its
principal office at 3200 Horizon Drive, King of Prussia, Pennsylvania 19406.

Portfolio Transactions

Principal transactions are not entered into with affiliates of the
Fund. However, Gabelli & Company may execute transactions in the
over-the-counter markets on an agency basis and receive a stated commission
therefrom. For a more detailed discussion of the Fund's brokerage allocation
practice, see the SAI under "Portfolio Transactions."

DIVIDENDS AND DISTRIBUTIONS

The Fund's Distribution Policy

The Fund may retain for reinvestment and pay federal income taxes on
its net capital gain, if any, although the Fund reserves the authority to
distribute its net capital gain in any year. The Board of Directors 0has adopted
a policy of distributing 8% per share of its average net asset value per year.
To implement this policy, the Fund makes quarterly distributions of $0.20 per
share at the end of each of the first three calendar quarters of each year to
holders of its common stock. The Fund's distribution in December for each
calendar year is an adjusting distribution (equal to the sum of 2.0% of the net
asset value of the Fund as of the last day of the four preceding calendar
quarters less the aggregate distributions of $0.60 per share made for the most
recent three calendar quarters) in order to meet the Fund's 8% pay-out goal. If,
for any calendar year, the total distributions exceed net investment income and
net capital gain, the excess will generally be treated as a tax-free return of
capital up to the amount of the stockholder's tax basis in his stock. The amount
treated as a tax-free return of capital will reduce a stockholder's tax basis in
his stock, thereby increasing his potential gain or reducing his potential loss
on the sale of his stock. Any amounts distributed to a stockholder in excess of
the basis in the stock will be taxable to the stockholder as capital gain. See
"Taxation" below.

In the event the Fund distributes amounts in excess of its net
investment income and net capital gain, such distributions will decrease the
Fund's total assets and, therefore, have the likely effect of increasing the
Fund's expense ratio. In addition, in order to make such distributions, the Fund
may have to sell a portion of its investment portfolio at a time when
independent investment judgment might not dictate such action.

The Fund, along with other registered investment companies advised by
the Investment Adviser (the "Other Funds"), has obtained an exemption from
Section 19(b) of the 1940 Act and Rule 19b-1 thereunder permitting the Fund to
make periodic distributions of long-term capital gains provided that the Fund
maintains distribution policies with respect to the common stock calling for
periodic (e.g., quarterly or semi-annually, but in no event more frequently than
monthly) distributions in an amount equal to a fixed percentage of the Fund's
average net asset value over a specified period of time or market price per
share of common stock at or about the time of distribution or pay-out of a fixed
dollar amount. If the total distributions required by the Fund's periodic
pay-out policy exceed the Fund's net investment income and net capital gains,
the excess will be treated as a return of capital. If the Fund's net investment
income, net short-term capital gains and net long-term capital gains for any
year exceed the amount required to be distributed under the periodic pay-out
policy, the Fund generally intends to pay such excess once a year, but may, in
its discretion, retain and not distribute net long-term capital gains to the
extent of such excess. The Fund reserves the right, but does not currently
intend, to retain for reinvestment and pay U.S. federal income taxes on the
excess of its net realized long-term capital gains over its net short-term
capital losses, if any.

TAXATION

Taxation of the Fund

The Fund has qualified and elected to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Fund must, among other things, (i) derive
in each taxable year at least 90% of its gross income (including tax- exempt
interest) from dividends, interest, payments with respect to certain securities
loans, and gains from the sale or other disposition of stock, securities or
foreign currencies, or other income (including but not limited to gain from
options, futures and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies; and (ii) diversify its
holdings so that, at the end of each fiscal quarter (a) at least 50% of the
market value of the Fund's total assets is represented by cash and cash items,
U.S. government securities, the securities of other regulated investment
companies and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the value of the Fund's
total assets and not more than 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the market value of the Fund's total assets
is invested in the securities of any issuer (other than U.S. government
securities and the securities of other regulated investment companies) or of any
two or more issuers that the Fund controls and that are determined to be engaged
in the same business or similar or related trades or businesses.

As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes each taxable
year to stockholders, if at least 90% of the sum of the Fund's (i) investment
company taxable income (which includes, among other items, dividends, interest
and the excess of any net short-term capital gains over net long-term capital
losses and other taxable income other than any net capital gain (as defined
below) reduced by deductible expenses) determined without regard to the
deduction for dividends paid and (ii) its net tax exempt interest (the excess of
its gross tax exempt interest over certain disallowed deductions). The Fund
intends to distribute at least annually substantially all of such income.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (i) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (ii) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year (unless, an election is made by a fund with a November or
December year-end to use the fund's fiscal year), and (iii) certain
undistributed amounts from previous years on which the fund paid no U.S. federal
income tax. While the Fund intends to distribute any income and capital gains in
the manner necessary to minimize imposition of the 4% excise tax, there can be
no assurance that sufficient amounts of the Fund's taxable income and capital
gains will be distributed to avoid entirely the imposition of the tax. In that
event, the Fund will be liable for the tax only on the amount by which it does
not meet the foregoing distribution requirement.

If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gains)
will be subject to tax at regular corporate rates without any deduction for
distributions to stockholders, and such distributions will be taxable to the
stockholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits.

Taxation of the Stockholders

Distributions paid to you by the Fund from its ordinary income or from
an excess of net short- term capital gains over net long-term capital losses
(together referred to hereinafter as "ordinary income dividends") are taxable to
you as ordinary income to the extent of the Fund's earning and profits.
Distributions made to you from an excess of net long-term capital gains over net
short-term capital losses ("capital gain dividends"), including capital gain
dividends credited to you but retained by the Fund, are taxable to you as
long-term capital gains, regardless of the length of time you have owned Fund
stock. Distributions in excess of the Fund's earnings and profits will first
reduce the adjusted tax basis of your stock and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to you (assuming the stock is
held as a capital asset). Generally, not later than 60 days after the close of
its taxable year, the Fund will provide you with a written notice designating
the amount of any ordinary income dividends or capital gain dividends and other
distributions.

The sale or other disposition of common stock of the Fund will
generally result in capital gain or loss to you, and will be long-term capital
gain or loss if the stock has been held for more than one year at the time of
sale. Any loss upon the sale or exchange of Fund stock held for six months or
less will be treated as long-term capital loss to the extent of any capital gain
dividends received (including amounts credited as an undistributed capital gain
dividend) by you. A loss realized on a sale or exchange of stock of the Fund
will be disallowed if other Fund stock is acquired (whether through the
automatic reinvestment of dividends or otherwise) within a 61-day period
beginning 30 days before and ending 30 days after the date that the stock is
disposed of. In such case, the basis of the stock acquired will be adjusted to
reflect the disallowed loss. Present law taxes both long-term and short-term
capital gains of corporations at the rates applicable to ordinary income. For
non-corporate taxpayers, however, short- term capital gains and ordinary income
will currently be taxed at a maximum rate of 38.6% while long- term capital
gains generally will be taxed at a maximum rate of 20% and 10% for taxpayers in
the 15% bracket. The 20% capital gains rate and the 10% capital rate will be
reduced to 18% and 8% respectively, for capital assets held for more than five
years if the holding period begins after December 31, 2000.1

Dividends and other taxable distributions are taxable to you even
though they are reinvested in additional stock of the Fund. If the Fund pays you
a dividend in January that was declared in the previous October, November or
December to stockholders of record on a specified date in one of such months,
then such dividend will be treated for tax purposes as being paid by the Fund
and received by you on December 31 of the year in which the dividend was
declared.

The Fund is required in certain circumstances to backup withholding on
taxable dividends and certain other payments paid to non-corporate holders of
the Fund's stock who do not furnish the Fund with their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld from payments
made to you may be refunded or credited against your U.S. federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service.

--------

1 The Economic Growth and Tax Relief Reconciliation Act of 2001, effective
for taxable years beginning after December 31, 2000, creates a new 10
percent income tax bracket and reduces the tax rates applicable to ordinary
income over a six year phase-in period. Beginning in the taxable year 2006,
ordinary income will be subject to a 35% maximum rate, with approximately
proportionate reductions in the other ordinary rates.

The foregoing is a general and abbreviated summary of the provisions of
the Code and the Treasury regulations in effect as they directly govern the
taxation of the Fund and its stockholders. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive. A more complete discussion of the tax rules applicable to the Fund
and its stockholders can be found in the Statement of Additional Information
that is incorporated by reference into this prospectus. Stockholders are urged
to consult their tax advisers regarding specific questions as to U.S. federal,
foreign, state, local income or other taxes.

CAPITALIZATION

The Fund is authorized to issue one billion (1,000,000,000) shares of
capital stock, par value $.001 per share, in multiple classes and series thereof
as determined from time to time by the Board of Directors of the Fund. The Board
has authorized issuance of one hundred million (100,000,000) shares of the
common stock class and two million (2,000,000) shares of the preferred stock
class. Each share within a particular class or series thereof has equal voting,
dividend, distribution and liquidation rights. There are no conversion or
preemptive rights in connection with any outstanding stock of the Fund. All
stock, when issued in accordance with the terms of the Offering, will be fully
paid and non-assessable.

The following table shows the number of shares of (i) capital stock
authorized, (ii) capital stock unissued and (iii) capital stock outstanding for
each class of authorized securities of the Fund as of September 30, 2002.

Amount Amount Amount
Title of Class Authorized Classified Outstanding

Common Stock.............. 1,000,000,000(1) 998,000,000 8,291,884
--------------------- ------------------- ------------------
Preferred Stock........... 1,000,000,000(1) 2,000,000 1,200,000
--------------------- ------------------- ------------------

(1) The total number of shares of capital stock of all classes authorized.
The Board of Directors is authorized to classify or reclassify these
one billion shares.

Common Stock

The common stock of the Fund is listed on the New York Stock Exchange
under the symbol GCV and began trading March 31, 1995. The average weekly
trading volume of the common stock on the NYSE for the 12 months ended September
30, 2002 was 41,642 shares. The common stock is not redeemable and has no
preemptive, conversion or cumulative voting rights. The following table sets
forth for the quarters indicated the high and low closing prices on the NYSE per
share of the Fund's common stock and the net asset value and the premium or
discount from net asset value at which the common stock was trading, expressed
as a percentage of net asset value, at each of the high and low closing prices
provided.

PREMIUM OR DISCOUNT
MARKET PRICE(1) NET ASSET VALUE(2) AS % OF NAV
-------------------------- ---------------------------- ------------------------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW

September 30, 2002 11.30 9.40 8.44 8.59 33.89 9.43
June 30, 2002 11.63 10.45 9.81 9.12 18.55 14.58
March 31, 2002 11.19 10.66 9.84 9.83 13.72 8.44

December 31, 2001 11.25 10.45 10.08 9.82 11.61 6.42
September 30, 2001 11.25 10.50 9.96 10.36 12.95 1.35

June 30, 2001 10.95 10.09 10.72 10.34 2.15 -2.42
March 31, 2001 11.00 9.375 10.37 9.99 6.08 -6.16
December 31, 2000 10.0625 8.75 10.94 9.95 - 8.02 -12.06
September 30, 2000 10.4375 9.375 11.15 10.88 - 6.39 -13.83
June 30, 2000 10.00 9.0625 11.34 11.07 -11.82 -18.13
March 31, 2000 10.8125 9.00 11.20 11.09 - 3.46 -18.85

------------------------------------

(1) As reported on the NYSE

As of September 30, 2002, the Fund's common stock was trading at a
premium of 28.96% over net asset value.

Preferred Stock

The Fund's Board of Directors has authority to cause the Fund to issue
and sell up to 2,000,000 shares of preferred stock, par value $.001 per share.
The terms of preferred stock issued by the Fund has and will be fixed by the
Board of Directors and materially limit and/or qualify the rights of the holders
of the Fund's common stock. As of September 30, 2002, the Fund has outstanding
1,200,000 shares of 8% Cumulative Preferred Stock (the "8% Stock"), which are
senior securities of the Fund. Dividends on the 8% Stock accrue at an annual
rate of 8% of the liquidation preference of $25 per share. Preferred stock
dividends are cumulative from the date of original issuance and are payable
quarterly on March 26, June 26, September 26 and December 26 in each year. All
of the Fund's outstanding 8% Stock is redeemable by the Fund at its discretion
for a redemption price of $25 per share plus accumulated but unpaid dividends.

On October 7, 2002 the Fund announced that it was calling 50% of its
outstanding 8% Stock. The called shares will be redeemed by the Fund on November
12, 2002. Following the redemption, the Fund will have 600,000 shares of 8%
Stock outstanding.

It was a condition to the issuance of the 8% Stock that it be rated AAA
by S&P. In connection with the receipt of an AAA rating the Fund is required to
maintain a minimum discounted asset coverage with respect to its 8% Stock. See
"S&P Discount Factors" in the SAI.

The 8% Stock is subject to mandatory redemption in whole or in part by
the Fund for cash at the redemption price plus accumulated but unpaid dividends
(whether or not earned or declared) if the Fund fails to maintain either of the
minimum asset coverages required by S&P and the 1940 Act.

All shares of the 8% Stock are fully paid and nonassessable.

Effects of Leverage

The only obligation that the Fund has to the holders of the 8% Stock is
to pay the stated dividend rate (8% per annum). Any return earned in excess of
the stated dividend rate would directly benefit common stockholders; however,
any shortfall from the stated rate would negatively affect the Fund's common
stockholders. The following table is designed to assist you in understanding the
effects of the existing leverage on your shares of the Fund's common stock. The
assumed returns appearing in the table are hypothetical and actual returns may
be greater or less than those appearing in the table.

Assumed return on
portfolio (net of expenses)..... -10.00% -5.00% 0.00% 5.00% 10.00%

Corresponding return
to common stockholder.......... -18.02% -10.79% -3.56% 3.66% 10.89%

The following factors associated with leveraging could increase the
investment risk and volatility of the price of the Fund's common stock:

o leveraging exaggerates any increase or decrease in the value
of the Fund's common stock;

o the dividend requirements on preferred stock may exceed the
income from the portfolio securities purchased with the
proceeds from the issuance of preferred stock;

o a decline in net asset value results if the investment
performance of the additional securities purchased fails to
cover their cost to the Fund (including any dividend
requirements of preferred stock);

o a decline in net asset value could affect the ability of the
Fund to make common stock dividend payments;

o a failure to pay dividends or make distributions on its common
stock could result in the Fund's ceasing to qualify as a
regulated investment company under the Code; and

o if the asset coverage for preferred stock or debt securities
declines to less than two hundred percent or three hundred
percent, respectively (as a result of market fluctuations or
otherwise), the Fund may be required to sell a portion of its
investments when it may be disadvantageous to do so.

Pursuant to Section 18 of the 1940 Act, it is unlawful for the Fund, as
a registered closed-end investment company, to issue any class of senior
security, or to sell any senior security that it issues, unless it can satisfy
certain "asset coverage." The asset coverage with respect to a senior security
representing indebtedness means the ratio of the value of the Fund's total
assets (less all liabilities and indebtedness not represented by senior
securities) to the aggregate amount of the Fund's senior securities representing
indebtedness. The asset coverage with respect to a senior security representing
stock means the ratio of the value of the Fund's total assets (less all
liabilities and indebtedness not represented by senior securities) to the
aggregate amount of the Fund's senior securities representing indebtedness plus
the aggregate liquidation preference of the Fund's outstanding preferred stock.

If, as is the case with the Fund, a registered investment company's
senior securities are stock, such stock must have an asset coverage of at least
200% immediately following its issuance. If a registered investment company's
senior securities represent indebtedness, such indebtedness must have an asset
coverage of at least 300% immediately after their issuance. Subject to certain
exceptions, during any period following issuance that the Fund fails to satisfy
these asset coverage ratios, it will, among other things, be prohibited from
declaring any dividend or declaring any other distribution in respect of its
common stock except a dividend payable in common stock issued by the Fund. A
registered investment company may, to the extent permitted by the 1940 Act,
segregate assets or "cover" transactions in order to avoid the creation of a
class of senior security.

Voting Rights

Except as otherwise stated in this Prospectus and as otherwise required
by applicable law, holders of shares of the Fund's preferred stock will be
entitled to one vote per share on each matter submitted to a vote of
stockholders and will vote together with holders of shares of the Fund's common
stock as a single class.

In connection with the election of the Fund's directors, holders of the
Fund's preferred stock, voting as a single class, will be entitled at all times
to elect two of the Fund's directors, and the remaining directors will be
elected by holders of shares of common stock and holders of shares of preferred
stock voting together as a single class. In addition, if at any time dividends
on outstanding shares of the Fund's preferred stock are unpaid in an amount
equal to at least two full years of dividends, the 1940 Act requires that the
holders of the Fund's preferred stock, voting as a separate class, will elect an
additional number of directors such that, when added to the two directors
elected exclusively by the holders of preferred stock as described above,
directors elected exclusively by the holders of the Fund's preferred stock
constitute a bare majority of the Fund's Board of Directors, so increased by
such smallest possible number. Such additional directors will be elected at a
special meeting of preferred stockholders that will be called and held as soon
as practicable.

So long as full cumulative dividends for two full years or more have
not been paid on the Fund's preferred stock, at each subsequent meeting at which
directors are to be elected, the holders of shares of preferred stock, voting as
a single class, will be entitled to elect the smallest number of additional
directors that, together with the two directors that are elected routinely by
the preferred stockholders voting as a separate class, constitutes a bare
majority of the total number of directors of the Fund as so increased. The
Fund's By-Laws currently limit the maximum number of directors of the Fund to
twenty-five. In the event that an increase in the number of directors elected
solely by the preferred stockholders would cause the total number of directors
to exceed twenty-five, one or more directors, other than the two previously
elected by the holders of shares of the preferred stock voting as a separate
class, would resign so that the result would be that a majority of the Fund's
Board had been elected by the holders of the preferred stock, voting as a
separate class. Except as otherwise provided in the immediately preceding
sentence, the terms of office of the directors that do not resign at the time of
that election will continue.

If the Fund thereafter pays, or declares and sets apart for payment in
full, all dividends payable on all outstanding shares of preferred stock for all
past dividend periods, the additional voting rights of the preferred
stockholders as described above will cease, and the terms of office of all of
the additional directors elected by the preferred stockholders (but not of the
directors with respect to whose election the holders of shares of common stock
were entitled to vote or the two directors the preferred stockholders have the
right to elect as a separate class in any event) will terminate automatically.

So long as shares of the Fund's preferred stock are outstanding, the
Fund will not, without the affirmative vote of the holders of a majority of the
shares of preferred stock outstanding at the time, voting separately as one
class, amend, alter or repeal the provisions of its Articles of Incorporation,
as amended and supplemented (including the Articles Supplementary) (the
"Charter"), whether by merger, consolidation or otherwise, so as to materially
adversely affect any of the contract rights of the preferred stockholders
expressly set forth in the Charter. To the extent permitted under the 1940 Act,
in the event shares of more than one series of preferred stock are outstanding,
the Fund will not approve any of the actions set forth in the preceding sentence
which materially adversely affects the contract rights expressly set forth in
the Charter of a holder of shares of a series of preferred stock differently
than those of a holder of shares of any other series of preferred stock without
the affirmative vote of at least a majority of votes entitled to be cast by
holders of the preferred stock of each series materially adversely affected and
outstanding at such time (each such materially adversely affected series voting
separately as a class). Unless a higher percentage is provided for under the
Charter, the affirmative vote of a majority (as defined in the 1940 Act) of the
votes entitled to be cast by holders of outstanding shares of the Fund's
preferred stock, voting as a separate class, will be required to approve any
plan of reorganization adversely affecting such stock or any action requiring a
vote of security holders under Section 13(a) of the 1940 Act, including, among
other things, open-ending the Fund and changing the Fund's investment objective
or changing the investment restrictions described as fundamental policies under
"Investment Restrictions" in the SAI.

The class vote of holders of shares of the preferred stock described
above in each case will be in addition to a separate vote of the requisite
percentage of shares of common stock and preferred stock, voting together as a
single class, necessary to authorize the action in question. The foregoing
voting provisions, however, will not apply to shares of any preferred stock that
has been (i) redeemed or (ii) called for redemption, and for which sufficient
deposit assets have been provided to the dividend-disbursing agent to effect
such redemption at or prior to the time when the act with respect to which such
vote otherwise would be required will occur. The holders of preferred stock will
have no preemptive rights or rights to cumulative voting.

Repurchase of Shares

The Fund is a closed-end, management investment company and, as such,
its stockholders do not, and will not, have the right to redeem their stock. The
Fund, however, may repurchase its common stock from time to time as and when it
deems such a repurchase advisable. The Fund's Board of Directors has determined
that such repurchase, up to 500,000 shares of common stock, may be made when the
Fund's common stock is trading at a discount of 10% or more from net asset
value. Pursuant to this authorization the Fund has repurchased in the open
market 305,200 shares through June 30, 2002, none of which stock was repurchased
during the nine months ended September 30, 2002. Pursuant to the 1940 Act, the
Fund may repurchase its stock on a securities exchange (provided that the Fund
has informed its stockholders within the preceding six months of its intention
to repurchase such stock) or as otherwise permitted in accordance with Rule
23c-1 under the 1940 Act. Under Rule 23c-1, certain conditions must be met for
such alternative purchases regarding, among other things, distribution of net
income for the preceding fiscal year, identity of the sellers, price paid,
brokerage commissions, prior notice to stockholders of an intention to purchase
stock and purchasing in a manner and on a basis which does not discriminate
unfairly against the other stockholders through their interest in the Fund. Any
repurchase of common stock by the Fund will also be subject to Maryland
corporate law, which requires that immediately following such repurchase the
total assets of the Fund must be equal to or greater than the sum of the Fund's
total liabilities plus the aggregate liquidation preference of its outstanding
preferred stock.

When the Fund repurchases its common stock for a price below its net
asset value, the net asset value of the common stock that remains outstanding
will be enhanced. This does not, however, necessarily mean that the market price
of the Fund's remaining outstanding common stock will be affected, either
positively or negatively. Further, interest on any borrowings made to finance
the repurchase of common stock will reduce the net income of the Fund.

From the commencement of the Fund's operations, the Fund's common stock
has traded in the market for extended periods at both a premium to and a
discount from net asset value.

Anti-Takeover Provisions of the Charter
and Amended and Restated By-Laws of the Fund

The Fund presently has provisions in its Charter and Amended and
Restated By-Laws (together, its "Governing Documents") that could have the
effect of limiting (i) the ability of other entities or persons to acquire
control of the Fund's Board of Directors, (ii) the Fund's freedom to engage in
certain transactions or (iii) the ability of the Fund's directors or
stockholders to amend the Governing Documents or effectuate changes in the
Fund's management. These provisions of the Governing Documents of the Fund may
be regarded as "anti-takeover" provisions. The Board of Directors of the Fund is
divided into three classes, each having a term of three years. Each year the
term of one class of directors will expire. Accordingly, only those directors in
one class may be changed in any one year, and it would require two years to
change a majority of the Board of Directors. Such system of electing directors
may have the effect of maintaining the continuity of management and, thus, make
it more difficult for the stockholders of the Fund to change the majority of
directors. See "Management of the Fund." A director of the Fund may be removed
with cause by a vote of a majority of the votes entitled to be cast for the
election of directors of the Fund. A director of the Fund may not be removed
without cause. In addition, the affirmative vote of the holders of 75% of the
outstanding shares of the Fund is required to authorize its conversion from a
closed-end to an open-end investment company, or to amend certain provisions of
the Charter involving conversion to an open-end fund.

Further, unless a higher percentage is provided for under the Charter,
the affirmative vote of a majority (as defined in the 1940 Act) of the votes
entitled to be cast by holders of outstanding shares of the Fund's preferred
stock, voting as a separate class, will be required to approve any plan of
reorganization adversely affecting such stock or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act, including, among other
things, open-ending the Fund and changing the Fund's investment objective or
changing the investment restrictions described as fundamental policies under
"Investment Restrictions" in the SAI.

Maryland corporations that are subject to the Securities Exchange Act
of 1934 and have at least three outside directors, such as the Fund, may by
board resolution elect to become subject to certain corporate governance
provisions set forth in the Maryland corporate law, even if such provisions are
inconsistent with the corporation's charter and by-laws. Accordingly,
notwithstanding its Charter or By- Laws, under Maryland law the Fund's Board of
Directors may elect by resolution to, among other things:

o require that special meetings of stockholders be called only
at the request of stockholders entitled to cast at least a
majority of the votes entitled to be cast at such meeting;

o reserve for the Board the right to fix the number of Fund
directors;

o provide that directors are subject to removal only by the vote
of the holders of two-thirds of the stock entitled to vote;
and

o retain for the Board sole authority to fill vacancies created
by the death, removal or resignation of a director, with any
director so appointed to serve for the balance of the
unexpired term rather than only until the next annual meeting
of stockholders.

The Board may make any of the foregoing elections without amending the
Fund's Charter or By- Laws and without stockholder approval. Though a
corporation's charter or a resolution by its board may prohibit its directors
from making the elections set forth above, the Fund's Board currently is not
prohibited from making any such elections.

The provisions of the Governing Documents and Maryland law described
above could have the effect of depriving the owners of stock in the Fund of
opportunities to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The overall effect of these provisions is
to render more difficult the accomplishment of a merger or the assumption of
control by a principal stockholder.

The Governing Documents of the Fund are on file with the SEC. For the
full text of these provisions see "Further Information."

CUSTODIAN, TRANSFER AGENT, DIVIDEND-DISBURSING
AGENT AND REGISTRAR

State Street Bank and Trust Company (the "Custodian"), located at 150
Royall Street, Canton, MA 02021, serves as the custodian of the Fund's assets
pursuant to a custody agreement. Under the custody agreement, the Custodian
holds the Fund's assets in compliance with the 1940 Act. For its services, the
Custodian will receive a monthly fee based upon the average weekly value of the
total assets of the Fund, plus certain charges for securities transactions.

Equiserve Trust Company, N.A. located at PO Box 43025, Providence, RI
02940-3025, serves as the Fund's dividend disbursing agent, as agent under the
Fund's Plan and as transfer agent and registrar for stock of the Fund.

LEGAL MATTERS

Certain legal matters will be passed on by Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, special counsel to the Fund in
connection with the Offering.

EXPERTS

The financial statements of the Fund as of December 31, 2001 have been
incorporated by reference into the SAI in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing. PricewaterhouseCoopers LLP is
located at 1177 Avenue of the Americas, New York, New York 10036.

FURTHER INFORMATION

The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the SEC. Such reports, proxy statements and other
information filed by the Fund can be inspected and copied at public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549; and 500 West Madison Street, Chicago, Illinois 60661. The Fund's common
stock is listed on the NYSE. Reports, proxy statements and other information
concerning the Fund can be inspected and copied at the Library of the NYSE at 20
Broad Street, New York, New York 10005.

This Prospectus constitutes a part of a registration statement on Form
N-2 (together with the SAI and all the exhibits and the appendix thereto, the
"Registration Statement") filed by the Fund with the SEC under the Securities
Act and the 1940 Act. This Prospectus and the SAI do not contain all of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement and related exhibits for further information with
respect to the Fund and the Shares offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the SEC.

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 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. To
the extent required by law, the Fund undertakes to supplement this Prospectus to
reflect any material changes to the Fund after the date of this Prospectus.

TABLE OF CONTENTS OF SAI

PAGE

STATEMENT OF ADDITIONAL INFORMATION.............................................................................B-1
INVESTMENT OBJECTIVES AND POLICIES..............................................................................B-2
INVESTMENT RESTRICTIONS........................................................................................B-20
MANAGEMENT OF THE FUND.........................................................................................B-22
PORTFOLIO TRANSACTIONS.........................................................................................B-33
REPURCHASE OF SHARES...........................................................................................B-34
PORTFOLIO TURNOVER.............................................................................................B-35
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN......................................................................B-35
TAXATION ......................................................................................................B-37
S&P DISCOUNT FACTORS...........................................................................................B-43
NET ASSET VALUE................................................................................................B-46
GENERAL INFORMATION............................................................................................B-47
BENEFICIAL OWNERS..............................................................................................B-48
FINANCIAL STATEMENTS...........................................................................................B-49

______________________________________________________ ___________________________________

No dealer, salesperson or other person has been
authorized to give any information or to make any
representations not contained in this prospectus. If
given or made, such information or representation The Gabelli Convertible
must not be relied upon as having been authorized by and Income Securities
the Fund or the Fund's Investment Adviser. This Fund Inc.
Prospectus does not constitute an offer to sell or the Common Stock
solicitation of an offer to buy any security other than
the shares of common stock offered by this
Prospectus, nor does it constitute an offer to sell or 8,291,884 Rights
the solicitation of an offer to buy shares of common for up to 4,145,942 Shares
stock by anyone in any jurisdiction which such offer of Common Stock
or solicitation would be unlawful.

______________________________

TABLE OF CONTENTS
PAGE [Gabelli Convertible and Income
Securities Fund Inc. LOGO]
Prospectus Summary.......................................1
Table of Fees and Expenses..............................11
Financial Highlights....................................13
The Offer...............................................16
Use of Proceeds.........................................28
Investment Objectives and Policies......................28 _____________
Risk Factors and Special Considerations.................37
Management of the Fund..................................45 PROSPECTUS
Dividends and Distributions.............................48 _____________
Taxation ...............................................49
Capitalization..........................................51
Custodian, Transfer Agent, Dividend-
Disbursing Agent and Registrar.....................58
Legal Matters...........................................58
Experts ...............................................58
Further Information.....................................59
Special Note Regarding Forward-looking Statements.......60 November 14, 2002
Table of Contents of SAI................................61
Appendix A.............................................A-1

Dated November 14, 2002

THE GABELLI CONVERTIBLE
AND INCOME SECURITIES FUND INC.

___________________

STATEMENT OF ADDITIONAL INFORMATION

The Gabelli Convertible and Income Securities Fund Inc. (the "Fund") is
a diversified, closed-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund seeks a
high level of total return on its assets through a combination of current income
and capital appreciation. The Fund invests primarily in a portfolio of
convertible and income producing securities selected by Gabelli Funds, LLC, the
investment adviser to the Fund (the "Investment Adviser"). It is the policy of
the Fund, under normal market conditions, to invest at least 80% of the value of
its total assets in "Convertible Securities," i.e., securities (bonds,
debentures, corporate notes, preferred stocks and other similar securities) that
are convertible into common stock or other equity securities, and "Income
Securities," i.e., securities that are expected to periodically accrue or
generate income for securities holders, including short-term discounted Treasury
Bills. The Fund expects to continue its practice of investing in Convertible
Securities to the extent attractive opportunities are available.

This Statement of Additional Information ("SAI") is not a prospectus,
but should be read in conjunction with the prospectus for the Fund dated
November 14, 2002 (the "Prospectus"). Investors should obtain and read the
Prospectus prior to selling, exercising or determining not to exercise their
Rights. A copy of the Prospectus may be obtained without charge by calling the
Fund at 1-800-GABELLI (1-800-422-3554) or (914) 921-5070. This SAI incorporates
by reference the entire Prospectus.

Except as otherwise indicated, capitalized terms used but not defined
in this SAI have the meanings assigned to them in the Prospectus.

TABLE OF CONTENTS

PAGE

STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . B-20
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-22
PORTFOLIO TRANSACTIONS . . . . . .. . . . . . . . . .. . . . . . . . . . . . . . . . . . . . B-33
REPURCHASE OF SHARES . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . B-34
PORTFOLIO TURNOVER . . . . . . . . . . . . . . .. . .. . . . . . . . . . . . . . . . . . . . B-35
AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN......................................................B-35
TAXATION ......................................................................................B-37
S&P DISCOUNT FACTORS...........................................................................B-43
NET ASSET VALUE................................................................................B-46
GENERAL INFORMATION............................................................................B-47
BENEFICIAL OWNERS..............................................................................B-48
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-49

The Prospectus and this SAI omit certain of the information contained
in the registration statement filed with the Securities and Exchange Commission,
Washington, D.C. The registration statement may be obtained from the Securities
and Exchange Commission upon payment of the fee prescribed, or inspected at the
Securities and Exchange Commission's office at no charge.

This Statement of Additional Information is dated November 14, 2002.

INVESTMENT OBJECTIVES AND POLICIES

Investment Objectives

The Fund's investment objective is a high level of total return on its
assets. Under normal market conditions, the Fund will invest at least 80% of the
value of its total assets in "Convertible Securities," i.e., securities (bonds,
debentures, corporate notes, preferred stocks and other similar securities) that
are convertible into common stock or other equity securities, and "Income
Securities," i.e., securities that are expected to periodically accrue or
generate income for their holders, including short-term discounted Treasury
Bills. The Fund expects to continue its practice of investing in Convertible
Securities to the extent attractive opportunities are available. See "Investment
Objectives and Policies" in the Prospectus.

Investment Practices

Convertible Securities

A Convertible Security entitles the holder to exchange such security
for a fixed number of shares of common stock or other equity security, usually
of the same company, at fixed prices within a specified period of time and to
receive the fixed income of a bond or the dividend preference of a preferred
stock until the holder elects to exercise the conversion privilege.

A Convertible Security's position in a company's capital structure
depends upon its particular provisions. In the case of subordinated convertible
debentures, the holder's claims on assets and earnings are subordinated to the
claims of others and are senior to the claims of common stockholders.

To the degree that the price of a Convertible Security rises above its
investment value because of a rise in price of the underlying common stock, the
value of such security is influenced more by price fluctuations of the
underlying common stock and less by its investment value. The price of a
Convertible Security that is supported principally by its conversion value will
rise along with any increase in the price of the common stock, and such price
generally will decline along with any decline in the price of the common stock
except that the security will receive additional support as its price approaches
investment value. A Convertible Security purchased or held at a time when its
price is influenced by its conversion value will produce a lower yield than
nonconvertible senior securities with comparable investment values. Convertible
Securities may be purchased by the Fund at varying price levels above their
investment values and/or their conversion values in keeping with the Fund's
investment objective.

Many Convertible Securities in which the Fund will invest have call
provisions entitling the issuer to redeem the security at a specified time and
at a specified price. This is one of the features of a Convertible Security
which affects valuation. Calls may vary from absolute calls to provisional
calls. Convertible Securities with superior call protection usually trade at a
higher premium. If long-term interest rates decline, the interest rates of new
Convertible Securities will also decline. Therefore, in a falling interest rate
environment companies may be expected to call Convertible Securities with high
coupons and the Fund would have to invest the proceeds from such called issues
in securities with lower coupons. Thus, Convertible Securities with superior
call protection will permit the Fund to maintain a higher yield than with issues
without call protection.

Income Securities

Although it is the Fund's policy to invest in convertible securities to
the extent attractive opportunities are available, the Fund may also invest in
income securities other than convertible 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, corporate notes,
preferred stock, short-term discounted Treasury Bills or certain securities of
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 stocks of issuers that have historically paid 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 the security. Fixed income securities generally are senior to an
issuer's common stock and their holders generally are entitled to receive
amounts due before any distributions are made to common stockholders. Common
stocks 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 issuer's 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 issuer's call and redemption rights. In addition, it is possible
that the issuer of fixed income securities may not be able to meet its
obligations on interest or principal 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
agency's 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.

The Fund also may invest in common stock of issuers that have
historically paid dividends or otherwise made distributions to common
stockholders. Unlike payments on fixed income securities, common stock dividend
payments generally are not guaranteed and so may be discontinued by the issuer
at its discretion or because of the issuer's inability to satisfy its
liabilities. Further, an issuer's 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.

Other Investments

The Fund may without limit invest 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 judgement of the Investment Adviser,
there is a reasonable prospect of capital appreciation significantly greater
than the brokerage and other transaction expenses involved.

In general, securities which are the subject of such an offer or
proposal sell at a premium to their historic market price immediately prior to
the announcement of the offer or may also discount what the stated or appraised
value of the security would be if the contemplated transaction were approved or
consummated. Such investments may be advantageous when: the discount
significantly overstates the risk of the contingencies involved; the market
significantly undervalues the securities, assets or cash to be received by
stockholders of the prospective portfolio company as a result of the
contemplated transaction; or the market fails adequately to recognize the
possibility that the offer or proposal may be replaced or superseded by an offer
or proposal of greater value. The evaluation of such contingencies requires
unusually broad knowledge and experience on the part of the Investment Adviser
which must appraise not only the value of the issuer and its component
businesses as well as the assets or securities to be received as a result of the
contemplated transaction but also the financial resources and business
motivation of the offeror and the dynamics and business climate when the offer
or proposal is in process.

In making the investments, the Fund will not violate any of its
investment restrictions (see below, "Investment Restrictions") including the
requirement that, (i) as to 75% of its total assets, it will not invest more
than 5% of its total assets in the securities of any one issuer and (ii) it will
not invest more than 25% of its total assets in any one industry. Certain
investments are short-term in nature and will tend to increase the turnover
ratio of the Fund thereby increasing its brokerage and other transaction
expenses.

Unregistered Convertible Securities and Other Illiquid Investments. As
set forth in the Prospectus, the Fund is not subject to an independent
limitation on the amount it may invest in unregistered securities and other
illiquid investments, including repurchase agreements having a maturity of
longer than seven days.

The staff of the Securities and Exchange Commission (the "SEC") has
taken the position that purchased over-the-counter ("OTC") options and the
assets used as "cover" for written OTC options are illiquid. The assets used as
cover for OTC options written by the Fund will be considered illiquid unless the
OTC options are sold to qualified dealers who agree that the Fund may repurchase
any OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure will be considered illiquid only to the extent that the maximum
repurchase price under the option formula exceeds the intrinsic value of the
option.

When Issued and Delayed Delivery Securities and Forward Commitments. As
discussed in the Prospectus, the Fund may purchase securities on a "when, as and
if issued" basis under which the issuance of the security depends upon the
occurrence of a subsequent event, such as approval of a merger, corporate
reorganization or debt restructuring. The commitment for the purchase of any
such security will not be recognized in the portfolio of the Fund until the
Investment Adviser determines that issuance of the security is probable. At such
time, the Fund will record the transaction and, in determining its net asset
value, will reflect the value of the security daily. At such time, the Fund will
also establish a segregated account with its custodian bank in which it will
maintain cash or liquid high-grade debt securities at least equal in value to
the amount of its commitments. The Investment Adviser does not believe that the
net asset value of the Fund will be adversely affected by its purchase of
securities on this basis.

Foreign Securities. Subject to the limitations described in the
Prospectus, the Fund may invest in foreign securities which involve certain
risks not associated with domestic investments.

Among other risks, foreign markets have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities transactions,
making it difficult to conduct such transactions. Delays in settlements could
result in temporary periods when assets of the Fund are uninvested and no return
is earned thereon. The inability of the Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines in
the value of such portfolio security or, if the Fund has entered into a contract
to sell the security, could result in possible liability to the purchaser.

High Yield/High Risk Securities. Subject to the limitations described
in the Prospectus, the Fund may invest in high yielding, lower rated bonds,
commonly called "junk bonds." Bonds that are rated Ba or lower by Moody's
Investors Services, Inc. ("Moody's") or BB or lower by Standard & Poor's Ratings
Services ("S&P"), or unrated bonds of comparable quality, are generally
considered to be high yield bonds. These high yield bonds are subject to greater
risks than lower yielding, higher rated debt securities.

Lower rated securities are subject to risk factors such as: (i)
vulnerability to economic downturns and changes in interest rates; (ii)
sensitivity to adverse economic changes and corporate developments; (iii)
redemption or call provisions which may be exercised at inopportune times; (iv)
difficulty in accurately valuing or disposing of such securities; (v) federal
legislation which could affect the market for such securities; and (vi) special
adverse tax consequences associated with investments in certain high yield, high
risk bonds structured as zero coupon or pay-in-kind securities.

High yield bonds, like other bonds, may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund would have to replace the security with a lower yielding
security, resulting in lower return for investors. Conversely, a high yield
bond's value will decrease in a rising interest rate market.

The market for high yield bonds is in some cases more thinly traded
than the market for investment grade bonds, and recent market quotations may not
be available for some of these bonds. Market quotations are generally available
only from a limited number of dealers and may not represent firm bids from such
dealers or prices for actual sales. As a result, the Fund may have greater
difficulty valuing the high yield bonds in its portfolio accurately and
disposing of these bonds at the time or price desired.

Ratings assigned by Moody's and S&P to high yield bonds, like other
bonds, attempt to evaluate the timeliness of principal and interest payments on
those bonds. However, such ratings do not assess the risk of a decline in the
market value of those bonds. In addition, ratings may fail to reflect recent
events in a timely manner and are subject to change. If a rating with respect to
a portfolio security is changed, the Investment Adviser will determine whether
the security will be retained based upon the factors the Investment Adviser
considers in acquiring or holding other securities in the portfolio. Investment
in high yield bonds may make achievement of the Fund's investment objective more
dependent on the Investment Adviser's own credit analysis than is the case for
higher rated bonds.

Market prices for high yield bonds tend to be more sensitive than those
for higher rated securities due to many of the factors described above,
including the creditworthiness of the issuer, redemption or call provisions, the
liquidity of the secondary trading market and changes in credit ratings, as well
as interest rate movements and general economic conditions. In addition, yields
on such bonds will fluctuate over time. An economic downturn could severely
disrupt the market for high yield bonds.

The risk of default in payment of principal and interest on high yield
bonds is significantly greater than with higher rated debt securities because
high yield bonds are generally unsecured and are often subordinated to other
obligations of the issuer, and because the issuers of high yield bonds usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates. Upon a default,
bondholders may incur additional expenses in seeking recovery.

As a result of all these factors, the net asset value of the Fund to
the extent it invests in high yield bonds, is expected to be more volatile than
the net asset value of funds which invest solely in higher rated debt
securities.

Derivative Instruments

Options. The Fund may, from time to time, subject to guidelines of the
Board of Directors and the limitations set forth in the Prospectus and
applicable rating agency guidelines, purchase or sell, i.e., write, options on
securities, securities indices and foreign currencies which are listed on a
national securities exchange or in the OTC market, as a means of achieving
additional return or of hedging the value of the Fund's portfolio.

A call option is a contract that gives the holder of the option the
right to buy from the writer of the call option, in return for a premium, the
security or currency underlying the option at a specified exercise price at any
time during the term of the option. The writer of the call option has the
obligation, upon exercise of the option, to deliver the underlying security or
currency upon payment of the exercise price during the option period.

A put option is a contract that gives the holder of the option the
right, in return for a premium, to sell to the seller the underlying security at
a specified price. The seller of the put option has the obligation to buy the
underlying security upon exercise at the exercise price.

A call option is "covered" if the Fund owns the underlying instrument
covered by the call or has an absolute and immediate right to acquire that
instrument without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other instruments held in its portfolio. A call option is also
covered if the Fund holds a call on the same instrument as the call written
where the exercise price of the call held is (i) equal to or less than the
exercise price of the call written or (ii) greater than the exercise price of
the call written if the difference is maintained by the Fund in cash, U.S.
government securities or other liquid securities in a segregated account with
its custodian. A put option is "covered" if the Fund maintains cash or other
high grade short-term obligations with a value equal to the exercise price in a
segregated account with its custodian, or else holds a put on the same
instrument as the put written where the exercise price of the put held is equal
to or greater than the exercise price of the put written. The Investment
Adviser, on behalf of the Fund, has no present intention to engage in uncovered
option transactions. If the Fund has written an option, it may terminate its
obligation by effecting a closing purchase transaction. This is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction. Similarly, if the Fund is the
holder of an option it may liquidate its position by effecting a closing sale
transaction. This is accomplished by selling an option of the same series as the
option previously purchased. There can be no assurance that either a closing
purchase or sale transaction can be effected when the Fund so desires.

The Fund will realize a profit from a closing transaction if the price
of the 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.

An option position may be closed out only on an exchange which provides
a secondary market for an option of the same series. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event it might not be
possible to effect closing transactions in particular options, so that the Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options.
If the Fund, as a covered call option writer, is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise or otherwise covers the position.

Options on Securities Indices. The Fund may purchase and sell
securities index options. One effect of such transactions may be to hedge all or
part of the Fund's securities holdings against a general decline in the
securities market or a segment of the securities market. Options on securities
indices are similar to options on stocks except that, rather than the right to
take or make delivery of stock at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the securities index upon which the
option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option.

The Fund's successful use of options on indices depends upon its
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the index and the price
of the securities being hedged against is imperfect and the risk from imperfect
correlation increases as the composition of the Fund diverges from the
composition of the relevant index. Accordingly, a decrease in the value of the
securities being hedged against may not be wholly offset by a gain on the
exercise or sale of a securities index put option held by the Fund.

Options on Foreign Currencies. Instead of purchasing or selling
currency futures (as described below), the Fund may attempt to accomplish
similar objectives by purchasing put or call options on currencies or by writing
put options or call options on currencies either on exchanges or in OTC markets.
A put option gives the Fund the right to sell a currency at the exercise price
until the option expires. A call option gives the Fund the right to purchase a
currency at the exercise price until the option expires. Both types of options
serve to insure against adverse currency price movements in the underlying
portfolio assets designated in a given currency. The Fund's use of options on
currencies will be subject to the same limitations as its use of options on
securities, described above and in the 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 US 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 US dollar) historically have
a high degree of positive correlation.

Futures Contracts. The Fund will enter into futures contracts only for
certain bona fide hedging, yield enhancement and risk management purposes. The
Fund may enter into futures contracts for the purchase or sale of debt
securities, financial indices, and U.S. government securities (collectively,
"interest rate futures contracts"). It may also enter into futures contracts for
the purchase or sale of foreign currencies in which securities held or to be
acquired by the Fund are denominated, or the value of which have a high degree
of positive correlation to the value of such currencies as to constitute an
appropriate vehicle for hedging. In addition, the Fund may enter into futures
contracts on stock and bond indices (collectively, "securities indices"). The
Fund may enter into such futures contracts both on U.S. and foreign exchanges.

A "sale" of a futures contract (or a "short" futures position) means
the assumption of a contractual obligation to deliver the assets underlying the
contract at a specified price at a specified future time. A "purchase" of a
futures contract (or a "long" futures position) means the assumption of a
contractual obligation to acquire the assets underlying the contract at a
specified price at a specified future time. Certain futures contracts are
settled on a net cash payment basis rather than by the sale and delivery of the
assets underlying the futures contracts. U.S. futures contracts have been
designed by exchanges that have been designated as "contract markets" by the
Commodity Futures Trading Commission (the "CFTC"), an agency of the U.S.
government, and must be executed through a futures commission merchant, i.e., a
brokerage firm, which is a member of the relevant contract market. Futures
contracts trade on these contract markets and their affiliated clearing
organizations guarantee performance of the contracts as between the clearing
members of the exchange.

At the time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment (initial margin). It is
expected that the initial margin on U.S. exchanges will vary from one-half of 1%
to 4% of the face value of the contract. Under certain circumstances, however,
such as during periods of high volatility, the Fund may be required by an
exchange to increase the level of its initial margin payment. Thereafter, the
futures contract is valued daily and the payment in cash of "variation margin"
may be required, a process known as "mark-to-the-market." Each day the Fund is
required to provide or is entitled to receive variation margin in an amount
equal to any change in the value of the contract since the preceding day.

Although futures contracts by their terms may call for the actual
delivery or acquisition of underlying assets, in most cases the contractual
obligation is extinguished by offset before the expiration of the contract.

The offsetting of a contractual obligation is accomplished by buying
(to offset an earlier sale) or selling (to offset an earlier purchase) an
identical futures contract calling for delivery in the same month. Such a
transaction cancels the obligation to make or take delivery of the underlying
commodity. When the Fund purchases or sells futures contracts, the Fund will
incur brokerage fees and related transactions costs.

In addition, futures contracts entail risks. The ordinary spreads
between values in the cash and futures markets, due to differences in the
characters of those markets, are subject to distortions. First, all participants
in the futures market are subject to initial and variation margin requirements.
Rather than meeting additional variation margin requirements, investors may
close futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing price distortions. Third, from the point of view of
speculators, the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Increased
participation by speculators in the futures market may cause temporary price
distortions. Thus, a correct forecast of interest rate trends by the Investment
Adviser may still not result in a successful transaction.

If the Fund seeks to hedge against a decline in the value of its
portfolio securities and sells futures contracts on other securities that
historically have had a high degree of positive correlation to the value of the
portfolio securities, the value of its portfolio securities might decline more
rapidly than the value of a poorly correlated futures contract rises. In that
case, the hedge will be less effective than if the correlation had been greater.
In a similar but more extreme situation, the value of the futures position might
in fact decline while the value of the portfolio securities holds steady or
rises. This would result in a loss that would not have occurred but for the
attempt to hedge.

Options on Futures Contracts. The Fund may also enter into options on
futures contracts for certain bona fide hedging, yield enhancement and risk
management purposes. The Fund may purchase put and call options and write put
and call options on futures contracts that are traded on U.S. and foreign
exchanges. The Investment Adviser, on behalf of the Fund, has no present
intention to engage in uncovered option transactions. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the option exercise period. The writer of the option is required
upon exercise to assume a short futures position (if the option is a call) or a
long futures position (if the option is a put). Upon exercise of the option, the
assumption of offsetting futures positions by the writer and holder of the
option will be accompanied by delivery of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the market
price of the futures contract at exercise, exceeds, in the case of a call, or is
less than, in the case of a put, the exercise of the option on the futures
contract.

The Fund will be considered "covered" with respect to a call option it
writes on a futures contract if the Fund owns the asset which is deliverable
under the futures contract or an option to purchase that futures contract having
a strike price equal to or less than the strike price of the "covered" option
and having an expiration date not earlier than the expiration date of the
"covered" option, or if it segregates and maintains with its custodian for the
term of the option, cash or liquid securities equal to the fluctuating value of
the optioned futures. The Fund will be considered "covered" with respect to a
put option it writes on a futures contract if it owns an option to sell that
futures contract having a strike price equal to or greater than the strike price
of the "covered" option and having an expiration date not earlier than the
expiration date of the "covered" option, or if it segregates and maintains with
its custodian for the term of the option, cash or liquid securities at all times
equal in value to the exercise price of the put (less any initial margin
deposited by the Fund with its custodian with respect to such put option). There
is no limitation on the amount of the Fund's assets which can be placed in the
segregated account.

Writing a put option on a futures contract serves as a partial hedge
against an increase in the value of debt securities the Fund intends to acquire.
If the futures price at expiration of the option is above the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase that may have occurred in the price of the
debt securities the Fund intends to acquire. If the market price of the
underlying futures contract is below the exercise price when the option is
exercised, the Fund will incur a loss, which may be wholly or partially offset
by the decrease in the value of the securities the Fund intends to acquire.

Writing a call option on a futures contract serves as a partial hedge
against a decrease in the value of the Fund's portfolio securities. If the
market price of the underlying futures contract at expiration of a written call
option is below the exercise price, the Fund will retain the full amount of the
option premium, thereby partially hedging against any decline that may have
occurred in the Fund's holding of debt securities. If the futures price when the
option is exercised is above the exercise price, however, the Fund will incur a
loss, which may be wholly or partially offset by the increase in the value of
the securities in the Fund's portfolio which were being hedged.

The Fund may purchase put options on futures contracts to hedge its
portfolio against the risk of a decline in the value of the debt securities it
owns as a result of rising interest rates or fluctuating currency exchange
rates. The Fund may also purchase call options on futures contracts as a hedge
against an increase in the value of securities the Fund intends to acquire as a
result of declining interest rates or fluctuating currency exchange rates.

Interest Rate Futures Contracts and Options Thereon. The Fund may
purchase or sell interest rate futures contracts to take advantage of or to
protect the Fund against fluctuations in interest rates affecting the value of
debt securities which the Fund holds or intends to acquire. For example, if
interest rates are expected to increase, the Fund might sell futures contracts
on debt securities, the values of which historically have a high degree of
positive correlation to the values of the Fund's portfolio securities. Such a
sale would have an effect similar to selling an equivalent value of the Fund's
portfolio securities. If interest rates increase, the value of the Fund's
portfolio securities will decline, but the value of the futures contracts to the
Fund will increase at approximately an equivalent rate thereby keeping the net
asset value of the Fund from declining as much as it otherwise would have. The
Fund could accomplish similar results by selling debt securities with longer
maturities and investing in debt securities with shorter maturities when
interest rates are expected to increase. However, since the futures market may
be more liquid than the cash market, the use of futures contracts as a risk
management technique allows the Fund to maintain a defensive position without
having to sell its portfolio securities.

Similarly, the Fund may purchase interest rate futures contracts when
it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of
debt securities (caused by declining interest rates) which the Fund intends to
acquire. Since fluctuations in the value of appropriately selected futures
contracts should approximate that of the debt securities that will be purchased,
the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its
intended purchase of the debt securities in the cash market and currently
liquidate its futures position. To the extent the Fund enters into futures
contracts for this purpose, it will maintain in a segregated asset account with
the Fund's custodian, assets sufficient to cover the Fund's obligations with
respect to such futures contracts, which will consist of cash or other liquid
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial margin deposited by the Fund with its custodian with respect to such
futures contracts.

The purchase of a call option on a futures contract is similar in some
respects to the purchase of a call option on an individual security. Depending
on the pricing of the option compared to either the price of the futures
contract upon which it is based or the price of the underlying debt securities,
it may or may not be less risky than ownership of the futures contract or
underlying debt securities. As with the purchase of futures contracts, when the
Fund is not fully invested it may purchase a call option on a futures contract
to hedge against a market advance due to declining interest rates.

The purchase of a put option on a futures contract is similar to the
purchase of protective put options on portfolio securities. The Fund will
purchase a put option on a futures contract to hedge the Fund's portfolio
against the risk of rising interest rates and consequent reduction in the value
of portfolio securities.

The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities which are deliverable
upon exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Fund will retain the full amount of the
option premium which provides a partial hedge against any decline that may have
occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against increasing prices of the
securities that are deliverable upon exercise of the futures contract. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of debt securities that the Fund intends
to purchase. If a put or call option the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the value of
its portfolio securities and changes in the value of its futures positions, the
Fund's losses from options on futures it has written may to some extent be
reduced or increased by changes in the value of its portfolio securities.

Currency Futures and Options Thereon. Generally, foreign currency
futures contracts and options thereon are similar to the interest rate futures
contracts and options thereon discussed previously. By entering into currency
futures and options thereon, the Fund will seek to establish the rate at which
it will be entitled to exchange US 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 US dollar, the Fund can attempt to "lock in" the US 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 US 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 US 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 US
dollar, the Fund may exercise the option and thereby take a futures position to
hedge against the risk it had correctly anticipated or close out the option
position at a gain that will offset, to some extent, currency exchange losses
otherwise suffered by the Fund. If exchange rates move in a way the Fund did not
anticipate, however, the Fund will have incurred the expense of the option
without obtaining the expected benefit; any such movement in exchange rates may
also thereby reduce rather than enhance the Fund's profits on its underlying
securities transactions.

Securities Index Futures Contracts and Options Thereon. Purchases or
sales of securities index futures contracts are used for hedging purposes to
attempt to protect the Fund's current or intended investments from broad
fluctuations in stock or bond prices. For example, the Fund may sell securities
index futures contracts in anticipation of or during a market decline to attempt
to offset the decrease in market value of the Fund's securities portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or part, by gains on the futures position.
When the Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase securities index futures contracts
in order to gain rapid market exposure that may, in part or entirely, offset
increases in the cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in securities index futures
contracts will be closed out. The Fund may write put and call options on
securities index futures contracts for hedging purposes.

Limitations on the Purchase and Sale of Futures Contracts
and Options on Futures Contracts

Subject to the guidelines of the Board of Directors, the Fund may
engage in transactions in futures contracts and options hereon only for bona
fide hedging, yield enhancement and risk management purposes, in each case in
accordance with the rules and regulations of the CFTC.

Regulations of the CFTC applicable to the Fund permit the Fund's
futures and options on futures transactions to include (i) bona fide hedging
transactions without regard to the percentage of the Fund's assets committed to
margin and option premiums and (ii) non- hedging transactions, provided that the
Fund not enter into such non-hedging transactions if, immediately thereafter,
the sum of the amount of initial margin deposits on the Fund's existing futures
positions and option premiums would exceed 5% of the market value of the Fund's
liquidating value, after taking into account unrealized profits and unrealized
losses on any such transactions.

In addition, investment in future contracts and related options
generally will be limited by the rating agency guidelines applicable to any of
the Fund's outstanding preferred stock.

Forward Currency Exchange Contracts

The Fund may engage in currency transactions other than on futures
exchanges to protect against future changes in the level of future currency
exchange rates. The Fund will conduct such currency exchange transactions either
on a spot, i.e., cash, basis at the rate then prevailing in the currency
exchange market or on a forward basis, by entering into forward contracts to
purchase or sell currency. A forward contract on foreign currency involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days agreed upon by the parties from the date of the
contract, at a price set on the date of the contract. The risk of shifting of a
forward currency contract will be substantially the same as a futures contract
having similar terms. The Fund's dealing in forward currency exchange will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward currency with
respect to specific receivables or payables of the Fund generally arising in
connection with the purchase or sale of its portfolio securities and accruals of
interest receivable and Fund expenses. Position hedging is the forward sale of
currency with respect to portfolio security positions denominated or quoted in
that currency or in a currency bearing a high degree of positive correlation to
the value of that currency.

The Fund may not position hedge with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities held in its portfolio
denominated or quoted in, or currently convertible into, such currency. If the
Fund enters into a position hedging transaction, the Fund's custodian or
subcustodian will place cash or other liquid securities in a segregated account
of the Fund in an amount equal to the value of the Fund's total assets committed
to the consummation of the given forward contract. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will,
at all times, equal the amount of the Fund's commitment with respect to the
forward contract.

At or before the maturity of a forward sale contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligations to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to
delivery. If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund, at the time of execution of the offsetting
transaction, will incur a gain or a loss to the extent that movement has
occurred in forward contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to purchase is less than the price of the currency it has
agreed to sell. Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. Closing out forward purchase contracts
involves similar offsetting transactions.

The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward transactions in currency
exchange are usually conducted on a principal basis, no fees or commissions are
involved. The use of foreign currency contracts does not eliminate fluctuations
in the underlying prices of the securities, but it does establish a rate of
exchange that can be achieved in the future. In addition, although forward
currency contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that might result if the
value of the currency increases.

If a decline in any currency is generally anticipated by the Investment
Adviser, the Fund may not be able to contract to sell the currency at a price
above the level to which the currency is anticipated to decline.

Special Risk Considerations Relating to Futures and Options Thereon

The Fund's ability to establish and close out positions in futures
contracts and options thereon will be subject to the development and maintenance
of liquid markets. Although the Fund generally will purchase or sell only those
futures contracts and options thereon for which there appears to be a liquid
market, there is no assurance that a liquid market on an exchange will exist for
any particular futures contract or option thereon at any particular time. In the
event no liquid market exists for a particular futures contract or option
thereon in which the Fund maintains a position, it will not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Fund would have to either make or take delivery under the futures
contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a
purchased option, exercise the option. In the case of a futures contract or an
option thereon which the Fund has written and which the Fund is unable to close,
the Fund would be required to maintain margin deposits on the futures contract
or option thereon and to make variation margin payments until the contract is
closed.

Successful use of futures contracts and options thereon and forward
contracts by the Fund is subject to the ability of the Investment Adviser to
predict correctly movements in the direction of interest and foreign currency
rates. If the Investment Adviser's expectations are not met, the Fund will be in
a worse position than if a hedging strategy had not been pursued. For example,
if the Fund has hedged against the possibility of an increase in interest rates
that would adversely affect the price of securities in its portfolio and the
price of such securities increases instead, the Fund will lose part or all of
the benefit of the increased value of its securities because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash to meet daily variation margin requirements, it
may have to sell securities to meet the requirements. These sales may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it is disadvantageous to do
so.

Additional Risks of Foreign Options, Futures Contracts,
Options on Futures Contracts and Forward Contracts

Options, futures contracts and options thereon and forward contracts on
securities and currencies may be traded on foreign exchanges. Such transactions
may not be regulated as effectively as similar transactions in the U.S., may not
involve a clearing mechanism and related guarantees, and are subject to the risk
of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in the
foreign markets during non-business hours in the U.S., (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the U.S. and (v) lesser trading volume.

Exchanges on which options, futures and options on futures are traded
may impose limits on the positions that the Fund may take in certain
circumstances.

Risks of Currency Transactions

Currency transactions are also subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulation, or exchange restrictions imposed by governments.
These forms of governmental action can result in losses to the Fund if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs.

Repurchase Agreements

The Fund may engage in 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 purchaser's holding period. This
results in a fixed rate of return insulated from market fluctuations during such
period. The underlying securities are ordinarily U.S. Treasury or other
government obligations or high quality money market instruments. The Fund will
require that the value of such underlying securities, together with any other
collateral held by the Fund, always equals or exceeds the amount of the
repurchase obligations of the counter party. The Fund's risk is primarily that,
if the seller defaults, the proceeds from the disposition of the underlying
securities and other collateral for the seller's obligation are less than the
repurchase price. If the seller becomes insolvent, the Fund might be delayed in
or prevented from selling the collateral. In the event of a default or
bankruptcy by a seller, the Fund will promptly seek to liquidate the collateral.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase are less than the repurchase price, the Fund
will experience a loss.

If the financial institution which is a party to the repurchase
agreement petitions for bankruptcy or becomes subject to the United States
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under extreme circumstances, there may be a restriction on the Fund's
ability to sell the collateral and the Fund would suffer a loss.

Loans of Portfolio Securities

Consistent with applicable regulatory requirements, the Fund may lend
its portfolio securities to securities broker-dealers or financial 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
stock is qualified for sale. The Fund's loans of portfolio securities will be
collateralized in accordance with applicable regulatory requirements and no loan
will cause the value of all loaned securities to exceed 33% of the value of the
Fund's total assets. The Fund's ability to lend portfolio securities will be
limited by the rating agency guidelines applicable to any of the Fund's
outstanding preferred stock.

A loan may generally be terminated by the borrower on one business
day's notice, or by the Fund on five business days' notice. If the borrower
fails to deliver the loaned securities within five days after receipt of notice,
the Fund could use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Fund's management to be creditworthy and when the income
which can be earned from such loans justifies the attendant risks. The Board of
Directors will oversee the creditworthiness of the contracting parties on an
ongoing basis. Upon termination of the loan, the borrower is required to return
the securities to the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund. The risks associated with loans of portfolio
securities are substantially similar to those associated with repurchase
agreements. Thus, if the counter party to the loan petitions for bankruptcy or
becomes subject to the United States Bankruptcy Code, the law regarding the
rights of the Fund is unsettled. As a result, under extreme circumstances, there
may be a restriction on the Fund's ability to sell the collateral and the Fund
would suffer a loss. When voting or consent rights which accompany loaned
securities pass to the borrower, the Fund will follow the policy of calling the
loaned securities, to be delivered within one day after notice, to permit the
exercise of such rights if the matters involved would have a material effect on
the Fund's investment in such loaned securities. The Fund will pay reasonable
finder's, administrative and custodial fees in connection with a loan of its
securities.

INVESTMENT RESTRICTIONS

The investment restrictions listed below have been adopted by the Fund
as fundamental policies, except as otherwise indicated. Under the 1940 Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the 1940 Act. Such a
majority is defined as the lesser of (i) 67% or more of the shares present at a
meeting of stockholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (ii) more than 50% of the
outstanding shares of the Fund.

Under its investment restrictions the Fund may not:

o Purchase the securities of any one issuer, other than the
United States government or any of its agencies or
instrumentalities, if immediately after such purchase more
than 5% of the value of its total assets would be invested in
such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up
to 25% of the value of the Fund's total assets may be invested
without regard to such 5% and 10% limitations.

o Purchase or otherwise acquire real estate or interests
therein, although the Fund may purchase securities of issuers
which engage in real estate operations and securities secured
by real estate or interests therein.

o Purchase or otherwise acquire or sell commodities or commodity
contracts except that the Fund may purchase or sell financial
futures contracts and related options thereon.

o Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs, except that
the Fund may invest in the securities of companies which
operate, invest in, or sponsor such programs.

o Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, except that the Fund reserves the right
to invest up to 5% of its total assets in not more than 3% of
the securities of any one investment company including small
business investment companies or invest up to 10% of its total
assets in the securities of investment companies, nor make any
such investments other than through purchases in the open
market where to the best information of the Fund no commission
or profit to a sponsor or dealer (other than the customary
broker's commission) results from such purchase.

o Pledge its assets or assign or otherwise encumber them except
to secure permitted borrowings. For the purpose of this
restriction, collateral arrangements with respect to the
writing of options or entering into financial futures
transactions or forward contracts, or when issued or delayed
delivery securities are not deemed to be pledges of assets and
such arrangements are not deemed to be the issuance of a
senior security as described in the immediately following
restriction.

o Issue senior securities except to the extent permitted by
applicable law.

o Make loans of money or securities, except: (a) that the Fund
may engage in repurchase agreements as set forth in the
Prospectus and (b) the Fund may lend its portfolio securities
consistent with applicable regulatory requirements and as set
forth in the Prospectus.

o Make short sales of securities or maintain a short position,
unless at all times when a short position is open, it either
owns an equal amount of such securities or owns securities
which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short.

o Engage in the underwriting of securities, except insofar as
the Fund may be deemed an underwriter under the Securities Act
of 1933, as amended, in disposing of a portfolio security.

o Invest for the purpose of exercising control or management of
any other issuer.

o Invest more than 25% of the value of its total assets in any
one industry.

If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.

MANAGEMENT OF THE FUND

Directors and Officers

Overall responsibility for management and supervision of the Fund rests
with its Board of Directors. The Board of Directors approves all significant
agreements between the Fund and the companies that furnish the Fund with
services, including agreements with the Investment Adviser, the Fund's custodian
and the Fund's transfer agent. The day-to-day operations of the Fund are
delegated to the Investment Adviser.

The names and business addresses of the directors 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 directors, their positions with certain other organizations and
companies.

Number of
Term of Funds in
Name (And Age), Office and Fund Other
Position with the Fund Length of Complex Principal Directorships
and Time Overseen by Occupation During Held by
Business Address1 Served2 Director Past Five Years Director
INTERESTED
DIRECTORS3:

Mario J. Gabelli Since 21 Chairman of the Board Director of Morgan
Director, President and 1989*** and Chief Executive Group Holdings, Inc.
Chief Investment Officer Officer of Gabelli Asset (transportation
Age: 60 Management Inc. and services); Vice
Chief Investment Chairman of Lynch
Officer of Gabelli Corporation
Funds, LLC and (diversified
GAMCO Investors, Inc; manufacturing)
Chairman and Chief
Executive Officer of
Lynch Interactive
Corporation
(multimedia and
services)

Karl Otto Pohl+ Since 30 Member of the Director of Gabelli
Director 1992*** Shareholder Committee Asset Management
Age: 72 of Sal Oppenheim Jr. & Inc. (investment
Cie (private investment management);
bank); Former President Chairman, Incentive
of the Deutsche Capital and Incentive
Bundesbank and Asset Management
Chairman of its Central (Zurich); Director at
Bank Council (1980- Sal Oppenheim Jr. &
1991) Cie, Zurich
NON-INTERESTED
DIRECTORS:
E. Val Cerutti Since 1989** 7 Chief Executive Officer Director of Lynch
Director of Cerutti Consultants, Corporation
Age: 62 Inc.; Former President
and Chief Operating
Officer of Stella D'oro
Biscuit Company
(through 1992);
Adviser, Iona College
School of Business
Anthony J. Colavita4 Since 1989* 32 President and Attorney ___
Director at Law in the law firm
Age: 66 of Anthony J. Colavita,
P.C.
Dugald A. Fletcher Since 1989** 2 President, Fletcher & Director of Harris and
Director Company, Inc.; Former Harris Group, Inc.
Age: 72 Director and Chairman (venture capital)
and Chief Executive
Officer of Binnings
Building Products, Inc.
(1997)

Anthony R. Pustorino Since 1989** 16 Certified Public ___
Director Accountant; Professor
Age: 76 Emeritus, Pace
University
Werner J. Roeder, MD4 Since 26 Medical Director of ___
Director 2001*** Lawrence Hospital and
Age: 61 practicing private
physician
Anthonie C. van Ekris+ Since 1992* 17 Managing Director of Director of Spinnaker
Director BALMAC International, Industries, Inc.
Age: 67 Inc.
Salvatore J. Zizza Since 1991* 8 Chairman, Hallmark Board Member of
Director Electrical Supplies Hollis Eden
Age: 56 Corp.; Former Pharmaceuticals, Bion
Executive Vice Environmental
President of FMG Technologies Inc. and
Group (OTC), a The Credit Store Inc.
healthcare provider;
Former President and
Chief Executive Officer
of the Lehigh Group
Inc. (electrical supply
wholesaler); an interior
construction company,
through 1997
OFFICERS:

Bruce N. Alpert Since 1989 ___ Executive Vice ___
Vice President and President and Chief
Treasurer Operating Officer of
Age: 50 Gabelli Funds, LLC
since 1988 and an
officer of all mutual
funds advised by
Gabelli Funds, LLC and
its affiliates; Director
and President of Gabelli
Advisors, Inc.
Peter W. Latartara Since 1998 ___ Vice President of the ___
Vice President Fund since 1998. Vice
Age: 35 President of Gabelli &
Company, Inc. from
1996
James E. McKee Since 1995 ___ Vice President, General ___
Secretary Counsel and Secretary
Age: 38 of Gabelli Asset
Management Inc. since
1999 and GAMCO
Investors, Inc. since
1993; Secretary of all
mutual funds advised by
Gabelli Advisers, Inc.
and Gabelli Funds, LLC

_______________________

+ Non-resident director with no authorized agent in the United States.

1 Address: One Corporate Center, Rye, NY 10580, unless otherwise noted.

2 The Fund's Board of Directors is divided into three classes, each class
having a term of three years. Each year the term of office of one class
expires and the successor or successors elected to such class serve for a
three year term. The three year term for each class expires as follows:

* Term expires at the Fund's 2002 Annual Meeting of Shareholders and until
their successors are duly elected and qualified.

** Term expires at the Fund's 2003 Annual Meeting of Shareholders and until
their successors are duly elected and qualified.

*** Term expires at the Fund's 2004 Annual Meeting of Shareholders and until
their successors are duly elected and qualified.

3 "Interested person" of the Fund as defined in the Investment Company Act of
1940. Messrs. Gabelli and Pohl are each considered an "interested person"
because of their affiliation with Gabelli Funds LLC which acts as the
Fund's investment adviser.

4 Represents holders of the Fund's 8.00% Cumulative Preferred Stock.

The Board of Directors of the Fund are divided into three classes, with
a class having a term of three years except as described below. Each year the
term of office of one class of directors of the Fund will expire. However, to
ensure that the term of a class of the Fund's directors expires each year, one
class of the Fund's directors will serve three-year terms. The terms of Messrs.
Colavita, van Ekris and Zizza as directors of the Fund expire in 2002; the terms
of Messrs. Fletcher and Pustorino as directors of the Fund expire in 2003; and
the terms of Messrs. Gabelli, Pohl, Cerutti and Dr. Roeder as directors of the
Fund expire in 2004.

Name of Director Dollar Range of Equity Aggregate Dollar Range of
Securities in the Fund Equity Securities in all
Registered Investment
Companies Overseen by
Directors in Family of
Investment Companies

INTERESTED DIRECTORS

Mario J. Gabelli E E
Karl Otto Pohl A A

DISINTERESTED DIRECTORS

E. Val Cerutti C E
Anthony J. Colavita E E
Dugald A Fletcher E E
Anthony R. Pustorino D E
Werner J, Roeder, MD A E
Anthonie C. van Ekris C E
Salvatore J. Zizza E E

------------------------------------------
* KEY TO DOLLAR RANGES
A. None
B. $1 - $10,000
C. $10,001 - $50,000
D. $50,001 - $100,000
E. Over $100,000

All stock was valued as of December 31, 2001.

The Directors serving on the Fund's Nominating Committee are Messrs.
Anthony J. Colavita, Chairman of the committee, and Salvatore J. 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 stockholders if a vacancy were to
exist. Such recommendations should be forwarded to the Secretary of the Fund.
The Nominating Committee met once during the year ended December 31, 2001. The
Fund does not have a standing compensation committee.

Messrs. Anthony R. Pustorino, Chairman, Anthony J. Colavita, and
Salvatore J. Zizza serve on the Fund's Audit Committee and these directors are
not "interested persons" of the Fund as defined in the 1940 Act. The Audit
Committee is responsible for reviewing and evaluating issues related to the
accounting and financial reporting policies and internal controls of the Fund
and the internal controls of certain service providers, overseeing the quality
and objectivity of the Fund's financial statements and the audit thereof and to
act as a liaison between the Board of Directors and the Fund's independent
accountants. During the year ended December 31, 2001, the Audit Committee met
twice.

The economic terms of the Advisory Agreement between the Fund and its
Investment Adviser were unanimously approved by the Fund's Board of Directors at
its May 22, 2002 meeting. The Board's approval included a majority of the
Directors who are not parties to the Advisory Agreement or interested persons of
any such party (as such term is defined in the 1940 Act). In approving the
Advisory Agreement, the Board of Directors considered, among other things, the
nature and quality of services to be provided by the Investment Adviser, the
profitability to the Investment Adviser of its relationship with the Fund,
economies of scale and comparative fees and expense ratios.

The Fund and the Investment Adviser have adopted a code of ethics (the
"Code of Ethics") under Rule 17j-1 of the 1940 Act. The Code of Ethics permits
personnel, subject to the Code of Ethics and its restrictive provisions, to
invest in securities, including securities that may be purchased or held by the
Fund. The Code of Ethics can be reviewed and copied at the United States
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
Information on the operations of the Reference Room may be obtained by calling
the Securities and Exchange Commission at (202) 942-8090. The Code of Ethics is
also available on the EDGAR database on the Securities and Exchange Commission's
Internet Site at http://www.sec.gov. Copies of the Code of Ethics may also be
obtained, after paying a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing the Securities and Exchange
Commission's Public Reference Room Section, Washington, D.C. 20549- 0102.

Remuneration of Directors and Officers

The Fund pays each director who is not affiliated with the Investment
Adviser or its affiliates a fee of $5,000 per year plus $750 per meeting
attended, together with each director's actual out-of-pocket expenses relating
to attendance at such meetings.

The following table shows certain compensation information for the
directors and officers of the Fund for the fiscal year ended December 31, 2001.
Mr. Latartara is employed by the Fund and his compensation is evaluated and
approved by the directors. Other officers who are employed by the Investment
Adviser receive no compensation or expense reimbursement from the Fund.

Compensation Table
For the Fiscal Year Ended December 31, 2001

TOTAL
COMPENSATION
FROM THE FUND
AND FUND
AGGREGATE COMPLEX PAID
NAME OF PERSON AND COMPENSATION TO DIRECTORS/
POSITION* FROM THE FUND OFFICERS

MARIO J. GABELLI $0 $0
Chairman of the Board (21)
E. VAL CERUTTI Director (7) $8,000 $15,455
ANTHONY J. COLAVITA Director (32) $9,500 $145,016
DUGALD A. FLETCHER Director (2) $8,000 $16,000
KARL OTTO POHL Director (30) $0 $0
ANTHONY R. PUSTORINO Director (16) $9,000 $125,250
WERNER J. ROEDER, MD Director (26) $3,389 $72,182
ANTHONIE C. van EKRIS Director (17) $8,000 $62,750
SALVATORE J. ZIZZA Director (8) $8,500 $64,266

* Represents the total compensation paid to such persons during the calendar
year ended December 31, 2001 by investment companies (including the Fund)
or portfolios thereof from which such person receives compensation that are
considered part of the same fund complex as the Fund because they have
common or affiliated investment advisers. The number in parenthesis
represents the number of such investment companies and portfolios.

For his services as Vice President of the Fund, Mr. Latartara received
compensation in 2001 of $85,000.

Indemnification of Directors and Officers; Limitations on Liability

Subject to limitations imposed by the 1940 Act, the Fund's Charter
limits the liability of the Fund's directors and officers to the Fund and its
stockholders to the fullest extent permitted by Maryland law. Under Maryland
law, Maryland corporations may limit their directors' and officers' liability
for money damages to the corporation and stockholders except to the extent (i)
that it is proved that a director or officer actually received an improper
benefit or profit in money, property or services, in which case such director or
officer may be liable for the amount of the benefit or profit actually received
or (ii) that a judgment or other final adjudication adverse to a director or
officer is entered in a proceeding based on a finding that such director's or
officer's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding.

The Charter also provides for the indemnification of, and expenses to
be advanced on behalf of, directors and officers, among others, to the fullest
extent permitted by Maryland law, subject to the limitations imposed by the 1940
Act. Under Maryland law, corporations may indemnify present and past directors
and officers, or officers of another corporation that serve at the request of
the indemnifying corporation, against judgments, penalties, fines, settlements
and reasonable expenses (including attorneys' fees) actually incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation in which such director or officer is
adjudicated liable to the corporation), in which they are made parties by reason
of being or having been directors or officers, unless it is proved that (i) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and was committed in bad faith or was the result of
active and deliberate dishonesty, (ii) the director or officer actually received
an improper personal benefit in money, property or services or (iii) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. Maryland law also provides that,
unless limited by the corporation's charter, a corporation shall indemnify
present and past directors and officers who are successful, on the merits or
otherwise, in the defense of any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, against
reasonable expenses (including attorneys' fees) incurred in connection with such
proceeding. The Fund's Charter does not limit the extent of this indemnity.

Investment Advisory and Administrative Arrangements

Gabelli Funds, LLC acts as the Fund's Investment Adviser pursuant to an
advisory agreement with the Fund (the "Advisory Agreement"). The Investment
Adviser is a New York corporation with principal offices located at One
Corporate Center, Rye, New York 10580. The Investment Adviser was organized in
1999 and is the successor to Gabelli Funds, Inc., which was organized in 1980.
As of September 30, 2002, the Investment Adviser and its affiliates acted as
registered investment advisers to 20 management investment companies with
aggregate net assets of $8.8 billion. The Investment Adviser, together with
other affiliated investment advisers, has assets under management totaling $20.2
billion. GAMCO Investors, Inc., an affiliate of the Investment Adviser, acts as
investment adviser for individuals, pension trusts, profit sharing trusts and
endowments and as a sub-adviser to management investment companies, having
aggregate assets of $9.3 billion under management as of September 30, 2002.
Gabelli Fixed Income LLC, an affiliate of the Investment Adviser, acts as
investment adviser for The Treasurer's Fund and separate accounts having
aggregate assets of $1.5 billion under management as of September 30, 2002. The
Investment Adviser is a wholly-owned subsidiary of Gabelli Asset Management
Inc., a New York corporation, whose Class A Common Stock is traded on the New
York Stock Exchange under the symbol "GBL." Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Investment Adviser on the basis of his ownership of
a majority of the stock of the Gabelli Group Capital Partners, Inc., which owns
a majority of the capital stock of Gabelli Asset Management Inc.

Under the terms of the Advisory Agreement, the Investment Adviser
manages the portfolio of the Fund in accordance with its stated investment
objective and policies, makes investment decisions for the Fund, places orders
to purchase and sell securities on behalf of the Fund and manages its other
business and affairs, all subject to the supervision and direction of the Fund's
Board of Directors. In addition, under the Advisory Agreement, the Investment
Adviser oversees the administration of all aspects of the Fund's business and
affairs and provides, or arranges for others to provide, at the Investment
Adviser's expense, certain enumerated services, including maintaining the Fund's
books and records, preparing reports to the Fund's stockholders and supervising
the calculation of the net asset value of its stock. All expenses of computing
the net asset value of the Fund, including any equipment or services obtained
solely for the purpose of pricing shares or valuing its investment portfolio,
will be an expense of the Fund under its Advisory Agreement unless the
Investment Adviser voluntarily assumes responsibility for such expense.

The Advisory Agreement combines investment advisory and administrative
responsibilities in one agreement. For services rendered by the Investment
Adviser on behalf of the Fund under the Advisory Agreement, the Fund pays the
Investment Adviser a fee computed daily and paid monthly at the annual rate of
1.00% of the average weekly net assets of the Fund. Notwithstanding the
foregoing, the Investment Adviser will waive the portion of its investment
advisory fee attributable to an amount of assets of the Fund equal to the
aggregate stated value of the applicable series of its preferred stock for any
calendar year in which the net asset value total return of the Fund allocable to
the common stock, including distributions and the advisory fee subject to
potential waiver, is less than the stated annual dividend rate of such series,
prorated during the year such series is issued and the final year such series is
outstanding.

The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties thereunder, the Investment Adviser is not liable for any
error or judgment or mistake of law or for any loss suffered by the Fund. As
part of the Advisory Agreement, the Fund has agreed that the name "Gabelli" is
the Investment Adviser's property, and that in the event the Investment Adviser
ceases to act as an investment adviser to the Fund, the Fund will change its
name to one not including "Gabelli."

Pursuant to its terms, the Advisory Agreement will remain in effect
with respect to the Fund until the second anniversary of stockholder approval of
such Agreement, and from year to year thereafter if approved annually (i) by the
Fund's Board of Directors or by the holders of a majority of its outstanding
voting securities and (ii) by a majority of the directors who are not
"interested persons" (as defined in the 1940 Act) of any party to the Advisory
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement was initially approved by the Board of
Directors at a meeting held on June 5, 1989 and was approved most recently by
the Board of Directors on May 22, 2002. The Advisory Agreement terminates
automatically on its assignment and may be terminated without penalty on 60 days
written notice at the option of either party thereto or by a vote of a majority
(as defined in the 1940 Act) of the Fund's outstanding shares.

For each of the years ended December 31, 1999, December 31, 2000 and
December 31, 2001, the Investment Adviser was paid $1,224,337, $822,916 and
$750,049, respectively, for advisory and administrative services rendered to the
Fund.

PORTFOLIO TRANSACTIONS

Subject to policies established by the Board of Directors of the Fund,
the Investment Adviser is responsible for placing purchase and sale orders and
the allocation of brokerage on behalf of the Fund. Transactions in equity
securities are in most cases effected on U.S. stock exchanges and involve the
payment of negotiated brokerage commissions. In general, there may be no stated
commission in the case of securities traded in over-the-counter markets, but the
prices of those securities may include undisclosed commissions or mark-ups.
Principal transactions are not entered into with affiliates of the Fund.
However, Gabelli & Company may execute transactions in the over-the-counter
markets on an agency basis and receive a stated commission therefrom. To the
extent consistent with applicable provisions of the 1940 Act and the rules and
exemptions adopted by the SEC thereunder, as well as other regulatory
requirements, the Fund's Board of Directors have determined that portfolio
transactions may be executed through Gabelli & Company and its broker-dealer
affiliates if, in the judgment of the Investment Adviser, the use of those
broker-dealers is likely to result in price and execution at least as favorable
as those of other qualified broker-dealers, and if, in particular transactions,
those broker-dealers charge the Fund a rate consistent with that charged to
comparable unaffiliated customers in similar transactions. The Fund has no
obligations to deal with any broker or group of brokers in executing
transactions in portfolio securities. In executing transactions, the Investment
Adviser seeks to obtain the best price and execution for the Fund, taking into
account such factors as price, size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning a
block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund does not necessarily pay the lowest
commission available.

Subject to obtaining the best price and execution, brokers who provide
supplemental research, market and statistical information to the Investment
Adviser or its affiliates may receive orders for transactions by the Fund. The
term "research, market and statistical information" includes advice as to the
value of securities, and advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. Information so received will be in addition to and not in lieu of
the services required to be performed by the Investment Adviser under the
Advisory Agreement and the expenses of the Investment Adviser will not
necessarily be reduced as a result of the receipt of such supplemental
information. Such information may be useful to the Investment Adviser and its
affiliates in providing services to clients other than the Fund, and not all
such information is used by the Investment Adviser in connection with the Fund.
Conversely, such information provided to the Investment Adviser and its
affiliates by brokers and dealers through whom other clients of the Investment
Adviser and its affiliates effect securities transactions may be useful to the
Investment Adviser in providing services to the Fund.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Investment Adviser and its
affiliates, investments of the kind made by the Fund may also be made by those
other accounts. When the same securities are purchased for or sold by the Fund
and any of such other accounts, it is the policy of the Investment Adviser and
its affiliates to allocate such purchases and sales in the manner deemed fair
and equitable to all of the accounts, including the Fund.

For the fiscal years ended December 31, 1999, December 31, 2000 and
December 31, 2001, the Fund paid a total of $162,961, $143,305, and $42,738,
respectively, in brokerage commissions, of which Gabelli & Company, Inc. and its
affiliates received $86,465, $116,959, and $34,251, respectively. The amount
received by Gabelli & Company, Inc. and its affiliates from the Fund in respect
of brokerage commissions for the fiscal year ended December 31, 2001 represented
approximately 80.14% of the aggregate dollar amount of brokerage commissions
paid by the Fund for such period and approximately 86.79% of the aggregate
dollar amount of transactions by the Fund for such period.

REPURCHASE OF SHARES

The Fund is a closed-end, diversified, management investment company
and as such its stockholders do not, and will not, have the right to redeem
their stock. The Fund, however, may repurchase its stock from time to time as
and when it deems such a repurchase advisable. Such repurchases will be made
when the Fund's common stock is trading at a discount of 10% or more (or such
other percentage as the Board of Directors of the Fund may determine from time
to time) from net asset value. Pursuant to the 1940 Act, the Fund may repurchase
its stock on a securities exchange (provided that the Fund has informed its
stockholders within the preceding six months of its intention to repurchase such
stock) or as otherwise permitted in accordance with Rule 23c-1 under the 1940
Act. Under that Rule, certain conditions must be met regarding, among other
things, distribution of net income for the preceding fiscal year, status of the
seller, price paid, brokerage commissions, prior notice to stockholders of an
intention to purchase stock and purchasing in a manner and on a basis that does
not discriminate unfairly against the other stockholders through their interest
in the Fund.

When the Fund repurchases its common stock for a price below net asset
value, the net asset value of the common stock that remains outstanding will be
enhanced, but this does not necessarily mean that the market price of the
outstanding common stock will be affected, either positively or negatively.

PORTFOLIO TURNOVER

The portfolio turnover rates of the Fund for the fiscal years ending
December 31, 2001 and 2000 were 59% and 169%, respectively. Portfolio turnover
rate is calculated by dividing the lesser of an investment company's annual
sales or purchases of portfolio securities by the monthly average value of
securities in its portfolio during the year, excluding portfolio securities the
maturities of which at the time of acquisition were one year or less. A high
rate of portfolio turnover involves correspondingly greater brokerage commission
expense than a lower rate, which expense must be borne by the Fund and its
stockholders, as applicable. A higher rate of portfolio turnover may also result
in taxable gains being passed to stockholders.

AUTOMATIC DIVIDEND REINVESTMENT
AND VOLUNTARY CASH PURCHASE PLAN

Under the Automatic Dividend Reinvestment and Voluntary Cash Purchase
Plan adopted by the Fund (the "Plan"), a stockholder whose common stock is
registered in his own name, including all shares issued pursuant to the Rights
Offering and all shares held by a stockholder participating in the Rights
Offering, will have all distributions reinvested automatically by Equiserve
Trust Company ("Equiserve"), which is agent under the Plan, unless the
stockholder elects to receive cash. Distributions with respect to shares
registered in the name of a broker- dealer or other nominee (that is, in "street
name") will be reinvested by the broker or nominee in additional shares under
the Plan, unless the service is not provided by the broker or nominee or the
stockholder elects to receive distributions in cash. Investors who own common
stock registered in street name should consult their broker-dealers for details
regarding reinvestment. All distributions to investors who do not participate in
the Plan will be paid by check mailed directly to the record holder by Equiserve
as dividend disbursing agent.

Under the Plan, whenever the market price of the common stock is equal
to or exceeds net asset value at the time shares are valued for purposes of
determining the number of shares equivalent to the cash dividend or capital
gains distribution, participants in such plan are issued shares of common stock,
valued at the greater of (i) the net asset value as most recently determined or
(ii) 95% of the then current market price of the common stock. The valuation
date is the dividend or distribution payment date or, if that date is not a New
York Stock Exchange trading day, the next preceding trading day. If the net
asset value of the Fund's common stock at the time of valuation exceeds the
market price of the common stock, participants will receive shares from the
Fund, or acquired by the Plan agent in the open market, valued at market price.
If the Fund should declare a dividend or capital gains distribution payable only
in cash, Equiserve will buy the Fund's common stock for the Plan in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts, except that Equiserve will endeavor to terminate purchases in the open
market and cause the Fund to issue shares at net asset value if, following the
commencement of such purchases, the market value of its common stock exceeds net
asset value.

Participants in the Plan have the option of making additional cash
payments to Equiserve, twice per month for the Fund, for investment in common
stock. Such payments may be made in any amount from $250 to $10,000. Equiserve
will use all funds received from participants to purchase common stock of the
Fund in the open market on the 1st and 15th of each month. It is suggested that
participants send voluntary cash payments to Equiserve in a manner that ensures
that Equiserve will receive these payments approximately 10 days before the
investment date. A participant may without charge withdraw a voluntary cash
payment by written notice, if the notice is received by Equiserve at least 48
hours before such payment is to be invested.

Equiserve maintains all stockholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by stockholders for personal and tax records. Common stock in the account
of each Plan participant will be held by Equiserve in noncertificated form in
the name of the participant, and each stockholder's proxy will include the
common stock purchased pursuant to the Plan. A Plan participant may send his
stock certificates to Equiserve so that the stock represented by such
certificates will be held by Equiserve in the participant's stockholder account
under the Plan.

In the case of stockholders such as banks, brokers or nominees, which
hold stock for others who are the beneficial owners, Equiserve will administer
the Plan on the basis of the number of shares certified from time to time by the
stockholder as representing the total amount registered in the stockholder's
name and held for the account of beneficial owners who participate in the Plan.

There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. Equiserve's fees for
handling the reinvestment of such dividends and capital gains distributions are
paid by the Fund. There are no brokerage charges with respect to stock issued
directly by the Fund as a result of dividends or capital gains distributions
payable in stock or in cash. However, each participant bears a pro rata share of
brokerage commissions incurred with respect to Equiserve's open market purchases
in connection with the reinvestment of dividends or capital gains distributions.

With respect to purchases from voluntary cash payments, Equiserve will
charge $0.75 for each such purchase for a participant, plus a pro rata share of
the brokerage commissions. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than the
usual brokerage charges for such transactions, as Equiserve will be purchasing
stock for all participants in blocks and prorating the lower commission thus
attainable.

The automatic reinvestment of dividends and distributions will not
relieve participants of any income tax that may be payable on such dividends or
distributions.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate its Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to written notice of the change sent to the members of such Plan
at least 90 days before the record date for such dividend or distribution. The
Plan also may be amended or terminated by Equiserve on at least 90 days' written
notice to the participants in such Plan. All correspondence concerning the Plan
should be directed to Equiserve at PO Box 43025, Providence, RI 02940-3025.

TAXATION

Set forth below is a discussion of certain U.S. federal income tax
issues concerning the Fund and the purchase, ownership and disposition of Fund
stock. This discussion is based upon present provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the regulations promulgated thereunder,
and judicial and administrative ruling authorities, all of which are subject to
change, which change may be retroactive. This discussion does not purport to be
complete or to deal with all aspects of U.S. federal income taxation that may be
relevant to investors in light of their particular circumstances. Prospective
investors should consult their own tax advisers with regard to the U.S. federal
tax consequences of the purchase, ownership, or disposition of Fund stock, as
well as the tax consequences arising under the laws of any state, foreign
country, or other taxing jurisdiction.

Tax Status of the Fund

The Fund has qualified and elected to be taxed as a regulated
investment company under Subchapter M of the Code. Accordingly, the Fund must,
among other things, (i) derive in each taxable year at least 90% of its gross
income (including tax-exempt interest) from dividends, interest, payments with
respect to certain securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including but not limited to gain from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies; and (ii) diversify its holdings so that, at the end of each fiscal
quarter (a) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, U.S. government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of the Fund's total assets is invested in the securities of any one issuer
(other than U.S. government securities and the securities of other regulated
investment companies) or of any two or more issuers that the Fund controls and
that are determined to be engaged in the same business or similar or related
trades or businesses.

As a regulated investment company, the Fund generally is not subject to
U.S. federal income tax on income and gains that it distributes each taxable
year to stockholders, if at least 90% of the sum of the Fund's (i) investment
company taxable income (which includes, among other items, dividends, interest,
the excess of any net short-term capital gains over net long-term capital
losses) and other taxable income other than any net capital gain (as defined
below) reduced by deductible expenses) determined without regard to the
deduction for dividends paid and (ii) its net tax exempt interest (the excess of
its gross tax exempt interest over certain disallowed deductions). The Fund may
retain for investment its net capital gain (which consists of the excess of its
net long-term capital gain over its net short-term capital loss). However, if
the Fund retains any net capital gain or any investment company taxable income,
it will be subject to tax at regular corporate rates on the amount retained. The
Fund intends to distribute annually substantially all of such income.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year an amount equal to the sum of (i) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (ii) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year (unless, an election is made by a fund with a November or
December year-end to use the fund's fiscal year) and (iii) certain undistributed
amounts from previous years on which the Fund paid no U.S. federal income tax.
While the Fund intends to distribute income and capital gains in the manner
necessary to minimize imposition of the 4% excise tax, there can be no assurance
that sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. In that event, the Fund
will be liable for the tax only on the amount by which it does not meet the
foregoing distribution requirement.

A distribution will be treated as paid on December 31 of a calendar
year if it is declared by the Fund in October, November or December of that year
with a record date in such a month and paid by the Fund during January of the
following year. Such a distribution will be taxable to stockholders in the
calendar year in which the distribution is declared, rather than the calendar
year in which it is received.

Distributions

Distributions paid by the Fund from its ordinary income or from an
excess of net short- term capital gains over net long-term capital losses
(together referred to hereinafter as "ordinary income dividends") are taxable to
stockholders as ordinary income to the extent of the Fund's earnings and
profits. Distributions made from an excess of net long-term capital gains over
net short-term capital losses ("capital gain dividends"), including capital gain
dividends credited to a stockholder but retained by the Fund (as described
below), are taxable to stockholders as long- term capital gains, regardless of
the length of time the stockholder has owned Fund stock. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's stock and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the stock is held as a capital
asset). Dividend distributions of investment company taxable income are taxable
to a stockholder as ordinary income, whether paid in cash or stock. Dividends
paid by the Fund to a corporate stockholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitations, be eligible for the dividends received deduction.
Generally, not later than 60 days after the close of its taxable year, the Fund
will provide its stockholders with a written notice designating the amount of
any ordinary income dividends, capital gain dividends or dividends qualifying
for a dividends received deduction and other distributions.

Investors should be careful to consider the tax implications of buying
stock of the Fund just prior to the record date of a distribution (including a
capital gain dividend). The price of stock purchased at such a time will reflect
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the stockholder.

If the Fund retains any net capital gain, it may designate the retained
amount as undistributed capital gains in a notice to its stockholders who, if
subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income their share of such undistributed long-term
capital gain and (ii) will be entitled to credit their proportionate share of
the tax paid by the Fund against their U.S. federal tax liability, if any, and
to claim refunds to the extent the credit exceeds such liability. For U.S.
federal income tax purposes, the tax basis of stock owned by a stockholder of
the Fund will be increased by the amount of undistributed capital gain included
in the gross income of such stockholder less the tax deemed paid by such
stockholder under clause (ii) of the preceding sentence.

Foreign Taxes

The Fund may be subject to certain taxes imposed by the countries in
which it invests or operates. If the Fund qualifies as a regulated investment
company and if more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stocks or securities of foreign
corporations, the Fund may elect, for U.S. federal income tax purposes, to treat
any foreign taxes paid by the Fund that qualify as income or similar taxes under
U.S. federal income tax principles as having been paid by the Fund's
stockholders. For any year for which the Fund makes such an election, each
stockholder will be required to include in its gross income an amount equal to
its allocable share of such taxes paid by the Fund and the stockholders will be
entitled, subject to certain limitations, to credit their portions of these
amounts against their U.S. federal income tax liability, if any, or to deduct
their portions from their U.S. taxable income, if any. No deduction for foreign
taxes may be claimed by individuals who do not itemize deductions. In any year
in which it elects to "pass through" foreign taxes to stockholders, the Fund
will notify stockholders within 60 days after the close of the Fund's taxable
year of the amount of such taxes and the sources of its income. Because
application of the credit depends on the particular circumstances for each
stockholder, stockholders are advised to consult their own tax advisers.

Dispositions

The sale or other disposition of shares of common stock of the Fund
will generally result in capital gain or loss to stockholders, and will be
long-term capital gain or loss if the stock has been held for more than one year
at the time of sale. Any loss upon the sale or exchange of Fund stock held for
six months or less will be treated as long-term capital loss to the extent of
any capital gain dividends received (including amounts credited as an
undistributed capital gain dividend) by the stockholder. A loss realized on a
sale or exchange of stock of the Fund will be disallowed if other Fund stock is
acquired (whether through the automatic reinvestment of dividends or otherwise)
within a 61-day period beginning 30 days before and ending 30 days after the
date that the stock is disposed of. In such case, the basis of the stock
acquired will be adjusted to reflect the disallowed loss. Present law taxes both
long-term and short-term capital gains of corporations at the rates applicable
to ordinary income. For non-corporate taxpayers, however, short-term capital
gains and ordinary income will currently be taxed at a maximum rate of 38.6%
while long-term capital gains generally will be taxed at a maximum rate of 20%
and 10% for taxpayers in the 15% bracket. The 20% capital gains rate and the 10%
capital gains rate will be reduced to 18% and 8% respectively, for capital
assets held for more than five years if the holding period begins after December
31, 2000.

Backup Withholding

The Fund generally will be required to withhold U.S. federal income tax
("backup withholding") from dividends, capital gain distributions and certain
other amounts paid to stockholders who are U.S. citizens or resident aliens if
(i) the stockholder fails to furnish the Fund with the stockholder's correct
taxpayer identification number or social security number, (ii) the Internal
Revenue Service notifies the stockholder or the Fund that the stockholder has
failed to report properly certain interest and dividend income to the Internal
Revenue Service and to respond to notices to that effect or (iii) when required
to do so, the stockholder fails to certify that he or she is not subject to
backup withholding. Any amounts withheld may be credited against the
stockholder's U.S. federal income tax liability.

Foreign Investors

A stockholder that is a nonresident alien individual or a foreign
corporation (a "foreign investor") generally may 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. Different tax consequences may result if
the foreign investor is engaged in a trade or business in the United States or,
in the case of an individual, is present in the United States for 183 or more
days during a taxable year and certain other conditions are met.

Fund Investments

The Fund will invest in securities rated in the lower rating categories
of nationally recognized rating organizations ("junk bonds" or "high yield
bonds"). Some of these junk bonds or high-yield bonds may be purchased at a
discount and may therefore cause the Fund to accrue and distribute income before
amounts due under the obligations are paid. In addition, a portion of the
interest on such junk bonds and high-yield bonds may be treated as dividends for
U.S. federal income tax purposes. In such cases, if the issuer of the junk bonds
or high-yield bonds is a domestic corporation, dividend payments by the Fund
will be eligible for the dividends received deduction to the extent of the
deemed dividend portion of such interest.

The Fund may write (i.e., sell) covered call and covered put options on
its portfolio securities, purchase call and put options on securities and engage
in transactions in financial futures and related options on such futures. Such
options and futures contracts that are "Section 1256 contracts" will be "marked
to market" for U.S. federal income tax purposes at the end of each taxable year,
i.e., each such option or futures contract will be treated as sold for its fair
market value on the last day of the taxable year. Subject to certain exceptions,
generally gain or loss from Section 1256 contracts will be 60% long-term and 40%
short-term capital gain or loss. Application of these rules to Section 1256
contracts held by the Fund may alter the timing and character of distributions
to stockholders. The mark-to-market rules outlined above, however, will not
apply to certain transactions entered into by the Fund primarily to reduce the
risk of changes in price or interest or currency exchange rate with respect to
its investments.

The U.S. federal income tax rules governing the taxation of interest
rate swaps are not entirely clear and may require the Fund to treat payment
received under such arrangements as ordinary income and to amortize such payment
under certain circumstances. The Fund does not anticipate that its activity in
this regard will affect its qualification as a regulated investment company.

Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in options and
futures. Under Code Section 1092, the Fund may, for U.S. federal income tax
purposes, be required to postpone recognition of losses incurred in certain
sales of securities and certain closing transactions in options and futures.

Passive Foreign Investment Companies. The Fund may invest in shares of
foreign corporations that may be classified under the Code as passive foreign
investment companies ("PFICs"). In general, a foreign corporation is classified
as a PFIC if at least one-half of its assets constitute investment-type assets,
or 75% or more of its gross income is investment-type income. If the Fund
receives a so-called "excess distribution" with respect to PFIC stock, the Fund
itself may be subject to a tax on a portion of the excess distribution, whether
or not the corresponding income is distributed by the Fund to stockholders. In
general, under the PFIC rules, any excess distribution is treated as having been
realized ratably over the period during which the Fund held the PFIC shares. The
Fund will itself be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under one election currently available in some
circumstances, the Fund would be required to include in its gross income its
share of the earnings of a PFIC, on a current basis, whether or not
distributions were received from the PFIC in a given year. Under another
election, the Fund would be required to mark to market the Fund's PFIC shares at
the end of each taxable year, with the result that unrealized gains would be
treated as realized and such gains would be required to be reported as ordinary
income. Any mark-to-market losses and any loss from an actual disposition of
PFIC shares would be deductible as ordinary losses to the extent of any net
mark- to-market gains included in income in prior years. If either one of these
elections were made the special rules, discussed above, relating to the taxation
of excess distributions would not apply.

Certain of the Fund's investment practices are subject to special and
complex 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 into higher taxed
short-term capital 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 and (vi) adversely alter the characterization of
certain complex financial transactions.

The foregoing is a general summary of the provisions of the Code and
the Treasury Regulations in effect as they directly govern the U.S. federal
income taxation of the Fund and its stockholders. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive. Ordinary income and capital gain dividends may also be subject to
state, local, foreign income or other taxes. Certain states exempt from state
income taxation dividends paid by regulated investment companies that are
derived from interest on United States government obligations. State law varies
as to whether dividend income attributable to United States government
obligations is exempt from state income tax. Stockholders are urged to consult
their tax advisers regarding specific questions as to U.S. federal, foreign,
state, local income or other taxes.

S&P DISCOUNT FACTORS

The following table identifies the Moody's discount factors used to
discount particular Standard & Poor's Rating Services ("S&P") eligible assets in
determining the minimum discounted asset coverage the Fund is required by S&P to
maintain with respect to its outstanding 8% Cumulative Preferred Stock. Terms
that are used but not defined in this section have the meanings ascribed to them
in the Fund's Articles Supplementary creating and fixing the rights of the 8%
Cumulative Preferred Stock as filed with the State of Maryland on May 14, 1997.

S&P
TYPE OF S&P ELIGIBLE ASSET: DISCOUNT FACTOR:
------------------------------------------------------------------------ ---------------------------------------
SEASONED UNSEASONED
ELIGIBLE ELIGIBLE
ASSETS ASSETS
------------------ -------------------

Common stocks........................................................... 1.85 2.44
Preferred stocks rated AAA to BBB- or issued by 4
Issuers having senior debt rated at least BBB-....................... 2. 0 --
Convertible bonds rated AAA to AAA-..................................... 1.65 --
Convertible bonds rated AA+ to AA-...................................... 1.70 --
Convertible bonds rated A+ to A-........................................ 1.75 --
Convertible bonds rated BBB+ to BBB-.................................... 1.80 --
Convertible bonds rated BB+ to BB-...................................... 1.85 --
Convertible bonds rated B+ to B-........................................ 1.90 --
Convertible bonds rated CCC+............................................ 2.05 --
Convertible bonds rated CCC............................................. 2.20 --
Short-Term Money Market Investments maturing between 034 --
1 day and 180 days................................................... 1.
Short-Term Money Market Investments maturing between 106 --
180 days and one year................................................ 1.
U.S. Government Obligations maturing between 90 days 049 --
and one year......................................................... 1.
U.S. Government Obligations maturing between 1 year 078 --
and 2 years.......................................................... 1.
U.S. Government Obligations maturing between 2 years 10 --
and 3 years.......................................................... 1.
U.S. Government Obligations maturing between 3 years 106 --
and 5 years.......................................................... 1.
U.S. Government Obligations maturing between 5 years 18 --
and 10 years......................................................... 1.
U.S. Government Obligations maturing between 10 years 223 --
and 30 years......................................................... 1.
Unsecured U.S. Government Agency Obligations (add .10 to
corresponding maturity for U.S. Government Obligations)..............
Other Indebtedness rated AAA to AAA-.................................... 1.50 --
Other Indebtedness rated AA+ to AA-..................................... 1.55 --
Other Indebtedness rated A+ to A-....................................... 1.60 --
Other Indebtedness rated BBB+ to BBB-................................... 1.65 --
Other Indebtedness rated BB+ to BB-..................................... 1.70 --
Other Indebtedness rated B+ to B........................................ 1.80 --
Other Indebtedness rated B-............................................. 1.90 --
Other Indebtedness rated CCC+........................................... 2.05 --
Other Indebtedness rated CCC............................................ 2.20 --

In the foregoing table "S&P Eligible Assets" refers to the sum of S&P
Seasoned Eligible Assets and S&P Unseasoned Assets. S&P Seasoned Assets are any
of the following that may be held by the Fund:

(a) Deposit Assets;

(b) U.S. Government Obligations;

(d) evidence of indebtedness other than Deposit Assets and U.S.
Government Obligations that are not convertible into or exchangeable or
exercisable for stock of a corporation and that satisfy certain S&P
criteria described in the Articles Supplementary;

(e) evidences of indebtedness other than Deposit Assets and U.S.
Government Obligations that are not convertible into or exchangeable or
exercisable for stock of a corporation and that satisfy all of the
following conditions: (i) such evidences of indebtedness are rated at least
CCC by S & P; (ii) if such evidences of indebtedness are rated BB+ to CCC
by S&P, the original issue size thereof is at least $100 million as to 80%
of such evidences of indebtedness and at least $50 million as to 20% of
such evidences of indebtedness; and (iii) the issuer of such evidences of
indebtedness files periodic financial statements with the SEC; provided,
however, that the Fund's holdings of such evidences of indebtedness of any
single issuer that satisfies the conditions set forth in clauses (i), (ii)
and (iii) above shall be included in S&P Eligible Assets only to the extent
that if such evidences of indebtedness are rated AAA to A-, BBB+ to BBB-,
BB+ to BB- or B+ to CCC by S&P, the aggregate market value of such
evidences of indebtedness of such issuer held by the Fund does not exceed
10%, 5%, 4% or 3%, respectively, of the market value of the Fund's S&P
Eligible Assets and the aggregate market value of the Fund's holdings of
all other similarly eligible evidences of indebtedness of issuers in the
same industry classification does not exceed the Indebtedness
Diversification Percentage (as defined in the Articles Supplementary) of
the aggregate market value of the Fund's S&P Eligible Assets;

(f) evidences of indebtedness other than Deposit Assets and U.S.
Government Obligations that are convertible into or exchangeable or
exercisable for stock of a corporation and that satisfy all of the
following conditions: (i) such evidences of indebtedness are rated at least
CCC by S & P; and (ii) if such evidences of indebtedness are rated BB+ to
CCC by S&P, the market capitalization of the issuer of such evidences of
indebtedness is at least $100 million; provided, however, that the Fund's
holdings of such evidences of indebtedness of any single issuer that
satisfies the conditions set forth in clauses (i) and (ii) above shall be
included in S&P Eligible Assets only to the extent that if such evidences
of indebtedness are rated AAA to A-, BBB+ to BBB-, BB+ to BB- or B+ to CCC
by S&P, the aggregate market value of such evidences of indebtedness of
such issuer held by the Fund does not exceed 10%, 5%, 4% or 3%,
respectively, of the market value of the Fund's S&P Eligible Assets and the
aggregate market value of such S&P Eligible Assets, when added to the
aggregate market value of the Fund's holdings of all other similarly
eligible evidences of indebtedness of issuers in the same industry
classification, does not exceed the applicable Convertible Diversification
Percentage (as defined in the Articles Supplementary) of the aggregate
market value of the Fund's S&P Eligible Assets;

(g) preferred stocks that satisfy all of the following conditions: (i)
such preferred stock is rated at least BBB- or the senior debt of the
issuer of such preferred stock is rated at least BBB-; (ii) the market
capitalization of the issuer of such preferred stock is at least $100
million; (iii) such preferred stock is traded on a recognized national
securities exchange or quoted on the National Market System (or any
equivalent or successor thereto) of Nasdaq; (iv) dividends on such
preferred stock are cumulative; and (v) the original issue size of such
preferred stock is at least $50 million; and

(h) common stocks that satisfy all of the following conditions: (i)
such common stock (including the common stock of any predecessor or
constituent issuer) has been traded on a recognized national securities
exchange or quoted on the National Market System (or any equivalent or
successor thereto) of Nasdaq for at least 450 days; (ii) the market
capitalization of such issuer of common stock exceeds $100 million; (iii)
the issuer of such common stock is not an entity that elects to be taxed
under Section 856 of the Code or that is treated as a partnership for
federal income taxes; (iv) if such issuer is organized under the laws of
any jurisdiction other than the United States, any state thereof, any
possession or territory thereof or the District of Columbia, the common
stock of such issuer held by the Fund is traded on a recognized national
securities exchange or quoted on the National Market System of Nasdaq
either directly or in the form of depository receipts; and (v) if such
issuer is registered as an investment company under the 1940 Act, such
issuer does not invest more than 25% of the value of its gross assets in
securities that are not S&P Eligible Assets by reason of clause (iv) above;
provided, however, that the Fund's holdings of the common stock of any
single issuer that satisfies the conditions set forth in clauses (i)
through (v) above shall be included in S&P Seasoned Eligible Assets only to
the extent that (1) such holdings may be sold publicly by the Fund at any
time without registration, (2) to the extent remaining eligible after the
operation of item (1) above, the aggregate market value of such holdings
does not exceed 5% of the market capitalization of such issuer of common
stock, (3) to the extent remaining eligible after the operation of items
(1) and (2) above, such holdings do not exceed a number of shares
representing 5% of (x) the market capitalization of such issuer of common
stock, less (y) the number of outstanding shares of such common stock held
by directors and executive officers of the issuer of such common stock
(such number to be computed solely by reference to information on file with
the SEC on the last day of the preceding calendar month), (4) to the extent
remaining eligible after the operation of items (1) through (3) above, such
holdings do not exceed a number of shares representing the average weekly
trading volume of such common stock during the preceding 30 day period, (5)
to the extent remaining eligible after the operation of items (1) through
(4) above, the aggregate market value of such holdings, when added to the
aggregate market value of the Fund's holdings of all other similarly
eligible shares of common stock of issuers in the same industry
classification (other than utilities, as to which this item (5) shall not
apply), does not exceed 25% of the aggregate market value of the Fund's S&P
Eligible Assets, and (6) to the extent remaining eligible after the
operation of items (1) through (5) above, the aggregate market value of
such holdings in excess of 5% of the aggregate market value of the Fund's
S&P Eligible Assets, when added to the aggregate market value of the Fund's
holdings of all other similarly eligible shares of each other issuer in
excess of 5% of the aggregate market value of the Fund's S&P Eligible
Assets, does not exceed 30% of the aggregate market value of the Fund's S&P
Eligible Assets.

Notwithstanding the foregoing, an asset will not be considered an S&P Seasoned
Eligible Asset if it (A) is held in a margin account, (B) is subject to any
material lien, mortgage, pledge, security interest or security agreement of any
kind or (C) has been deposited irrevocably for the payment of dividends,
redemption payments or any other payment or obligation hereunder.

An S&P Unseasoned Eligible Asset is any common stock that would be an
S&P Seasoned Eligible Asset but for the fact that the 450 trading day
requirement referenced above is not satisfied.

NET ASSET VALUE

The net asset value of the Fund's shares will be computed, based on the
market value of the securities it holds and determined daily as of the close of
regular trading on the New York Stock Exchange.

Portfolio instruments of the Fund which are traded in a market subject
to government regulation on which trades are reported contemporaneously
generally will be valued at the last sale price on the principal market for such
instruments as of the close of regular trading on the day the instruments are
being valued, or lacking any sales, at the average of the bid and asked price on
the principal market for such instruments on the most recent date on which bid
and asked prices are available. Initial public offering securities are initially
valued at cost, and thereafter as any other equity security. Other readily
marketable assets will be valued at the average of quotations provided by
dealers maintaining an active market in such instruments. Short-term debt
instruments that are credit impaired or mature in more than 60 days for which
market quotations are available are valued at the latest average of the bid and
asked prices obtained from a dealer maintaining an active market in that
security. Short-term investments that are not credit impaired or mature in 60
days or fewer are valued at amortized cost from purchase price or value on the
61st day prior to maturity. Securities and other assets for which market
quotations are not readily available will be valued at fair value as determined
in good faith by or under the direction of the Investment Adviser in accordance
with guidelines adopted by the Fund. The Fund may employ recognized pricing
services from time to time for the purpose of pricing portfolio instruments
(including non-US dollar denominated assets and futures and options).

Trading takes place in various foreign markets on days which are not
Business Days and therefore the Fund's respective net asset value per share is
not calculated. The calculation of the Fund's net asset value may not take place
contemporaneously with the determination of the prices of portfolio securities
held by the Fund. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the NYSE will not
be reflected in the Fund's calculation of net asset value unless the Board of
Trustees deems that the particular event would materially affect the net asset
value, in which case the fair value of those securities will be determined by
consideration of other factors by or under the direction of the Board of
Directors.

Net asset value per share is calculated by dividing the value of the
securities held plus any cash or other assets minus all liabilities, including
accrued expenses, by the total number of shares outstanding at such time.

GENERAL INFORMATION

Counsel and Independent Accountants

Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York,
New York 10036 is special counsel to the Fund in connection with the rights
offering.

PricewaterhouseCoopers LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York 10036, serve as auditors of the Fund and will
annually render an opinion on the financial statements of the Fund.

BENEFICIAL OWNER

Name and Address of
Beneficial/Record Owner Amount of Shares and
as of May 31, 2002 Title of Class Nature of Ownership Percent of Class

Cede & Co.* Common 4,583,495 55.28%
P.O. Box 20 (record)
Bowling Green Station
New York, NY 10274
Mario J. Gabelli and affiliates Common 1,072,046 12.93%
One Corporate Center*** (beneficial)
Rye, NY 10580
Bear Stearns Securities Corp** Common 941,327 11.35%
One Metrotech Center North, 4th Floor (record)
Brooklyn, NY 11201
Charles Schwab & Co., Inc.** Common 520,289 6.27%
c/o ADP Proxy Services, (record)
51 Mercedes Way
Edgewood, NY 11717

* A nominee partnership of The Depository Trust Company.

** Shares held at The Depository Trust Company.

*** Includes 155,677 shares owned directly by Mr. Gabelli, 10,000 shares owned
by a family partnership for which Mr. Gabelli serves as general partner,
40,180 shares held by custodial accounts for which Mr. Gabelli serves as
Trustee, 732,893 shares owned by Gabelli Asset Management Inc. or its
affiliates, 58,686 shares owned by the Gabelli & Company, Inc. Profit-
Sharing Plan, and 74,610 shares owned by discretionary accounts managed by
GAMCO Investors, Inc., a wholly-owned subsidiary of Gabelli Asset
Management Inc. Mr. Gabelli disclaims beneficial ownership of the shares
held by custodial accounts, the discretionary accounts, and by the entities
named except to the extent of his interest in such entities.

As of October 31, 2002, the Directors and Officers of the Fund as a
group beneficially owned approximately 14.10% of the outstanding shares of the
Fund's common stock.

FINANCIAL STATEMENTS

The audited financial statements included in the Annual Report to the
Fund's Shareholders for the fiscal year ended December 31, 2001, together with
the report of PricewaterhouseCoopers LLP thereon, are also incorporated herein
by reference from the Fund's Annual Report to Shareholders. In addition, the
Fund's unaudited financial statements for the six months ended June 30, 2002 are
incorporated herein by reference from the Fund's Semi-Annual Report to
Shareholders. All other portions of the Annual Report to Shareholders and the
Semi- Annual Report to Shareholders are not incorporated herein by reference and
are not part of the Registration Statement. A copy of the Annual Report to
Shareholders may be obtained without charge by writing to the Fund at its
address at One Corporate Center, Rye, New York 10580-1434 or by calling the Fund
toll-free at 800-GABELLI (422-3554).

APPENDIX A

CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.

Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.

Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present that make the long-term risk appear somewhat larger than
in Aaa Securities.

A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be
present that suggest a susceptibility to impairment some time in the
future.

Baa Bonds that are rated Baa are considered as medium-grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers (1, 2, and 3) with respect to the bonds
rated "Aa" through "B." The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the company ranks in
the lower end of its generic rating category.

Caa Bonds that are rated Caa are of poor standing. These issues may be in
default or there may be present elements of danger with respect to
principal or interest.

Ca Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.

C Bonds that are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

STANDARD & POOR'S RATINGS SERVICES

AAA This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.

AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree. Principal and
interest payments on bonds in this category are regarded as safe.

A Debt rated A has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.

Speculative Grade

Debt rated BB, CCC, CC and C are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation, and C the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse conditions. Debt rated C1 is
reserved for income bonds on which no interest is being paid and debt rated D is
in payment default.

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
non-credit 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.