Statement of Additional Info - Gabelli

Treasury entered into a Senior Preferred Stock Purchase Agreement with each of FNMA and FHLMC pursuant to which
the U.S. Treasury will purchase up to an aggregate of $100 billion of each of FNMA and FHLMC to maintain a positive
net worth in each enterprise. This agreement contains various covenants, discussed below, that severely limit each
enterprise’s operations. In exchange for entering into these agreements, the U.S. Treasury received $1 billion of each
enterprise’s senior preferred stock and warrants to purchase 79.9% of each enterprise’s common stock. Second, the U.S.
Treasury announced the creation of a new secured lending facility which is available to each of FNMA and FHLMC as a
liquidity backstop. Third, the U.S. Treasury announced the creation of a temporary program to purchase mortgagebacked
securities issued by each of FNMA and FHLMC. Both the liquidity backstop and the mortgage-backed securities
purchase program expired in December 2009. FNMA and FHLMC are continuing to operate as going concerns while in
conservatorship and each remain liable for all of its obligations, including its guaranty obligations, associated with its
mortgage-backed securities. The liquidity backstop and the Senior Preferred Stock Purchase Agreement were both
intended to enhance each of FNMA’s and FHLMC’s ability to meet its obligations.
Under the Federal Housing Finance Regulatory Reform Act of 2008 (the “Reform Act”), which was included as part of
the Housing and Economic Recovery Act of 2008, FHFA, as conservator or receiver, has the power to repudiate any
contract entered into by FNMA or FHLMC prior to FHFA’s appointment as conservator or receiver, as applicable, if
FHFA determines, in its sole discretion, that performance of the contract is burdensome and that repudiation of the
contract promotes the orderly administration of FNMA’s or FHLMC’s affairs.
The Reform Act requires FHFA to exercise its right to repudiate any contract within a reasonable period of time after its
appointment as conservator or receiver. FHFA, in its capacity as conservator, has indicated that it has no intention to
repudiate the guaranty obligations of FNMA or FHLMC because FHFA views repudiation as incompatible with the goals
of the conservatorship. However, in the event that FHFA, as conservator or if it is later appointed as receiver for FNMA
or FHLMC, were to repudiate any such guaranty obligation, the conservatorship or receivership estate, as applicable,
would be liable for actual direct compensatory damages in accordance with the provisions of the Reform Act. Any such
liability could be satisfied only to the extent of FNMA’s or FHLMC’s assets available therefor. In the event of
repudiation, the payments of interest to holders of FNMA or FHLMC mortgage-backed securities would be reduced if
payments on the mortgage loans represented in the mortgage loan groups related to such mortgage-backed securities are
not made by the borrowers or advanced by the servicer. Any actual direct compensatory damages for repudiating these
guaranty obligations may not be sufficient to offset any shortfalls experienced by such mortgage-backed security holders.
Further, in its capacity as conservator or receiver, FHFA has the right to transfer or sell any asset or liability of FNMA or
FHLMC without any approval, assignment or consent. Although FHFA has stated that it has no present intention to do so,
if FHFA, as conservator or receiver, were to transfer any such guaranty obligation to another party, holders of FNMA or
FHLMC mortgage-backed securities would have to rely on that party for satisfaction of the guaranty obligation and
would be exposed to the credit risk of that party.
The conditions attached to the financial contribution made by the Treasury to FHLMC and FNMA and the issuance of
senior preferred stock place significant restrictions on the activities of FHLMC and FNMA. FHLMC and FNMA must
obtain the consent of the Treasury to, among other things, (i) make any payment to purchase or redeem its capital stock or
pay any dividend other than in respect of the senior preferred stock, (ii) issue capital stock of any kind, (iii) terminate the
conservatorship of the FHFA except in connection with a receivership, or (iv) increase its debt beyond certain specified
levels. In addition, significant restrictions are placed on the maximum size of each of FHLMC’s and FNMA’s respective
portfolios of mortgages and mortgage-backed securities, and the purchase agreements entered into by FHLMC and
FNMA provide that the maximum size of their portfolios of these assets must decrease by a specified percentage each
year. The future status and role of FHLMC and FNMA could be impacted by (among other things) the actions taken and
restrictions placed on FHLMC and FNMA by the FHFA in is role as conservator, the restrictions placed on FHLMC’s
and FNMA’s operations and activities as a result of the senior preferred stock investment made by the U.S. Treasury,
market responses to developments at FHLMC and Fannie Mac, and future legislative and regulatory action that alters the
operations, ownership, structure and/or mission of these institutions, each of which may, in turn, impact the value of, and
cash flows on, any mortgage-backed securities guaranteed by FHLMC and FNMA, including any such mortgage-backed
securities held by a Fund.
Repurchase Agreements (All Funds). A Fund may enter into repurchase agreements with banks and non-bank dealers
of U.S. government securities which are listed as reporting dealers of the Federal Reserve Bank and which furnish
collateral at least equal in value or market price to the amount of their repurchase obligation. In a repurchase agreement, a
Fund purchases a debt security from a seller which undertakes to repurchase the security at a specified resale price on an
agreed future date. The resale price generally exceeds the purchase price by an amount which reflects an agreed-upon
market interest rate for the term of the repurchase agreement.
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