THE
GABELLI
MATHERS
FUND
CLASS AAA SHARES
PROSPECTUS
MAY 1, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INVESTMENT AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE
The Gabelli Mathers Fund (the "Fund") seeks to achieve capital appreciation over
the long term in various market conditions without excessive risk of capital
loss. Capital is the amount of money you invest in the Fund and capital
appreciation is an increase in the value of your investment.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its objective by using the following principal strategies:
o investing primarily in common stocks, selected for their appreciation
potential
o engaging, within prescribed limits, in short sales of common stocks
whereby the Fund borrows and sells a security it does not own in order to
profit from the potential decline in the price of that security
o varying its common stock exposure by hedging, primarily with the purchase
or short sale of Standard & Poor's 500 Index ("S&P 500 Index") futures
contracts
o investing all or a portion of its assets primarily in U.S. Treasury
securities when Gabelli Funds, LLC (the "Adviser") believes the risk of
loss from investing in stocks is high
o investing in certain "event" driven situations such as announced mergers,
acquisitions and reorganizations ("arbitrage")
No minimum or maximum percentage of the Fund's assets is required to be invested
in any type of security or investment strategy.
PRINCIPAL RISKS
The Fund is subject to the risks associated with investing in both stocks and
U.S. Treasury securities. The Fund is also subject to certain additional risks
associated with stock index futures hedging and the higher risk investment
strategy of selling stocks short.
The Fund's share price will fluctuate with changes in the market value of its
portfolio securities. Stocks are subject to market, economic and business risks
that cause their prices to rise and fall. The Fund is also subject to the risks
that the value of its U.S. Treasury securities, stock index futures hedge
position, and stocks sold short will decline. When you sell your Fund shares,
you may receive less than you paid for them. Consequently, you can lose money by
investing in the Fund.
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WHO MAY WANT TO INVEST
The Fund's Class AAA Shares offered herein are offered only to investors who
acquire them directly through Gabelli & Company, Inc., the Fund's distributor
(the "Distributor"), or through a select number of financial intermediaries with
whom the Distributor has entered into selling agreements specifically
authorizing them to offer Class AAA Shares.
The Fund may appeal to you if:
o you seek long-term growth of capital and are skeptical of a fully
invested buy and hold equity investment strategy
o you seek a portfolio that generally may be long and/or short individual
stocks, and/or long U.S. Treasury securities and/or may employ hedging
techniques with respect to its common stock exposure
o you seek a portfolio that is flexibly managed to potentially take
advantage of a decline in the U.S. equity markets
You may not want to invest in the Fund if:
o you seek returns that typically move with the S&P 500 Index, in both up
and down markets
o you seek a fully invested equity portfolio
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PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing changes in the Fund's performance from year to
year (since 1990), and by showing how the Fund's average annual returns for one
year, five years, ten years and the life of the Fund compare to those of a
broad-based securities market index. As with all mutual funds, the Fund's past
performance does not predict how the Fund will perform in the future. Both the
chart and the table assume reinvestment of dividends and distributions.
THE GABELLI MATHERS FUND
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
1990 10.43%
1991 9.45%
1992 3.11%
1993 2.13%
1994 (5.89)%
1995 7.01%
1996 (0.07)%
1997 3.01%
1998 (5.21)%
1999 5.73%
During the period shown in the bar chart, the highest return for a quarter was
4.60% (quarter ended June 1990) and the lowest return for a quarter was (3.21)%
(quarter ended December 1998).
<TABLE>
<CAPTION>
SINCE
AVERAGE ANNUAL TOTAL RETURNS PAST PAST PAST AUGUST 19,
(FOR THE PERIODS ENDED DECEMBER 31, 1999) ONE YEAR FIVE YEARS TEN YEARS 1965*
- ----------------------------------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
The Gabelli Mathers Fund 5.73% 2.00% 2.83% 11.36%
S&P 500 Stock Index** 21.04% 28.56% 18.21% 12.53%
<FN>
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* Commencement of operations.
** The S&P 500 Index is an index of 500 stocks, with each stock weighted
according to its total market value. This means that companies having a
larger stock capitalization will have a larger impact on the Index. The
performance of the Index does not reflect expenses or fees.
</FN>
</TABLE>
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FEES AND EXPENSES OF THE FUND:
This table describes the fees and expenses that you may pay if you buy and hold
Class AAA Shares of the Fund.
ANNUAL FUND OPERATING EXPENSES:
(expenses that are deducted from Fund assets):
Management Fees(1) .......................................... 1.00%
Distribution (Rule 12b-1) Fees .............................. 0.25%
Other Expenses(2) ........................................... 0.42%
-----
Total Annual Operating Expenses ............................. 1.67%
-----
Fee Waiver(3) ............................................... (0.25)%
-----
Total Annual Operating Expenses (after the fee waiver) ...... 1.42%
=====
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(1) Effective October 1, 1999, Gabelli Funds, LLC became the investment adviser
to the Fund. The expense information above has been restated to reflect
this change in adviser. Under the terms of the investment advisory
agreement dated October 1, 1999, the Adviser is entitled to receive a fee
for providing advisory and administrative services equal to 1.00% of the
Fund's average daily net assets (before giving effect to the fee waiver
referred to in footnote 3 below).
(2) "Other Expenses" is an estimated figure reflecting expenses the Fund
expects to incur during the current fiscal year.
(3) For a period of two years from October 1,1999, the Adviser has waived a
portion of its advisory fee so that the fee is 0.75% on the first $100
million of the Fund's assets and 1.00% on assets greater than $100 million.
EXPENSE EXAMPLE:
This example is intended to help you compare the cost of investing in shares of
the Fund with the cost of investing in other mutual funds. The example assumes
(1) you invest $10,000 in the Fund for the time periods shown, (2) you redeem
your shares at the end of those periods, (3) your investment has a 5% return and
(4) the Fund's operating expenses remain the same. Although this example is for
comparison only and your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS
------- ------- ------- --------
$126 $426 $767 $1,732
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* Reflects the advisory fee waiver for years one and two referred to in
footnote 3 above.
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INVESTMENT AND RISK INFORMATION
The Fund's investment objective and principal investment strategies are not
fundamental policies and may be changed by a vote of a majority of the Fund's
Board of Trustees at any time without a vote of shareholders. The Fund is
flexibly managed and can use a variety of investment strategies in the pursuit
of its investment objective, with no minimum or maximum percentage of assets
required to be invested in any type of security or investment strategy.
The Adviser selects stocks using traditional fundamental analysis of both value
and growth data, in conjunction with standard technical analysis. Fundamental
analysis involves the use of various data, including but not limited to,
price/earnings, price/revenues, price/book value, and price/dividend ratios, and
various growth rate calculations for earnings, sales and other data. Technical
analysis includes, but is not limited to, the study of rates of change in stock
price movement, volume trends, moving averages, relative strength, and
overbought/oversold indicators.
The Adviser's stock selection process is not limited by the total market value
of a company's stock, so the Fund may select small, medium or large
capitalization issues. Stocks of companies with a relatively small number of
shares available for trading may be more risky because their share prices tend
to be more volatile, and their shares less liquid, than those of companies with
larger amounts of tradeable shares. In general, companies with small revenue
bases may have more limited management and financial resources and may face a
higher risk of business reversal than larger more established companies. As a
result, stocks of smaller companies may be more volatile than stocks of larger
companies. Additionally, stocks of companies with special situation
characteristics may decline in value if their unique circumstances do not
develop as anticipated. Special situation factors may include, but are not
limited to, potential and/or announced takeover targets, corporate restructuring
candidates, and companies involved in corporate reorganizations.
The Fund may make short sales of equity securities in amounts of up to 50% of
the value of the Fund's net assets as determined at the time of the short sale.
A short sale is a transaction in which the Fund sells a security which it does
not then own in order to profit from the potential decline in the market price
of that security.
The Fund may vary its equity exposure by hedging through the purchase or short
sale of stock index futures contracts. The Fund will not purchase or sell short
stock index futures contracts if immediately thereafter the aggregate initial
margin required to be deposited would exceed 5% of the value of the Fund's total
assets.
The Fund may invest all or any portion of its assets in U.S. Treasury bills,
notes or bonds when the Adviser believes financial market conditions warrant
such action and/or during periods when the Adviser believes that the risk
associated with owning equity securities is high due to various traditional
stock market valuation benchmarks approaching the upper limits of their long
term historical ranges. At such times, which may continue for extended periods,
the Fund's equity exposure may represent a relatively low percentage of the
Fund's assets.
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While the Fund's objective is to seek capital appreciation over the long term,
the Fund does not necessarily purchase or hold individual securities to qualify
for long-term capital gains treatment. The Adviser may consider a variety of
factors including, but not limited to, financial market conditions, individual
stock and aggregate equity valuation levels, corporate developments, other
investment opportunities, Fund redemptions, tax considerations, including the
Fund's tax loss carryforward (see "Tax Information"), and changed expectations,
in determining whether to sell a security held in the portfolio or to buy to
cover a short position. As a result, turnover in the Fund's portfolio may be
very high, since investments may be held for very short time periods when the
Adviser believes further capital appreciation of those investments is unlikely
or that a loss of capital may occur.
Portfolio turnover may be significantly increased due to the Fund holding a
substantial portion of its assets in U.S. Treasury securities with maturities of
less than one year in conjunction with the purchase and sale of long equity
positions and U.S. Treasury securities with maturities greater than one year.
The Fund may also use the following investment technique:
o DEFENSIVE INVESTMENTS. When adverse market or economic conditions occur,
the Fund may temporarily invest all or a portion of its assets in
defensive investments. Such investments include fixed income securities
or high quality money market instruments. When following a defensive
strategy, the Fund will be less likely to achieve its investment goals.
For instance, during the past 10 years a majority of the Fund's assets
were invested in U.S. Treasury Securities.
There are market risks inherent in any investment and there is no assurance that
the objective of the Fund will be realized. Also, there is no assurance that the
Fund's portfolio will not decline in value or that the portfolio's various
investment segments will perform as expected. When you sell your investment, you
may receive more or less money than you originally invested.
Investing in the Fund also involves the following risks:
o EQUITY RISK. To the extent that the Fund's portfolio has significant
equity exposure, long and/or short, the Fund is subject to the risks
inherent in the stock market and individual stocks, including but not
limited to the following:
o unpredictable price volatility in individual stocks and various
stock indices
o changes in interst rates, inflation and corporate profits,
currency exchange rate volatility, and other economic factors
o individual company and/or industry developments
o national and international political events
Short positions in equity securities are generally considered to be more risky
than long positions since the theoretical potential loss in a short position is
unlimited, while the maximum loss from a long position is equal to its original
purchase price.
The Adviser invests the Fund's assets more conservatively than the managers of
most equity funds when the Adviser believes the risk of owning stocks is high.
If the Adviser is incorrect in this judgment, the Fund's total return may
underperform more fully-invested equity funds.
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o HEDGING RISK. The percentage fluctuation in the value of the Fund's hedge
positions in stock index futures contracts may be greater than those of
the underlying index, and positions in such futures are subject to
certain other risks, including but not limited to the following:
o an imperfect correlation between the change in market value of
the Fund's long stock positions relative to its short stock index
futures hedge position, limiting the effectiveness of the hedge
o possible temporary illiquidity in the markets for stock index
futures which may result in continuing exposure to adverse price
movements
o the fact that the decision to hedge may prove incorrect and, in
that case, the Fund would have been better off not hedging
o INTEREST RATE RISK. To the extent that the Fund's portfolio is invested
in U.S. Treasury securities, it is subject to certain risks which include
a decrease in principal value of the securities as interest rates rise.
Generally, the longer the maturity of a fixed income security, the
greater the gain or loss of principal value for a given change in
interest rates. Additionally, there is the credit risk of the issuer of
the security being unable to make interest or principal payments when
due.
o MANAGEMENT RISK. The Adviser's analysis and judgment regarding individual
stocks, the financial markets, the economy, and many other factors may
prove incorrect, resulting in the Fund's investments losing value.
Additionally, if stock prices increase, the Fund may lose the opportunity
to benefit on that portion of its portfolio invested in fixed income
securities.
MANAGEMENT OF THE FUND
THE ADVISER. As of October 1, 1999, Gabelli Funds, LLC, with principal offices
located at One Corporate Center, Rye, New York 10580-1434, serves as investment
adviser to the Fund. The Adviser makes investment decisions for the Fund and
continuously reviews and administers the Fund's investment program under the
supervision of the Fund's Board of Trustees. The Adviser also manages several
other open-end and closed-end investment companies in the Gabelli family of
funds. The Adviser is a New York limited liability company organized in 1999 as
successor to Gabelli Group Capital Partners, Inc. (formerly named Gabelli Funds,
Inc.), a New York corporation organized in 1980. The Adviser is a wholly-owned
subsidiary of Gabelli Asset Management Inc. ("GAMI"), a publicly traded company
listed on the New York Stock Exchange ("NYSE").
As compensation for its services and the related expenses borne by the Adviser,
the Adviser is entitled to a fee equal to 1.00% of the value of the Fund's
average net assets. The Adviser has agreed to waive a portion of its advisory
fee so that the fee is 0.75% on the first $100 million of the Fund's assets
until October 1, 2001.
Prior to October 1, 1999, Mathers and Company, Inc., 100 Corporate North, Suite
201, Bannockburn, Illinois 60015, served as investment adviser to the Fund.
Under its investment advisory agreement, Mathers and Company, Inc. received a
fee equal to 0.75% of the Fund's average net assets for the period January 1,
1999 through September 30, 1999.
THE PORTFOLIO MANAGER. Mr. Henry Van der Eb, CFA, of Gabelli Funds, LLC, is
primarily responsible for the day to day management of the Fund and has been the
Fund's portfolio manager for more than 20 years. Mr. Van der Eb (55) is
President, Chief Executive Officer, and Trustee of the Fund. He served as
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President of The Investment Analysts Society of Chicago 1979-1980, and is a
Chartered Financial Analyst (CFA), a Chartered Investment Counselor (CIC), and a
member of the Association for Investment Management and Research (AIMR).
RULE 12B-1 PLAN. The Fund has adopted a plan under Rule 12b-1 (the "Plan") which
authorizes payments by the Fund on an annual basis of 0.25% of the Fund's
average daily net assets attributable to Fund shares to finance distribution of
the Fund's shares. The Fund may make payments under the Plan for the purpose of
financing any activity primarily intended to result in the sale of the Fund's
shares. To the extent any activity is one that the Fund may finance without a
distribution plan, the Fund may also make payments to compensate such activity
outside of the Plan and not be subject to its limitations. Because payments
under the Plan are paid out of the Fund's assets on an on-going basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges. Prior to October 1, 1999, the Fund had no
distribution plan under Rule 12b-1 in place.
PURCHASE OF SHARES
You can purchase the Fund's shares on any day the NYSE is open for trading (a
"Business Day"). You may purchase shares directly through the Distributor,
directly from the Fund through the Fund's transfer agent or through registered
broker-dealers that have entered into selling agreements with the Distributor.
o BY MAIL OR IN PERSON. You may open an account by mailing a completed
subscription order form with a check or money order payable to "The
Gabelli Mathers Fund" to:
BY MAIL BY PERSONAL DELIVERY
-------------------- ---------------------
THE GABELLI FUNDS THE GABELLI FUNDS
P.O. BOX 8308 C/O BFDS
BOSTON, MA 02266-8308 66 BROOKS DRIVE
BRAINTREE, MA 02184
You can obtain a subscription order form by calling 1-800-GABELLI
(1-800-422-3554). Checks made payable to a third party and endorsed by the
depositor are not acceptable. For additional investments, send a check to the
above address with a note stating your exact name and account number, the name
of the Fund and class of shares you wish to purchase.
o BY BANK WIRE. To open an account using the bank wire transfer system,
first telephone the Fund at 1-800-GABELLI (1-800-422-3554) to obtain a
new account number. Then instruct a Federal Reserve System member bank to
wire funds to:
STATE STREET BANK AND TRUST COMPANY
[ABA #011-0000-28 REF DDA #99046187]
RE: THE GABELLI MATHERS FUND
ACCOUNT #__________
ACCOUNT OF [REGISTERED OWNERS]
225 FRANKLIN STREET, BOSTON, MA 02110
If you are making an initial purchase, you should also complete and mail
a subscription order form to the address shown under "By Mail." Note that
banks may charge fees for wiring funds, although State Street Bank and
Trust Company ("State Street") will not charge you for receiving wire
transfers.
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SHARE PRICE. The Fund sells its shares at the net asset value next determined
after the Fund receives your completed subscription order form and your payment.
See "Pricing of Fund Shares" for a description of the calculation of net asset
value.
MINIMUM INVESTMENTS. Your minimum initial investment must be at least $1,000.
See "Retirement Plans" and "Automatic Investment Plan" regarding minimum
investment amounts applicable to such plans. There is no minimum for subsequent
investments. Broker-dealers may have different minimum investment requirements.
RETIREMENT PLANS. The Fund has available a form of IRA, "Roth" IRA and Education
IRA for investment in Fund shares that may be obtained from the Distributor by
calling 1-800-GABELLI (1-800-422-3554). Self-employed investors may purchase
shares of the Fund through tax-deductible contributions to existing retirement
plans for self-employed persons, known as "Keogh" or "H.R.-10" plans. The Fund
does not currently act as a sponsor to such plans. Fund shares may also be a
suitable investment for other types of qualified pension or profit-sharing plans
which are employer sponsored, including deferred compensation or salary
reduction plans known as "401(k) Plans." The minimum initial investment in all
such retirement plans is $250. There is no minimum subsequent investment
requirement for retirement plans.
AUTOMATIC INVESTMENT PLAN. The Fund offers an automatic monthly investment plan.
There is no minimum initial investment for accounts establishing an automatic
investment plan. Call the Distributor at 1-800-GABELLI (1-800-422-3554) for more
details about the plan.
TELEPHONE INVESTMENT PLAN. You may purchase additional shares of the Fund by
telephone and/or over the Internet if your bank is a member of the Automated
Clearing House ("ACH") system. You must also have a completed, approved
Investment Plan application on file with the Fund's Transfer Agent. There is a
minimum of $100 for each telephone or Internet investment. To initiate an ACH
Purchase, please call 1-800-GABELLI (1-800-422-3554) or 1-800-872-5365 or visit
our website at www.gabelli.com.
GENERAL. State Street will not issue share certificates unless requested by you.
The Fund reserves the right to (i) reject any purchase order if, in the opinion
of the Fund's management, it is in the Fund's best interest to do so, (ii)
suspend the offering of shares for any period of time and (iii) waive the Fund's
minimum purchase requirement.
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REDEMPTION OF SHARES
You can redeem shares of the Fund on any Business Day without a redemption fee.
The Fund may temporarily stop redeeming its shares when the NYSE is closed or
trading on the NYSE is restricted, when an emergency exists and the Fund cannot
sell its shares or accurately determine the value of its assets, or if the
Securities and Exchange Commission orders the Fund to suspend redemptions.
The Fund redeems its shares at the net asset value next determined after the
Fund receives your redemption request. See "Pricing of Fund Shares" below for a
description of the calculation of net asset value.
You may redeem shares through the Distributor or directly from the Fund through
the Fund's transfer agent.
o BY LETTER. You may mail a letter requesting redemption of shares to: THE
GABELLI FUNDS, P.O. BOX 8308, BOSTON, MA 02266-8308. Your letter should
state the name of the Fund and the share class, the dollar amount or
number of shares you wish to redeem and your account number. You must
sign the letter in exactly the same way the account is registered and if
there is more than one owner of shares, all must sign. A signature
guarantee is required for each signature on your redemption letter. You
can obtain a signature guarantee from financial institutions such as
commercial banks, brokers, dealers and savings associations. A notary
public cannot provide a signature guarantee.
o BY TELEPHONE. You may redeem your shares in an account directly
registered with State Street by calling either 1-800-GABELLI
(1-800-422-3554) or 1-800-872-5365 (617-328-5000 from outside the United
States) or visiting our website at www.gabelli.com, subject to a $25,000
limitation. YOU MAY NOT REDEEM SHARES HELD THROUGH AN IRA BY TELEPHONE OR
THE INTERNET. If State Street properly acts on telephone or Internet
instructions and follows reasonable procedures to protect against
unauthorized transactions, neither State Street nor the Fund will be
responsible for any losses due to telephone or Internet transactions. You
may be responsible for any fraudulent telephone or Internet order as long
as State Street or the Fund takes reasonable measures to verify the
order. You may request that redemption proceeds be mailed to you by check
(if your address has not changed in the prior 30 days), forwarded to you
by bank wire or invested in another mutual fund advised by the Adviser
(see "Exchange of Shares").
1. TELEPHONE OR INTERNET REDEMPTION BY CHECK. The Fund will make
checks payable to the name in which the account is registered and
normally will mail the check to the address of record within
seven days.
2. TELEPHONE OR INTERNET REDEMPTION BY BANK WIRE. The Fund accepts
telephone or Internet requests for wire redemption in amounts of
at least $1,000. The Fund will send a wire to either a bank
designated on your subscription order form or on a subsequent
letter with a guaranteed signature. The proceeds are normally
wired on the next Business Day.
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AUTOMATIC CASH WITHDRAWAL PLAN. You may automatically redeem shares on a
monthly, quarterly or annual basis if you have at least $10,000 in your account
and if your account is directly registered with State Street. Call 1-800-GABELLI
(1-800-422-3554) for more information about this plan.
INVOLUNTARY REDEMPTION. The Fund may redeem all shares in your account (other
than an IRA account) if their value falls below $1,000 as a result of
redemptions (but not as a result of a decline in net asset value). You will be
notified in writing if the Fund initiates such action and allowed 30 days to
increase the value of your account to at least $1,000.
REDEMPTION PROCEEDS. A redemption request received by the Fund will be effected
at the net asset value next determined after the Fund receives the request. If
you request redemption proceeds by check, the Fund will normally mail the check
to you within seven days after receipt of your redemption request. If you
purchased your Fund shares by check or through the Automatic Investment Plan,
you may not receive proceeds from your redemption until the check clears, which
may take up to as many as 15 days following purchase. While the Fund will delay
the processing of the redemption until the check clears, your shares will be
valued at the next determined net asset value after receipt of your redemption
request.
EXCHANGE OF SHARES
You may exchange shares of the Fund you hold for shares of the same class of
another fund managed by the Adviser or its affiliates based on their relative
net asset values. To obtain a list of the funds whose shares you may acquire
through an exchange call 1-800-GABELLI (1-800-422-3554). You may also exchange
your shares for shares of a money market fund managed by the Adviser or its
affiliates.
In effecting an exchange:
o you must meet the minimum investment requirements for the fund whose
shares you purchase through exchange
o if you are exchanging to a fund with a higher sales charge, you must pay
the difference at the time of exchange
o you may realize a taxable gain or loss
o you should read the prospectus of the fund whose shares you are
purchasing through exchange. Call 1-800-GABELLI (1-800-422-3554) to
obtain the prospectus.
You may exchange shares through the Distributor, directly through the Fund's
transfer agent or through a registered broker-dealer.
o EXCHANGE BY TELEPHONE. You may give exchange instructions by telephone by
calling 1-800-GABELLI (1-800-422-3554). You may not exchange shares by
telephone if you hold share certificates.
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o EXCHANGE BY MAIL. You may send a written request for exchanges to: THE
GABELLI FUNDS, P.O. BOX 8308, BOSTON, MA 02266-8308. Your letter should
state your name, your account number, the dollar amount or number of
shares you wish to exchange, the name and class of the fund whose shares
you wish to exchange, and the name of the funds whose shares you wish to
acquire.
o EXCHANGE THROUGH THE INTERNET. You may also give exchange instructions
via the Internet at www.gabelli.com. You may not exchange shares through
the Internet if you hold share certificates.
We may modify or terminate the exchange privilege at any time. You will be given
notice 60 days prior to any material change in the exchange privilege.
PRICING OF FUND SHARES
The Fund's net asset value per share of the Class AAA Shares is calculated on
each Business Day. The NYSE is open Monday through Friday, but currently is
scheduled to be closed on New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when a holiday falls on a Saturday or Sunday, respectively.
The Fund's net asset value per share of the Class AAA Shares is determined as of
the close of regular trading on the NYSE, normally 4:00 p.m., Eastern Time. Net
asset value is computed by dividing the value of the Fund's net assets (i.e. the
value of its securities and other assets less its liabilities, including
expenses payable or accrued but excluding capital stock and surplus) by the
total number of its shares outstanding at the time the determination is made.
The Fund uses market quotations in valuing its portfolio securities. Short-term
investments that mature in 60 days or less are valued at amortized cost, which
the Trustees of the Fund believe represents fair value. The price of Fund shares
for purposes of purchase and redemption will be based upon the next calculation
of net asset value after the purchase or redemption order is received in proper
form.
Because the Fund is not open for business every day that its assets trade, the
net asset value of the Fund's shares may change on days when shareholders will
not be able to purchase or redeem the Fund's shares.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to pay dividends and capital gain distributions, if any, on an
annual basis. You may have dividends or capital gain distributions that are
declared by the Fund automatically reinvested at net asset value in additional
shares of the Fund. You will make an election to receive dividends and
distributions in cash or Fund shares at the time you purchase your shares. You
may change this election by notifying the Fund in writing at any time prior to
the record date for a particular dividend or distribution. There are no sales or
other charges in connection with the reinvestment of dividends and capital gain
distributions. There is no fixed dividend rate, and there can be no assurance
that the Fund will pay any dividends or realize any capital gains.
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TAX INFORMATION
The Fund expects that its distributions will consist primarily of net investment
income and net realized capital gains. Capital gains may be taxed at different
rates depending on the length of time the Fund holds the asset giving rise to
such gains. Dividends out of net investment income and distributions of net
realized short-term capital gains (i.e. gains from assets held by the Fund for
one year or less) are taxable to you as ordinary income. Distributions of net
long-term capital gains are taxable to you at long-term capital gain rates. High
portfolio turnover can indicate a high level of short-term capital gains that,
when distributed to shareholders, are taxed as ordinary income rather than at
the lower capital gains tax rate. However, as of the date of this prospectus,
the Fund has a large capital loss carryforward will offset any current or future
realized capital gains. Until this carryforward expires or is offset completely
by realized capital gains, shareholders will not receive taxable distributions
of capital gains. The Fund's distributions, whether you receive them in cash or
reinvest them in additional shares of the Fund, generally will be subject to
federal, state or local taxes. An exchange of the Fund's shares for shares of
another Fund will be treated for tax purposes as a sale of the Fund's shares,
and any gain you realize on such a transaction may be taxable. Foreign
shareholders generally will be subject to a federal withholding tax.
This summary of tax consequences is intended for general information only. You
should consult a tax adviser concerning the tax consequences of your investment
in the Fund.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance for the past five fiscal years of the Fund. The total returns in the
table represent the rate that an investor would have earned or lost on an
investment in the Fund's Class AAA Shares. The full year information for 1995
through 1998 has been audited by Arthur Andersen LLP, independent accountants.
For 1999, the information has been audited by Ernst & Young LLP, independent
auditors, whose report, along with the Fund's financial statements and related
notes, is included in the annual report, which is available upon request. Per
share amounts for the Fund's Class AAA Shares outstanding throughout each fiscal
year ended December 31,
<TABLE>
<CAPTION>
1999(a) 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year .............. $ 11.73 $ 13.06 $ 13.27 $ 13.75 $ 13.55
-------- -------- -------- -------- --------
Net investment income ........................... 0.46 0.58 0.53 0.40 0.60
Net realized and unrealized
gain/(loss) on investments .................... 0.21 (1.26) (0.13) (0.41) 0.35
-------- -------- -------- -------- --------
Total from investment operations ................ 0.67 (0.68) 0.40 (0.01) 0.95
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ........................... (0.46) (0.65) (0.61) (0.47) (0.72)
Net realized gains .............................. -- -- -- -- (0.03)
-------- -------- -------- -------- --------
Total distributions ............................. (0.46) (0.65) (0.61) (0.47) (0.75)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 11.94 $ 11.73 $ 13.06 $ 13.27 $ 13.75
======== ======== ======== ======== ========
Total return+ ................................... 5.73% (5.21)% 3.01% (0.07)% 7.01%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ............ $104,693 $108,548 $138,404 $171,596 $232,303
Ratio of net investment income
to average net assets ......................... 3.50% 4.56% 3.96% 2.96% 4.25%
Ratio of operating expenses to
average net assets(b) ......................... 1.24% 1.16% 1.07% 1.03% 0.98%
Portfolio turnover rate ......................... 922% 67% 50% 38% 58%
<FN>
- ----------------
+ Total return represents aggregate total return of a hypothetical $1,000
investment at the beginning of the period and sold at the end of the period
including reinvestment of dividends.
(a) Gabelli Funds, LLC became the investment adviser of the Fund on October 1,
1999.
(b) The Fund incurred dividend expense on securities sold short for the years
ended December 31, 1999 and 1998. If the dividend expense had not been
incurred, the ratios of operating expenses to average net assets would have
been 1.24% and 1.12%, respectively.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE GABELLI MATHERS FUND
================================================================================
FOR MORE INFORMATION:
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's semi-annual and annual reports to shareholders contain additional
information on the Fund's investments. In the Fund's annual report, you will
find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Fund, including its
operations and investment policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
- --------------------------------------------------------------------------------
You can get free copies of these documents and prospectuses of other funds in
the Gabelli family, or request other information and discuss your questions
about the Fund by contacting:
The Gabelli Mathers Fund
One Corporate Center
Rye, NY 10580
Telephone: 1-800-GABELLI (1-800-422-3554)
www.gabelli.com
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-202-942-8090. You
can get text-only copies:
o For a fee, by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102, or by calling 1-202-942-8090, or by
electronic request at the following email address: [email protected].
o Free from the Commission's Website at http://www.sec.gov.
(Investment Company Act file no. 811-1311)
- --------------------------------------------------------------------------------
<PAGE>
THE GABELLI MATHERS FUND
One Corporate Center
Rye, New York 10580-1434
1-800-GABELLI
[1-800-422-3554]
FAX: 1-914-921-5118
HTTP://WWW.GABELLI.COM
E-MAIL: [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 p.m.)
QUESTIONS?
Call 1-800-GABELLI
or your investment representative.
TABLE OF CONTENTS
-----------------
INVESTMENT AND PERFORMANCE SUMMARY ............ 2-5
INVESTMENT AND RISK INFORMATION ............... 6-8
MANAGEMENT OF THE FUND ........................ 8-9
Purchase of Shares ................... 9
Redemption of Shares ................. 11
Exchange of Shares ................... 12
Pricing of Fund Shares ............... 13
Dividends and Distributions .......... 13
Tax Information ...................... 14
FINANCIAL HIGHLIGHTS .......................... 15
<PAGE>
THE GABELLI MATHERS FUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information (the "SAI"), which is not a prospectus,
describes The Gabelli Mathers Fund (the "Fund"). The SAI should be read in
conjunction with the Fund's Prospectus dated May 1, 2000. For a free copy of the
Prospectus, please contact the Fund at the address, telephone number or Internet
web site printed below.
One Corporate Center
Rye, New York 10580-1434
Telephone 1-800-GABELLI (1-800-422-3554)
http://www.gabelli.com
TABLE OF CONTENTS
General Information 2
Investment Strategies and Risks 2
Investment Restrictions 6
Trustees and Officers 8
Control Persons and Principal Shareholders 11
Investment Advisory and Other Services 11
Distribution Plan 14
Portfolio Transactions and Brokerage 15
Redemption of Shares 17
Determination of Net Asset Value 17
Dividends and Distributions 18
Taxation 18
Investment Performance Information 21
Description of Shares, Voting Rights and Liabilities 22
Financial Statements 22
<PAGE>
GENERAL INFORMATION
The Fund is a diversified, open-end management investment company organized
under the laws of the state of Delaware on June 17, 1999. The Fund commenced
operations on October 1, 1999 as the successor to Mathers Fund, Inc., a Maryland
corporation incorporated on March 31, 1965 that commenced operations on August
19, 1965. Any reference herein to the Fund, including any financial information
and performance data relating to the period prior to October 1, 1999, reflects
the Fund as constituted prior to the commencement of operations as a trust.
An investment company combines the investments of its shareholders and purchases
various securities. Through ownership of shares in the investment company,
shareholders participate in the investment performance of such securities. As an
open-end investment company, the Fund has an obligation to redeem the shares of
any shareholder by paying such shareholder the net asset value next computed
after receipt of a request in proper form for a redemption of such shares.
INVESTMENT STRATEGIES AND RISKS
The Fund's investment objective, how the Fund seeks to achieve its investment
objective and the principal investment strategies by which the Fund will pursue
its objective are generally set forth in the Prospectus. This section describes
in more detail certain securities in which the Fund may invest and certain
investment practices and restrictions and is intended to augment the description
found in the Prospectus.
FIXED-INCOME SECURITIES
The Fund may, subject to the limitation described in paragraph 3 under
"Fundamental Policies" below, invest all or any portion of its assets in high
quality fixed-income securities, which may include the following:
* U.S. Treasury bills, notes or bonds
* banker's acceptances and certificates of
deposit of the 50 largest commercial banks in the United States, measured by
total assets as shown by their most recent annual financial statements
* commercial paper rated A-l or A-2 by Standard & Poor's, Inc. ("S&P") or P-l or
P-2 by Moody's Investors Service, Inc. ("Moody's"), or, if not rated, issued by
companies having an outstanding debt issue rated AA or better by S&P or Aa or
better by Moody's
* repurchase agreements with respect to the foregoing
REPURCHASE AGREEMENTS
The Fund will not invest over 10% of its assets in repurchase agreements with
maturities of over seven days. Underlying securities subject to a repurchase
agreement are held in a segregated account in which the custodian holds assets
on behalf of the Fund and others. If the counterparty fails to repurchase any
such securities, the Fund could experience losses that include:
* possible decline in their value while the Fund seeks to enforce its rights
* possible loss of all or a part of the income or proceeds of the repurchase
* possible loss of rights in such securities
* additional expenses to the Fund in enforcing its rights
The Fund may, subject to the limitation described in paragraph 8 under
"Non-fundamental Policies" below, effect short sales of securities. A short sale
is a transaction in which the Fund sells a security which it does not then own
in order to profit from the potential decline in the market price of that
security. To meet its settlement obligation, the Fund borrows the security sold
short from a broker and delivers that security to the buyer. The Fund is then
obligated to return the borrowed security to the broker, typically at an
unspecified future date. At that time, the Fund purchases an equivalent number
of shares of the same shorted security at its then current market price in order
to cover the short position and effect the return. The price at such time may
<PAGE>
be more or less than the price at which the Fund sold the security short. The
transaction will be profitable to the Fund if the price of the security (less
related transaction costs) at the time it is purchased is less than its price at
the time the Fund entered into the short sale. Conversely, if the price of the
security (less related transaction costs) is greater at the time of purchase
than at the time of the short sale, the transaction will result in a loss. The
Fund will be obligated to reimburse the lender for any dividends paid on the
borrowed stock during the period of the open short position and may have to pay
a fee to borrow certain stocks.
Pursuant to rules imposed by the Securities and Exchange Commission (the "SEC"),
until the Fund covers its short position, the Fund will be required to maintain
with its custodian a segregated account, containing cash or liquid debt or
equity securities, such that the amount deposited in the segregated account plus
the amount deposited with the broker as collateral (excluding initial proceeds
from the short sale) equals the current market value of the security sold short.
The Fund may sell securities short when it believes that prices of such
securities are likely to decline, thereby giving the Fund the opportunity to
potentially profit from any such decline.
The short sale of securities is generally considered a speculative investment
strategy, and there are risks associated with it, including but not limited to
the following: (i) the decision of whether, when and how to utilize short
selling involves the exercise of skill and judgment and, unless the Fund's
Investment Adviser, Gabelli Funds, LLC (the "Adviser") correctly anticipates the
price movements of securities, it is possible that, for at least certain short
sales, the Fund would have been better off if the short sale had not been made,
(ii) unlike a long purchase, where the investor cannot lose more than the
purchase price, there is no theoretical limit to potential losses on a short
sale; (iii) under certain conditions, short sales of securities could increase
the volatility of the Fund or decrease its liquidity; (iv) possible volatility
or illiquidity in the markets which could result in difficulty in closing out an
existing short position, causing a continuing exposure to adverse price
movements until the position is covered; (v) the lender of a security borrowed
and sold short may call the security back, possibly causing a premature
close-out of the short position; and (vi) the amount of any gain will be
decreased, and the amount of any loss increased, by the amount of dividends or
interest the Fund may be required to pay in connection with a short sale.
CORPORATE REORGANIZATIONS
In general, securities of companies engaged in reorganization transactions sell
at a premium to their historic market price immediately prior to the
announcement of the tender offer or reorganization proposal. However, the
increased market price of such securities 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; significantly
undervalues the securities, assets or cash to be received by shareholders of the
prospective portfolio company as a result of the contemplated transaction; or
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 Adviser which must appraise not only the value of the issuer and its
component businesses as well as the assets or securities to be
<PAGE>
received as a result of the contemplated transaction, but also the financial
resources and business motivation of the offeror as well as the dynamic of the
business climate when the offer or proposal is in progress.
Since such investments are ordinarily short term in nature, they will tend to
increase the Fund's portfolio turnover ratio thereby increasing its brokerage
and other transaction expenses. The Adviser intends to select investments of the
type described which, in its view, have a reasonable prospect of capital
appreciation which is significant in relation to both the risk involved and the
potential of available alternate investments.
STOCK INDEX OPTIONS
The Fund may, subject to the limitation described in paragraph 6 under
"Non-fundamental Policies" below, purchase put and call options on stock indices
for hedging purposes in circumstances believed appropriate by the Adviser. Stock
index options are issued by the Options Clearing Corporation ("OCC"). The Fund
will only purchase stock index options which are traded on a national securities
exchange such as the Chicago Board Options Exchange, Inc. Upon purchase of a
stock index option, the Fund will pay a purchase price (the "premium") and
brokerage commissions and fees (collectively, together with the premium,
"transaction costs"). Such options confer upon the holder the right to receive
upon exercise an amount of cash which is based on the difference between the
exercise price of the option and the closing level of the underlying stock index
on the exercise date multiplied by a specified dollar amount. The right to
receive any cash amount depends on the closing level of the stock index upon
which the option is based being greater than (in the case of a call) or less
than (in the case of a put) the exercise price of the option.
A stock index option may be exercised only during its remaining life and may be
sold prior to expiration. The value of an option will generally vary directly,
in the case of a call, and inversely, in the case of a put, with movements in
the underlying index, and the percentage fluctuations in the value of an option
may be many times greater than those of the underlying index. The Adviser may
purchase call index options as a hedge against an increase in the price of
securities generally in connection with either sales of portfolio securities or
deferrals to a later date of purchases of securities it may desire to purchase.
Put index options may be purchased as a hedge against a decline in the price of
securities generally rather than selling portfolio securities.
Any protection provided by stock index options is effective only against changes
in the level of a stock index and not necessarily against a change in the value
of individual securities. Thus, the effectiveness of the use of stock index
options as a hedge is dependent on the extent to which price movements of
individual securities which are being hedged correlate with price movements in
the underlying stock index. Unless a stock index option can be sold or can be
exercised at a profit prior to expiration, the Fund will forfeit the entire
amount of its transaction costs, often in a relatively short period of time. Any
profit that may be realized from the sale or exercise of stock index options
will be reduced by related transaction costs.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON SUCH CONTRACTS
The Fund may, subject to the limitation described in paragraph 7 under
"Non-fundamental Policies" below, purchase or sell stock index futures contracts
and options on such contracts for hedging purposes in circumstances believed to
be appropriate by the Adviser thereby altering the Fund's equity exposure
without actually buying or selling underlying equity securities. A stock index
futures contract provides that a person with an open position in such a contract
has the right to receive, or has the obligation to pay, cash amounts on a daily
basis during the period such position is open based on the daily changes in the
difference between the price at which the contract is originally made and the
current level of the underlying stock index multiplied by a specified dollar
amount. An option on a stock index futures contract gives the holder (purchaser)
the right, but not the obligation, in return for payment of the premium (option
price), to acquire either a long or a short position (a long position if the
option is a call and a short position if the option is a put) in such futures
contract at a specified exercise price at any time during the option exercise
period. The writer of the stock index futures option has the obligation upon
exercise to assume the opposite position on the stock index futures contract.
<PAGE>
The Fund's transactions in stock index futures contracts will be executed on
U.S. boards of trade designated by the Commodity Futures Trading Commission
("CFTC") as contract markets ("contract markets") through a futures commission
merchant (an "FCM") which is a member of the relevant contract market. The
contract markets, through their clearinghouses, effectively guarantee that the
payments due with respect to stock index futures contracts will be made so that
traders need not rely solely on the solvency of individual traders or brokers
for the satisfaction of the obligations under open positions. However, in the
event of a bankruptcy of the Fund's broker, the Fund may be unable to recover
its assets - even assets directly traceable to the Fund - from such broker.
At the time the Fund enters into a stock index futures contract, it is required
to deposit as "initial margin" a specified amount of cash or cash equivalents
per contract. Thereafter, subsequent payments of "variation margin" are made
daily to or from the FCM based upon daily changes in the value of the contract
(a process known as "marking to market"). Initial margin is in the nature of a
performance deposit, which is returned to the Fund unless it defaults in making
variation margin payments. Variation margin is the settlement made each day
between the Fund and the FCM based upon fluctuations in the price level of such
contracts, which under normal market conditions directly reflect fluctuations in
the level of the stock index on which the contract is based. A person with a
long position in a stock index futures contract (purchaser) has the right to
receive payments to the extent that the market price level of such futures
contract increases above the level at which such person acquired the long
position, and will be obligated to make payments to the extent that such market
price level falls below the acquisition price level. The converse is the case
for a person with a short position in a stock index futures contract (seller).
Upon exercise of a stock index futures option, the simultaneous acquisition of
open positions in the underlying stock index futures contract by the person
exercising the option and the writer is accomplished by delivery for the account
of the person exercising the option of the accumulated cash balance in the
writer's futures margin account which represents the amount by which the market
price of the stock index futures contract, at exercise, exceeds (in the case of
a call) or is less than (in the case of a put) the strike price of the stock
index futures option. If the stock index futures option is exercised on the last
trading day for such option, the writer delivers to the holder cash in an amount
equal to the difference between the option strike price and the closing level of
the relevant stock index on the date the option expires.
The Fund may purchase and sell stock index futures contracts and options on such
contracts as a hedge against market fluctuations in its portfolio of equity
investments or as a means of quickly and efficiently converting the Fund's cash
into an equity position. For example, the Fund might use stock index futures
contracts to hedge against fluctuations in the general level of stock prices
which might adversely affect either the value of the Fund's portfolio securities
or the price of securities which the Fund intends to purchase. The Fund's
hedging may include sales of stock index futures contracts as an offset against
the effect of expected declines in stock prices and purchases of stock index
futures contracts as an offset against the effect of expected increases in stock
prices.
In its purchase of stock index futures contracts or options on such contracts,
the Fund may not necessarily have the contemporaneous intention of converting
such positions into specific equity securities by means of
<PAGE>
the purchase of such securities for the Fund's portfolio, and in its sale of
stock index futures contracts or options on such contracts, the Fund may not
necessarily have the contemporaneous intention of converting such positions into
non-equity holdings by means of the sale of equity securities then held in the
Fund's portfolio.
Several risk factors are associated with trading stock index futures contracts
and options on such contracts. These risks include: (i) an imperfect
correlation, limiting the effectiveness of any hedge the Fund may attempt in the
futures markets, between the change in market value of the stocks in the Fund's
portfolio and the prices of stock index futures contracts and options on such
contracts in the Fund's portfolio due to the stocks held by the Fund not fully
replicating the stocks underlying the relevant stock index; (ii) possible
illiquidity in the markets for stock index futures contracts and options on such
contracts which could result in the Fund's inability to close out an existing
position resulting in a continuing exposure to adverse price movements; (iii)
the highly leveraged nature of stock index futures contracts and options on such
contracts, resulting in extreme volatility in the value of such contracts as a
percentage of the Fund's assets committed to such positions in the form of
futures margins or option premiums; (iv) the fact that the decision of whether,
when and how to hedge involves the exercise of skill and judgment, and unless
the Fund's Adviser correctly predicts market movements it is possible that as to
a particular hedge the Fund would have been better off had a decision to hedge
not been made; and (v) the possibility that a stock index futures option
purchased by the Fund may expire worthless, in which case the Fund would lose
the premium paid for it as well as related transaction costs. In addition,
certain contract markets have adopted rules requiring the cessation of trading
for specified periods in the event of substantial intra-day price changes and
overall daily price fluctuation limits (the maximum amount that the price of a
stock index futures contract may vary up or down from the previous day's
settlement price). The Federal Reserve Board has the authority to oversee the
levels of required margin on stock index futures contracts and options on such
contracts. The Federal Reserve Board or the CFTC, acting pursuant to delegated
authority, could require that minimum margin levels be set at levels which
exceed those historically applied by the contract markets.
The price level of a stock index futures contract should correlate with the
current level of the related stock index, after adjustment to reflect that a
person with a long open futures position will receive interest on the funds such
person otherwise would have had to use to acquire the stocks which comprise such
index but, at the same time, will receive no dividends on the futures position
as would have been the case if such person had actually acquired such stocks. In
turbulent market conditions, however, the price level of stock index futures
contracts can become disassociated from the level of the related stock index,
materially impairing the usefulness of the stock index futures markets for
hedging stock positions.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The Fund has adopted certain fundamental investment restrictions which may not
be changed without approval of the approval of a majority of the Fund's
shareholders, defined as the lesser of: (i) 67% of the Fund's shares present or
represented at a shareholders meeting at which the holders of more than 50% of
such shares are present or represented, or (ii) more than 50% of the outstanding
shares of the Fund. Under its fundamental investment restrictions, the Fund may
not:
1. Purchase securities on margin (except that the Fund may make margin payments
in connection with transactions in stock index futures contracts and options on
such contracts and in connection with short sales of securities), participate in
a joint-trading account (the bunching of securities transaction orders with
orders of other accounts managed by the Adviser not being considered
participation in a joint-trading account for this purpose), act as an
underwriter or distributor of securities other than shares of the Fund, lend
money (except by purchasing publicly distributed debt securities or entering
into repurchase agreements) or purchase or sell commodities or commodity futures
(except that the Fund may purchase or sell stock index futures contracts and
options on such contracts) or real estate (marketable securities of companies
whose business involves the purchase or sale of real estate, including real
estate investment trusts, not being considered real estate for this purpose);
<PAGE>
2. Borrow money or issue senior securities, except for temporary bank borrowings
(not in excess of 5% of the value of its assets) for emergency or extraordinary
purposes, or pledge any of its assets (collateral arrangements with respect to
margin for stock index futures contracts and options on such contracts and with
respect to short sales of securities not being considered a pledge of assets for
this purpose), except to secure such borrowings and only to an extent not
greater than 10% of the value of the Fund's net assets. The Fund has not,
however, employed the practices of borrowing money, issuing senior securities or
pledging any of its assets nor does it intend to employ such practices in the
absence of unforeseen circumstances;
3. Purchase debt securities other than those which are publicly held (repurchase
agreements not being considered debt securities for this purpose);
4. Purchase securities of other investment companies, except on the open market
where no profit or commission results other than the broker's commission, or as
part of a plan of merger, consolidation or reorganization approved by the
shareholders of the Fund;
5. Make investments for the purpose of exercising control or management of any
company;
6. Purchase securities of any issuer (other than the United States or an
instrumentality of the United States) if, as a result of such purchase, the Fund
would hold more than 10% of the voting securities of any class of such issuer or
more than 5% of the Fund's assets would be invested in securities of such
issuer;
7. Concentrate more than 25% of the value of its assets, exclusive of government
securities, in securities issued by companies primarily engaged in the same
industry; or
8. Acquire or retain any security issued by a company, an officer or director of
which is an officer or trustee of the Fund or an officer, director or other
affiliated person of its investment adviser.
NON-FUNDAMENTAL POLICIES
The Fund has adopted the following non-fundamental policies which may be changed
by the Fund's Board of Trustees without shareholder approval. The Fund will not:
1. Purchase any securities which are restricted from sale to the public without
registration under the Securities Act of 1933;
2. Purchase any interest in any oil, gas or any other mineral exploration or
development program or, except for options on stock indices as set forth in
paragraph 7 below, invest in put and call options;
3. Purchase any security if, as a result of such purchase, the Fund would hold
more than 10% of any class of the securities of an issuer;
4. Enter into repurchase agreements, except with authorized banks or dealers
meeting criteria established by the Adviser, or invest over 10% of its assets in
repurchase agreements with maturities of more than seven days;
5. Invest over 10% of its net assets in securities of foreign issuers which are
not publicly traded in the United States;
6. Purchase put and call options on stock indices if the total cost (determined
as of the time of purchase) of all such options held by the Fund would exceed 5%
of the value of the Fund's net assets considered each time such an option is
acquired;
<PAGE>
7. Enter into stock index futures contracts or options on such contracts if
immediately thereafter the aggregate initial margin and premiums (less the
amount by which any such options are "in-the-money" at the time of purchase)
would exceed 5% of the value of the Fund's total assets after taking into
account any unrealized profits and losses on such instruments; or
8. (i) Sell any securities short if immediately thereafter the market value of
all securities sold short by the Fund would exceed 50% of the value of the
Fund's net assets, or (ii) sell securities of any single issuer short if
immediately thereafter the market value of the securities of that issuer that
have been sold short by the Fund would exceed 5% of the Fund's net assets or if
the securities sold short would constitute more than 3% of a class of the
issuer's outstanding securities.
GENERAL
Any percentage limitations referred to in the above investment restrictions are
determined at the time a purchase, initial investment or short sale is made and
any subsequent change in any applicable percentage resulting from market
fluctuations does not require elimination of any security from or short position
in the Fund's portfolio.
The Fund's fundamental investment restriction as to concentration, described in
paragraph 7 under "Fundamental Policies" above, does not apply to investments in
government securities (e.g., U.S. Treasury securities) since their issuers are
not members of any industry. The Fund includes government securities in
determining the value of all of its assets for purposes of calculating the
percentage of the value of its assets invested in issuers primarily engaged in
an industry.
The Fund may invest, without limitation under the non-fundamental policy
described in paragraph 6 under "Non-fundamental Policies" above, in foreign
securities that are U.S. dollar denominated and are publicly traded in the
United States and in U.S. dollar denominated American Depositary Receipts
(receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer).
Dividends and interest on securities of foreign issuers may be subject to
foreign withholding tax, which would reduce the Fund's income without providing
a tax credit for the Fund's shareholders. Other risks of investing in foreign
securities include political, social or economic instability in the country
where the issuer is domiciled, the difficulty of predicting international trade
patterns, exchange rate fluctuations, and, in certain countries, the possibility
of expropriation or diplomatic developments that could affect investments in
those countries. In addition, less information may be publicly available about a
foreign company than about a domestic company, foreign companies may not be
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies, and securities of some
foreign companies may be less liquid and more volatile than securities of
comparable U.S. companies.
The Fund may purchase securities in underwritten prospectus offerings, including
so-called "hot" initial public offerings, but will generally do so on the basis
of fundamental valuation and/or special situation investment considerations, and
not, typically, solely on the basis of supply and demand considerations.
Generally, the Fund will participate only when the Adviser believes the
securities offered are consistent with the Fund's non-prospectus offering
security selections and investment risk profile.
TRUSTEES AND OFFICERS
Under Delaware law, the Fund's Board of Trustees is responsible for establishing
the Fund's policies and for overseeing the management of the Fund. The Board
also elects the Fund's officers who conduct the daily business of the Fund. The
Trustees and executive officers of the Fund, their ages and their principal
occupations during the last five years and their affiliations, if any with the
Adviser, are set forth below. Unless otherwise specified, the address of each
person is One Corporate Center, Rye, New York 10580-1434. Trustees deemed to be
"interested persons" of the Fund for purposes of the Investment Company Act of
1940, as amended (the "1940 Act") are indicated by an asterisk.
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND POSITION(S) WITH THE FUND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
--------------------------------------- --------------------------------------------
<S> <C>
Mario J. Gabelli, CFA* Chairman of the Board and Chief Investment Officer of Gabelli
Chairman of the Board and Trustee Asset Management Inc. and Chief Investment Officer of Gabelli
Age: 57 Funds, LLC and GAMCO Investors, Inc.; Chairman of
the Board and Chief Executive Officer of Lynch Corporation
(diversified manufacturing company) and Chairman of the
Board of Lynch Interactive Corporation (multimedia and
services company); Director of Spinnaker Industries, Inc.
(manufacturing company); Director or Trustee of 16
other mutual funds advised by Gabelli Funds, LLC and its
affiliates.
Felix J. Christiana Formerly Senior Vice President of Dry Dock Savings Bank;
Trustee Director or Trustee of ten other mutual funds advised by Gabelli
Age: 75 Funds, LLC and its affiliates.
Anthony J. Colavita President and Attorney at Law in the law firm of Anthony J.
Trustee Colavita, P.C. since 1961; Director or Trustee of 17 other
Age: 64 mutual funds advised by Gabelli Funds, LLC and its affiliates.
Vincent D. Enright Former Senior Vice President and Chief Financial Officer of Key
Trustee Span Energy Corp.; Director or Trustee of six other mutual funds
Age: 56 advised by Gabelli Funds, LLC and its affiliates.
Jon P. Hedrich Private investor; Prior to 1992, President and Partner of
Trustee Steiner Diamond Institutional Services.
Age: 58
Robert E. Kohnen President of Bask Group LLC (investment management firm); Prior
Trustee to 1999, Vice President and Investment Manager of Protection
Age: 65 Mutual Insurance Company.
Karl Otto Pohl*+ Member of the Shareholder Committee of Sal Oppenheim Jr. & Cie
Trustee (private investment bank); Director of Gabelli Asset Management
Age: 70 Inc. (investment management), Zurich Allied (insurance
company), and TrizecHahn Corp. (real estate company); Former
President of the Deutsche Bundesbank and Chairman of its
Central Bank Council from 1980 through 1991; Director or
Trustee of all other mutual funds advised by Gabelli
Funds, LLC and its affiliates.
Anthony R. Pustorino, CPA Certified Public Accountant; Professor of Accounting, Pace
Trustee University; Director or Trustee of ten other mutual funds
Age: 74 advised by Gabelli Funds, LLC and its affiliates.
Werner J. Roeder, M.D. Medical Director, Lawrence Hospital and practicing private
Trustee physician; Director or Trustee of ten other mutual funds advised
Age: 59 by Gabelli Funds, LLC and its affiliates.
Henry G. Van der Eb, CFA*++ Prior to October 1999, Chairman and Chief Executive Officer of
Trustee, President and Chief Executive Officer Mathers Fund, Inc. and President, Mathers and Company, Inc.
Age: 55
Anthonie C. van Ekris Managing Director of BALMAC International; Director or Trustee
Trustee of ten other mutual funds advised by Gabelli Funds, LLC and its
Age: 65 affiliates.
Jack O. Vance Managing Director of Management Research, Inc., a management
Trustee consulting firm. Director of International Rectifier Corporation
Age: 74 (semi-conductors), Semtech Inc. and FCG Enterprises, Inc.
(management consulting).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Bruce N. Alpert Executive Vice President and Chief Operating Officer of Gabelli
Executive Vice President and Treasurer Funds, LLC since 1988. President and Director of Gabelli
Age: 48 Advisers, Inc. and an Officer of all mutual funds advised by
Gabelli Funds, LLC and its affiliates.
James E. McKee Secretary of Gabelli Funds, LLC; Vice President, Secretary and
Secretary General Counsel of GAMCO Investors, Inc. since 1993 and Gabelli
Age: 36 Asset Management Inc. since 1999; Secretary of all mutual funds
advised by Gabelli Funds, LLC and Gabelli Advisers, Inc. since
August 1995.
Anne E. Morrissy, CFA++ Prior to October 1999, Executive Vice President, Secretary and
Executive Vice President Director, Mathers Fund Inc. and Vice President, Mathers and
Age: 39 Company, Inc.
Lawrence A. Kenyon, CPA++ Prior to October 1999, Senior Vice President and Chief Financial
Senior Vice President Officer, Mathers Fund Inc. and Vice President and Treasurer,
Age:34 Mathers and Company, Inc.
Edith L. Cook++ Prior to October 1999, Vice President and Treasurer, Mathers
Vice President Fund Inc. and Vice President, Mathers and Company, Inc.
Age: 58
Heidi M. Stubner++ Prior to October 1999, Vice President of Mathers Fund Inc.
Vice President
Age: 31
<FN>
- --------------------------------
+ Mr. Pohl is a director of the parent company of the Adviser.
++ Address is 100 Corporate North, Suite 201, Bannockburn, IL 60015.
</FN>
</TABLE>
The Board of Trustees of the Fund has an audit committee consisting of Messrs.
Christiana and Pustorino. These Trustees are not "interested persons" of the
Fund (as defined in the 1940 Act). The audit committee is responsible for
recommending the selection of the Fund's independent accountants and reviewing
all audit as well as non-audit accounting services performed for the Fund. The
Fund also has a nominating committee consisting of Messrs. Colavita and Roeder.
These persons are not "interested persons" of the Fund (as defined in the 1940
Act). The nominating committee is responsible for recommending qualified
candidates to the Board of Trustees in the event that a position is vacated or
created.
The Corporation, its investment adviser and principal underwriter 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 Corporation.
No director, officer or employee of the Adviser or any affiliate of the Adviser
receives any compensation from the Fund for serving as an officer or Trustee of
the Fund. The Fund pays each of its Trustees who is not an affiliated person of
the Adviser $1,000 per meeting attended in person and reimburses each Trustee
for related travel and out-of-pocket expenses. Additionally, Messrs. Hedrich,
Kohnen and Vance receive an annual retainer of $5,000. The Fund also pays each
Trustee serving as a member of the Audit or Nominating Committees a fee of $500
per committee meeting, if held on a day other than a regularly scheduled board
meeting. The Fund does not maintain any deferred compensation, pension or
retirement plans, and no pension or retirement benefits are accrued as part of
Fund expenses.
The following table sets forth certain information regarding the compensation of
the Fund's Trustees and officers. No executive officer or person affiliated with
the Fund received compensation from the Fund for the fiscal year ended December
31, 1999 in excess of $60,000.
<TABLE>
<CAPTION>
Name of Person Aggregate Compensation Total Compensation from the Fund and Fund
AND POSITION FROM THE FUND COMPLEX PAID TO TRUSTEES*
------------ ------------- -------------------------
<S> <C> <C> <C>
Felix J. Christiana+ $ 1,000 $ 99,250 (11)
Anthony J. Colavita+ $ 1,000 $ 94,875 (18)
Vincent D. Enright+ $ 1,000 $ 25,500 (7)
Jon P. Hedrich $ 6,000 $ 6,000 (1)
Robert E. Kohnen $ 6,000 $ 6,000 (1)
Karl Otto Pohl+ $ 0 $7,042 (19)
Anthony R. Pustorino+ $ 1,000 $ 107,250 (11)
Werner J. Roeder+ $ 1,000 $ 34,859 (11)
Anthonie C. van Ekris+ $ 1,000 $ 60,000 (11)
Jack O. Vance $ 6,000 $ 6,000 (1)
<FN>
- -----------------
* Represents the total compensation paid to such persons during the fiscal
year ending December 31, 1999. The parenthetical number represents the
number of investment companies (including the Fund) from which such person
receives compensation which are considered part of the same fund complex as
the Fund because they have a common or affiliated investment adviser.
+ Became Trustees on October 1, 1999.
</FN>
</TABLE>
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of April 17, 2000, the following persons owned of record or beneficially more
than 5% of the Fund's outstanding shares:
NATURE OF
NAME AND ADDRESS % OF CLASS OWNERSHIP
- ---------------- ---------- ---------
Edward A. Pauls &
Florence L. Pauls JT WROS 18.41% Beneficial
8227 Top of the World Drive
Salt Lake City, UT 84121-6031
Gabelli Asset Management 5.06% Beneficial
1 Corporate Center
Rye, NY 10580-1442
As of April 1, 2000, the Trustees and officers of the Fund, as a group,
beneficially owned 4,047,130 or 9.27% of the Fund's outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Adviser is a New York limited liability company which serves as investment
adviser to 13 open-end investment companies and four closed-end investment
companies with aggregate assets in excess of $10.6 billion as of December 31,
1999. The Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended. Mr. Mario J. Gabelli may be deemed a
"controlling person" of the Adviser on the basis of his controlling interest of
the ultimate parent company of the Adviser. The Adviser has several affiliates
that provide investment advisory services: GAMCO Investors, Inc. ("GAMCO"), a
wholly-owned subsidiary of the Adviser, acts as investment adviser for
individuals, pension trusts, profit-sharing trusts and endowments, and had
assets under management of approximately $9.4 billion under its management as of
December 31, 1999; Gabelli Advisers, Inc. acts as investment adviser to the
Gabelli Westwood Funds with assets under management of approximately $390
million as of December 31, 1999; Gabelli Securities, Inc. acts as investment
adviser to certain alternative investments products, consisting primarily of
risk arbitrage and merchant banking limited partnerships and offshore companies,
with assets under management of approximately $230 million as of December 31,
1999; and Gabelli Fixed Income LLC acts as investment adviser for the three
portfolios of The Treasurer's Fund and separate accounts having assets under
management of approximately $1.4 billion as of December 31, 1999.
An investment advisory agreement (the "Current Agreement") between the Fund and
the Adviser was approved by the shareholders of the Fund on September 24, 1999,
to be effective on October 1, 1999. The Current Agreement provides that the
Adviser will act as investment adviser to the Fund, supervise and manage the
Fund's investment activities on a discretionary basis and oversee the
administration of the Fund's business and affairs. In this connection, the
Adviser is responsible for maintaining certain of the Fund's books and records
and performing other administrative aspects of the Fund's operations to the
extent not performed by the Fund's custodian, transfer agent and dividend
disbursing agent.
<PAGE>
The Adviser bears all costs and expenses incurred in connection with its duties
under the Current Agreement, including the fees or salaries of Trustees or
officers of the Fund who are affiliated persons of the Adviser. Subject to the
foregoing, the Fund will be responsible for the payment of all of its other
expenses, including (i) payment of the fees payable to the Adviser under the
agreement; (ii) organizational expenses; (iii) brokerage fees and commissions;
(iv) taxes; (v) interest charges on borrowings; (vi) the cost of liability
insurance or fidelity bond coverage for the Fund's officers and employees, and
trustees' and officers' errors and omissions insurance coverage; (vii) legal,
auditing and accounting fees and expenses; (viii) charges of the Fund's
custodian, transfer agent and dividend disbursing agent; (ix) the Fund's pro
rata portion of dues, fees and charges of any trade association of which the
Fund is a member; (x) the expenses of printing, preparing and mailing proxies,
stock certificates and reports, including the Fund's prospectus and statement of
additional information, and notices to shareholders; (xi) filing fees for the
registration or qualification of the Fund and its shares under federal or state
securities law; (xii) the fees and expenses involved in registering and
maintaining registration of the Fund's shares with the Securities and Exchange
Commission; (xiii) the expenses of holding shareholder meetings; (xiv) the
compensation, including fees, of any of the Fund's Trustees, officers or
employees who are not affiliated persons of the Adviser; (xv) all expenses of
computing the Fund's net asset value per share, including any equipment or
services obtained solely for the purpose of pricing shares or valuing the Fund's
investment portfolio; (xvi) expenses of personnel performing shareholder
servicing functions and all other distribution expenses payable by the Fund; and
(xvii) litigation and other extraordinary or non-recurring expenses and other
expenses properly payable by the Fund.
The Current Agreement provides that in the course of the Adviser's execution of
portfolio transactions for the Fund, the Adviser may, subject to conditions as
may be specified by the Fund's Board of Trustees, (i) place orders for the
purchase or sale of the Fund's portfolio securities with the Adviser's
affiliate, Gabelli & Company, Inc.; (ii) pay commissions to brokers other than
its affiliate which are higher than might be charged by another qualified broker
to obtain brokerage and/or research services considered by the Adviser to be
useful or desirable in the performance of its duties hereunder and for the
investment management of other advisory accounts over which it or its affiliates
exercise investment discretion; and (iii) consider sales by brokers (other than
its affiliate distributor) of shares of the Fund and any other mutual fund for
which it or its affiliates act as investment adviser, as a factor in its
selection of brokers and dealers for Fund portfolio transactions.
The Current Agreement provides that absent willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her position, the Adviser and its employees, officers, directors, employees,
agents or controlling persons will not be liable for any act or omission or for
any loss sustained by the Fund. However, the agreement provides that the Fund is
not waiving any rights that it may have which cannot be waived. The agreement
also provides that the Fund will indemnify the Adviser and each of such persons
against any liabilities and expenses incurred in the defense or disposition of
any action or proceeding arising out of the agreement unless a court finds that
the person seeking indemnification did not act in good faith in the reasonable
belief that his or her action was in the best interest of the Fund (and, in a
criminal case, that the person had no reasonable cause to believe that his or
her action was unlawful). The agreement provides specific procedures and
standards for making advance payments and permits the Board to disallow
indemnification in certain situations.
The Current Agreement expressly permits the Adviser to act as investment adviser
to others and provides that the word "Gabelli" in the Fund's name is derived
from the name of Mario J. Gabelli and that such name may freely be used by the
Adviser for other investment companies, entities or products. The agreement also
provides that in the event that the Adviser ceases to be the Fund's investment
adviser, the Fund will, unless the Adviser otherwise consents in writing,
promptly take all steps necessary to change its name to a new name which does
not include "Gabelli."
The Current Agreement is terminable without penalty by the Fund on not more than
sixty days' written notice when authorized by the Trustees (or, with respect to
the provisions relating to the Fund's Plan of Distribution, by a majority of the
Trustees who are not "interested persons" and who have no direct or indirect
financial interest in the operation of the Plan of Distribution or any related
agreements) by the holders of the same
<PAGE>
proportion of shares required to authorize the agreement or by the Adviser. The
agreement will automatically terminate in the event of its assignment, as
defined in the 1940 Act and the rules thereunder. The agreement provides that
unless terminated it will remain in effect for a period of two years, and from
year to year thereafter, so long as continuation of the agreement is approved
annually by the Trustees of the Fund or the shareholders of the Fund and, in
either case, by a majority of the Trustees who are not parties to the agreement
or "interested persons" as defined in the 1940 Act of any such person.
As compensation for its services and related expenses, the Adviser receives a
fee computed daily and payable monthly in an amount equal on an annualized basis
to 1.00% of the Fund's daily average net assets. The Adviser will waive a
portion of such fee equal to 0.25% of the Fund's daily net assets during the
period prior to October 1, 2001 on the first $100 million of net assets of the
Fund. For the period October 1, 1999 through December 31, 1999, the Fund paid
$197, 652 to the Adviser.
Prior to October 1, 1999, under an investment advisory agreement between the
Fund and Mathers and Company, Inc., 100 Corporate North, Suite 201, Bannockburn,
Illinois (the "Prior Agreement"), Mathers and Company furnished continuous
investment advisory services and management to the Fund. Mathers and Company
received an annual fee of 0.75% of the first $200,000,000 of the Fund's average
monthly net assets 0.625%, of average monthly net assets in excess of
$200,000,000 but not exceeding $500,000,000, and 0.50% of average monthly net
assets in excess of $500,000,000. The fees paid by the Fund to Mathers and
Company for the period from January 1, 1999 to September 30, 1999 and the fiscal
years ended December 31, 1998 and 1997 were $587,061, $865,916 and $1,123,610,
respectively. Pursuant to an expense reimbursement provision contained in the
Prior Agreement, the fees paid by the Fund to Mathers and Company for 1998 were
reduced by $41,301. Absent such expense reimbursement provision, the fees paid
by the Fund to Mathers and Company for 1998 would have been $907,217. For the
period from January 1, 1999 to September 30, 1999, there was no expense
reimbursement from Mathers and Company to the Fund.
<PAGE>
SUB-ADMINISTRATOR
The Adviser has entered into a Sub-Administration Agreement (the
"Sub-Administration Agreement") with PFPC Inc. (the "Sub-Administrator"), a
majority-owned subsidiary of PNC Bank Corp. The Sub-Administrator is located at
101 Federal Street, Boston, Massachusetts 02110. Under the Sub-Administration
Agreement, the Sub-Administrator (a) assists in supervising all aspects of the
Fund's operations except those performed by the Adviser under its advisory
agreement with the Fund; (b) supplies the Fund with office facilities (which may
be in the Sub-Administrator's own offices), statistical and research data, data
processing services, clerical, accounting and bookkeeping services, including,
but not limited to, the calculation of the net asset value of shares in the
Fund, internal auditing and legal services, internal executive and
administrative services, and stationery and office supplies; (c) prepares and
distributes materials for all Fund Board of Trustees' meetings including the
mailing of all Board materials and collates the same materials into the Board
books and assists in the drafting of minutes of the Board Meetings; (d) prepares
reports to Fund shareholders, tax returns and reports to and filings with the
SEC and state "Blue Sky" authorities; (e) calculates the Fund's net
asset value
per share, provides any equipment or services necessary for the purpose of
pricing shares or valuing the Fund's investment portfolio and, when requested,
calculates the amounts permitted for the payment of distribution expenses under
any distribution plan adopted by the Fund; (f) provides compliance testing of
all Fund activities against applicable requirements of the 1940 Act and the
rules thereunder, the Internal Revenue Code of 1986, as amended ("the Code"),
and the Fund's investment restrictions; (g) furnishes to the Adviser such
statistical and other factual information and information regarding economic
factors and trends as the Adviser from time to time may require; and (h)
generally provides all administrative services that may be required for the
ongoing operation of the Fund in a manner consistent with the requirements of
the 1940 Act.
For such services and the related expenses borne by the Sub-Administrator, the
Advisor pays the Sub-Administrator on the first business day of each month a fee
for the previous month at the following rates: .0275% on aggregate net assets of
$0-$10 billion, .0125% on aggregate net assets of $10-$15 billion and .0100% on
aggregate net assets over $15 billion, which together with the services
rendered, is subject to re-negotiation if net assets exceed $20 billion. If the
average revenue per fund in the Gabelli complex falls below $80,000 per annum,
and there are more than 17 funds in the Gabelli complex whose annual revenue is
less than $30,000 per annum, a minimum annual fee of $30,000 will be implemented
for every Gabelli fund in excess of 17.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, is the Custodian for the Fund's cash and securities
as well as the Transfer and Dividend Disbursing Agent for its shares. Boston
Financial Data Services, Inc. ("BFDS"), an affiliate of State Street, performs
the shareholder services on behalf of State Street and is located at The BFDS
Building , 66 Brooks Drive, Braintree, MA 02184. Neither State Street nor BFDS
assists in or is responsible for investment decisions involving assets of the
Fund.
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, 30th Floor, New
York, New York 10036, serves as the Fund's legal counsel.
<PAGE>
INDEPENDENT AUDITORS
Ernst & Young LLP has been appointed independent auditors for the Fund and is
located at 787 Seventh Avenue, New York, New York 10019.
DISTRIBUTOR
To implement the Fund's 12b-1 Plan, the Fund has entered into a Distribution
Agreement with Gabelli & Company, Inc. (the "Distributor"), a New York
corporation which is an indirect majority owned subsidiary of Gabelli Asset
Management Inc., having principal offices located at One Corporate Center, Rye,
New York 10580. The Distributor acts as agent of the Fund for the continuous
offering of its shares on a best efforts basis.
DISTRIBUTION PLAN
The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. The Plan provides that the Fund will pay the Distributor, in
consideration of the services to be provided and the expenses to be incurred by
the Distributor, distribution payments of 0.25% per year of the average daily
net assets of the Fund. The payments made by the Fund under the Plan of
Distribution will be used by the Distributor for the purpose of financing
activities which are primarily intended to result in the sale of shares of the
Fund, including, but not limited to, advertising the shares or Gabelli's mutual
fund activities; compensating underwriters, dealers, brokers, banks and other
selling entities (including the Distributor and its affiliates), and sales and
marketing personnel of any of them, for sales of shares of the Fund, whether in
a lump sum or on a continuous, periodic, contingent, deferred or other basis;
compensating underwriters, dealers, brokers, banks and other servicing entities
and servicing personnel (including Gabelli and its personnel) for providing
services to shareholders of the Fund relating to their investment in the Fund,
including assistance in connection with inquiries relating to shareholder
accounts; the production and dissemination of prospectuses (including statements
of additional information) of the Fund and the preparation, production and
dissemination of sales, marketing and shareholder servicing materials; the
ordinary or capital expenses, such as equipment, rent, fixtures, salaries,
bonuses, reporting and record keeping and third party consultancy or similar
expenses relating to any activity for which payment is authorized by the Board;
and the financing of any activity for which payment is authorized by the Board.
To the extent any activity is one which the Fund may finance without a
Distribution Plan, the Fund may also make payments to finance such activity
outside of the Plan and not be subject to its limitations.
The Plan compensates the Distributor regardless of its expenses. Accordingly, it
is possible that the Distributor could receive compensation under the Plan that
exceeds the Distributor's costs and related distribution expenses, thus
resulting in a profit to the Distributor. On the other hand, during periods when
it believes the Fund's shares will be attractive to investors, the Distributor
may, but is not required to, spend more on distribution activities than it
receives under the Plan. The Plan is intended to benefit the Fund by increasing
its assets and thereby reducing the Fund's expense ratio.
The Plan contains a number of provisions relating to reporting obligations and
to its continuation, amendment and termination as required by Rule 12b-1. The
Plan will continue in effect for longer than one year only as long as its
continuation is specifically approved at least annually by a majority of the
Board of Trustees, including a majority of the Rule 12b-1 Trustees (Trustees who
are not "interested persons" of the Fund), by a vote cast in person at a meeting
called for the purpose of voting on the Plan. All material amendments to the
Plan must be approved by a majority of the Board of Trustees and the Rule 12b-1
Trustees, and the Plan may not be amended to increase the maximum level of
payments by the Fund without such approvals and, further, the approval of a
majority of the outstanding shares of the Fund. The Plan may be terminated at
any time by a vote of a majority of the Rule 12b-1 Trustees or by a vote of a
majority of the outstanding shares of the Fund. The Plan requires that the Board
of Trustees receive, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made. As required by the Rule, while the Plan is in effect, the selection and
nomination of those Trustees who are not "interested persons" shall be at the
discretion of the non-interested Trustees then in office.
<PAGE>
During the most recent fiscal year, no interested person of the Fund or any
Trustee of the Fund had a direct or indirect financial interest in the operation
of the Plan or related agreements.
During the period October 1, 1999 through December 31, 1999, the Fund incurred
distribution expenses under the Plan of $22,700. Of this amount, $14,400 was
spent on advertising, $2,200 for printing, postage and stationery, $1,100 for
overhead support expenses and $5,000 for salaries of personnel of the
Distributor.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser currently serves as adviser to a number of investment company
clients and may in the future act as adviser to others. Affiliates of the
Adviser act as investment adviser to numerous private accounts. It is the
practice of the Adviser and its affiliates to cause purchase and sale
transactions to be allocated among the Fund and others whose assets they manage
in such manner as they deem equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for such investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The Adviser is authorized on behalf of the Fund to employ brokers to effect the
purchase or sale of portfolio securities with the objective of obtaining prompt,
efficient and reliable execution and clearance of such transactions at the most
favorable price obtainable ("best execution") at reasonable expense.
Transactions in securities other than those for which a securities exchange is
the principal market are generally done through a principal market maker.
However, such transactions may be effected through a brokerage firm and a
commission is paid whenever it appears that the broker can obtain a more
favorable overall price. In general, there may be no stated commission in the
case of securities traded on the over-the-counter markets, but the prices of
those securities may include undisclosed commissions or markups. Options
transactions will usually be effected through a broker and a commission will be
charged. The Fund also expects that securities will be purchased at times in
underwritten offerings where the price includes a fixed amount of compensation
generally referred to as the underwriter's concession or discount.
The policy of the Fund regarding purchases and sales of portfolio securities is
that primary consideration will be given to obtaining the most favorable prices
and efficient execution of transactions. In seeking to implement the Fund's
policies, the Adviser effects transactions with those brokers and dealers who
the Adviser believes provide the most favorable prices and are capable of
providing efficient executions. If the Adviser believes such price and execution
are obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Adviser of the type described in
Section 28(e) of the Securities Exchange Act of 1934. In doing so, the Fund may
also pay higher commission rates than the lowest available when the Adviser
believes it is reasonable to do so in light of the value of the brokerage and
research services provided by the broker effecting the transaction. Such
services may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
Research services furnished by brokers or dealers through which the Fund effects
securities transactions are used by the Adviser and its advisory affiliates in
carrying out their responsibilities with respect to all of the accounts over
which they exercise investment discretion. Such investment information may be
useful only to one or more of the other accounts of the Adviser and its advisory
affiliates, and research information received for the commissions of those
particular accounts may be useful both to the Fund and one or more of such other
accounts. The purpose of this sharing of research information is to avoid
duplicative charges for research provided by brokers and dealers.
<PAGE>
Neither the Fund nor the Adviser has any legally binding agreement with any
broker or dealer regarding any specific amount of brokerage commissions which
will be paid in recognition of such services. However, in determining the amount
of portfolio commissions directed to such brokers or dealers, the Adviser does
consider the level of services provided. Based on such determinations, the
Adviser has allocated brokerage commissions of $77,189 on portfolio transactions
in the principal amount of $56,995,949 during 1999 to various broker-dealers
that have provided research services to the Adviser.
The Adviser may also place orders for the purchase or sale of portfolio
securities with Gabelli & Company when it appears that, as an introducing broker
or otherwise, Gabelli & Company can obtain a price and execution which is at
least as favorable as that obtainable by other qualified brokers. As required by
Rule 17e-1 under the 1940 Act, the Board of Trustees has adopted "Procedures"
which provide that commissions paid to Gabelli & Company on stock exchange
transactions may not exceed that which would have been charged by another
qualified broker or member firm able to effect the same or a comparable
transaction at an equally favorable price. Rule 17e-1 and the Procedures contain
requirements that the Board, including its "independent" Trustees, conduct
periodic compliance reviews of such brokerage allocations.
To obtain the best execution of portfolio trades on the New York Stock Exchange
("NYSE"), Gabelli & Company controls and monitors the execution of such
transactions on the floor of the NYSE through independent "floor brokers" or
through the Designated Order Turnaround System of the NYSE. Such transactions
are then cleared, confirmed to the Fund for the account of Gabelli & Company,
and settled directly with the Custodian of each fund by a clearing house member
firm which remits the commission less its clearing charges to Gabelli & Company.
Gabelli & Company may also effect portfolio transactions on behalf of the Fund
in the same manner and pursuant to the same arrangements on other national
securities exchanges which adopt direct access rules similar to those of the
NYSE.
Fiscal Year Ended Commissions
December 31, Paid
------------ ----
Total Brokerage Commissions 1997 $291,860
1998 $551,077
1999 $163,561
Commissions paid to Gabelli & Company 1997 $ 0
1998 $ 0
1999 $ 57,997
% of Total Brokerage Commissions 1999 35.46%
paid to Gabelli & Company
% of Total Transactions involving Commissions 1999 36.21%
paid to Gabelli & Company
The Fund's annual portfolio turnover rate is set forth in the Prospectus under
"Financial Highlights". Portfolio turnover may be high in certain years. Several
factors may contribute to this, including (i) the volatility of the markets,
combined with a willingness of the Adviser to respond to certain market
conditions believed by the Adviser to warrant holding a security for a period
shorter than the long-term, and (ii) the Adviser's willingness to invest in
fixed income securities with maturities greater than one year (which, unlike
short-term debt instruments, are included in calculating portfolio turnover)
under the circumstances described in the Prospectus. During the fiscal year
ended December 31, 1999, the Fund's portfolio turnover rate of 922% was
significantly higher than for the fiscal year ended December 31, 1998 of 67% as
a result of the limited amount of equity securities held in the portfolio and
the use of arbitrage, whereby securities were held for a short period of time
before the corporate merger, tender offer or reorganization was completed.
<PAGE>
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected at the discretion of the Adviser and taken
at the value used in determining the Fund's net asset value per share as
described under "Determination of Net Asset Value"), or partly in cash and
partly in portfolio securities. However, payments will be made wholly in cash
unless the redemptions by the particular shareholder over the prior three months
exceed $250,000 and the Adviser believes that economic conditions exist which
would make payments in cash detrimental to the best interests of the Fund. If
payment for shares redeemed is made wholly or partly in portfolio securities,
brokerage costs may be incurred by the investor in converting the securities to
cash. The Fund will not distribute in-kind portfolio securities that are not
readily marketable.
DETERMINATION OF NET ASSET VALUE
For purposes of determining the Fund's net asset value per share, readily
marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the regular
trading session of the NYSE on the business day such value is being determined.
If there has been no sale on such day, the securities are valued at the average
of the closing bid and asked prices on such day. If no asked prices are quoted
on such day, then the security is valued at the closing bid price on such day.
If no bid or asked prices are quoted on such day, then the security is valued by
such method as the Board of Trustees shall determine in good faith to reflect
its fair market value. Readily marketable securities not listed on the NYSE but
listed on other national securities exchanges or admitted to trading on the
National Association of Securities Dealers Automated Quotations, Inc. ("NASDAQ")
National List are valued in like manner.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Adviser to be
over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Trustees deems appropriate to reflect their fair value. If no asked prices are
quoted on such day, then the security is valued at the closing bid price on such
day. If no bid or asked prices are quoted on such day, then the security is
valued by such method as the Board of Trustees shall determine in good faith to
reflect its fair market value.
Portfolio securities traded on more than one national securities exchange or
market are valued according to the broadest and most representative market as
determined by the Adviser. Securities traded primarily on foreign exchanges are
valued at the closing price on such foreign exchange immediately prior to the
close of the NYSE.
Stock index futures contracts held by the Fund are valued at the close of
trading settlement price established each day by the exchange on which they are
traded. Options on stock index futures and options on cash stock indices are
valued at their daily end of trading closing prices on the exchanges on which
they are traded.
United States Government obligations and other short-term debt instruments
having sixty days or less remaining until maturity are stated at amortized cost.
Short-term debt instruments having a greater remaining maturity will be valued
at the highest bid price obtained from a dealer maintaining an active market in
that security or on the basis of prices obtained from a pricing service approved
as reliable by the Board of Trustees. All other investment assets, including
restricted and not readily marketable securities, are valued under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Trustees designed to reflect in good faith the fair value of
such securities.
<PAGE>
DISTRIBUTIONS AND DIVIDENDS
Each dividend and capital gains distribution, if any, declared by the Fund on
its outstanding shares will, unless you have elected otherwise, be paid on the
payment date fixed by the Board of Trustees in additional shares of the Fund
having an aggregate net asset value as of the ex-dividend date of such dividend
or distribution equal to the cash amount of such distribution. An election to
receive dividends and distributions in cash or in additional shares may be
changed by notifying the Fund in writing at any time prior to the record date
for a particular dividend or distribution. No sales charges or other fees are
imposed upon shareholders in connection with the reinvestment of dividends and
capital gains distribution. There is no fixed dividend rate, and there can be no
assurance that the Fund will pay any dividends or realize any capital gains.
TAXATION
GENERAL
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 shares.
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 and which 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 shares, 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 intends to remain qualified to be taxed as a
regulated investment company under Subchapter M of the Code. Accordingly, the
Fund must, among other things, (a) derive in each taxable year at least 90% of
its gross income 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
gains from options, futures, or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; and (b) diversify
its holdings so that, at the end of each fiscal quarter (i) at least 50% of the
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 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the securities (other
than U.S. Government securities and the securities of other regulated investment
companies) of any one issuer or of any two or more issuers that it controls and
that are determined to be engaged in the same or similar trades or businesses 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 to shareholders, if
at least 90% of the Fund's 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) for the taxable year is
distributed. The Fund intends to distribute 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 (1) at least 98% of its ordinary income (not
taking into account any capi tal gains or losses) for the calendar year, (2) 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 December 31
of the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid
<PAGE>
application of the excise tax, the fund intends to make distributions in
accordance with the calendar year 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 shareholders in the calendar year
in which the distribution is declared, rather than the calendar year in which it
is received.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations and to the
extent the aggregate amount of such dividends do not exceed the aggregate
dividends received by the Fund for the taxable year, may, subject to
limitations, be eligible for the dividends received deduction. The alternative
minimum tax applicable to corporations, however, may reduce the value of the
dividends received deduction.
Capital gains may be taxed at different rates depending on how long the Fund
held the asset giving rise to such gains. Distributions of the excess of net
long-term capital gains over net short-term capital losses realized, if any,
properly designated by the Fund, whether paid in cash or reinvested in Fund
shares, will generally be taxable to shareholders at the rates applicable to
long-term capital gains, regardless of how long a shareholder has held Fund
shares. Distributions of net capital gains from assets held for one year or less
will be taxable to shareholders at rates applicable to ordinary income.
Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.
Investors should be careful to consider the tax implications of buying shares of
the Fund just prior to the record date of a distribution (including a capital
gain dividend). The price of shares purchased at such a time will reflect the
amount of the forthcoming distribution, but the distribution will generally be
taxable to the shareholder.
To the extent that the Fund retains any net long-term capital gains, it may
designate them as "deemed distributions" and pay a tax thereon for the benefit
of its shareholders. In that event, the shareholders report their share of the
Fund's retained realized capital gains on their individual tax returns as if it
had been received, and report a credit for the tax paid thereon by the Fund. The
amount of the deemed distribution net of such tax is then added to the
shareholder's cost basis for his shares. Shareholders who are not subject to
U.S. federal income tax or tax on capital gains should be able to file a return
on the appropriate form or a claim for refund that allows them to recover the
tax paid on their behalf.
DISPOSITIONS
Upon a redemption, sale or exchange of shares of the Fund, a shareholder will
realize a taxable gain or loss depending upon his basis in the shares. A gain or
loss will be treated as capital gain or loss if the shares are capital assets in
the shareholder's hands, and, for noncorporate shareholders, the rate of tax
will depend upon the shareholder's holding period for the shares. Any loss
realized on a redemption, sale or exchange will be disallowed to the extent the
shares disposed of are replaced (including through reinvestment of dividends)
within a period of 61 days, beginning 30 days before and ending 30 days after
the shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss. If a shareholder holds Fund
shares for six months or less and during that period receives a distribution
taxable to the shareholder as long-term capital gain, any loss realized on the
sale of such shares during such six month period would be a long-term capital
loss to the extent of such distribution.
BACKUP WITHHOLDING
<PAGE>
The Fund generally will be required to withhold U.S. federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish the Fund with the shareholder's correct taxpayer identification
number or social security number, (2) the IRS notifies the shareholder or the
Fund that the shareholder has failed to report properly certain interest and
dividend income to the IRS and to respond to notices to that effect, or (3) when
required to do so, the shareholder fails to certify that he or she is not
subject to backup withholding. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability.
OTHER TAXATION
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends distributed to
them will be subject to withholding of U.S. tax at a rate of 30% (or a lower
treaty rate, if applicable). Non-U.S. investors should consult their own tax
advisors regarding federal, state, local and foreign tax considerations.
FUND INVESTMENTS
OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts and
certain options in which the Fund may invest may be "section 1256 contracts."
Gains (or losses) on these contracts generally are considered to be 60%
long-term and 40% short-term capital gains or losses. Also, section 1256
contracts held by the Fund at the end of each taxable year (and on certain other
dates prescribed in the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized.
Code section 1092, which applies to certain straddles, may affect the taxation
of the Fund's sales of securities and transactions in financial futures
contracts and related options. Under section 1092, the Fund may be required to
postpone recognition of losses incurred in certain sales of securities and
certain closing transactions in financial futures contracts or related options.
SHORT SALES. In connection with short sales by the Fund, the Fund will be
subject to certain rules which may affect the character and timing of gain or
loss recognized by the Fund for U.S. federal income tax purposes. Under these
rules a short sale remains open until the Fund (as the short seller) delivers
the security to the broker (as the lender) and closes the transaction. Any gain
or loss realized by the Fund from closing a short sale will be short-term
capital gain or loss if on the date of such short sale substantially identical
securities have been held by the Fund for less than one year or the Fund
acquires substantially identical securities after the time the short sale is
entered into but prior to closing such short sale. The Fund expects to close out
all of its short sales with such after-acquired securities. The Fund does not
intend, however, to enter into short sales with respect to securities that it
holds at the time of entering a short sale.
Special Code provisions applicable to Fund investments, discussed above, may
affect characterization of gains and losses realized by the Fund, and may
accelerate recognition of income or defer recognition of losses. The Fund will
monitor these investments and when possible will make appropriate elections in
order to mitigate unfavorable tax treatment.
INVESTMENT PERFORMANCE INFORMATION
From time to time, the Fund may report its historical performance for various
periods on a total return basis in reports or other communications to
shareholders or in advertising material. Total return combines principal changes
and dividends for the periods shown. Principal changes are the difference
between the beginning and ending net asset values for a given period and assume
reinvestment of dividends. Dividends include income dividends and capital gains
distributions paid during the period. Percentage changes are determined by
subtracting the beginning net asset value from ending net asset value (computed
on a total return basis) and dividing the remainder by the beginning net asset
value.
<PAGE>
The Fund's performance will vary from time to time and your shares, when
redeemed, may be worth more or less than their original cost. You should not
consider past results to be representative of future performance. Factors
affecting the Fund's performance include, among other things, general market
conditions, the composition of the Fund's portfolio, and operating expenses. No
adjustment is made in reporting performance for taxes payable by shareholders on
reinvested income dividends and capital gains distributions.
Comparative performance information or rankings may be used from time to time in
reports or other communications to shareholders or in advertising material.
The compound annual rates of return of the Fund for the one, five and ten year
periods ended December 31, 1999, and since inception (August 19, 1965) through
December 31, 1999, were 5.73%, 2.00%, 2.83% and 11.36%, respectively, computed
in accordance with the rules for standardized computation of performance as
established by the SEC. Such rules for standardized computation of performance
provide for determining compound annual rates of return by taking the total
return of the Fund over the period in question calculated as described in the
third preceding paragraph and "annualizing" such total return -- i.e., computing
the annual rate of return which, if earned in each year of such period, would
produce the total return actually earned over such period.
Inasmuch as the Fund has no sales load on purchases or reinvested dividends and
no deferred sales load or redemption fee, no adjustments are made for such items
in calculating performance.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund is authorized to issue an unlimited number of shares of beneficial
interest. Subject to approval by the Trustees of a plan under Rule 18f-3 of the
1940 Act, the Trustees of the Fund may, at any time, by resolution, authorize
the division of shares into an unlimited number of series and the division of
any series into two or more classes. There is currently a single series with a
single class of shares designated as AAA.
Shareholders are entitled to one vote for each share held (and fractional votes
for fractional shares) and may vote on the election of Trustees and on other
matters submitted to meetings of shareholders. As a Delaware business trust, the
Fund is not required, and does not intend, to hold regular annual shareholder
meetings but may hold special meetings for the consideration of proposals
requiring shareholder approval such as changing fundamental policies. In
addition, if the Trustees have not called an annual meeting of shareholders for
any year by May 31 of that year, the Trustees will call a meeting of
shareholders upon the written request of shareholders holding in excess of 50%
of the affected shares for the purpose of removing one or more Trustees or the
termination of any investment advisory agreement. The Declaration of Trust
provides that the Fund's shareholders have the right, upon the vote of more than
two-thirds of its outstanding shares, to remove a Trustee. Except as may be
required by the 1940 Act or any other applicable law, the Trustees may amend the
Declaration of Trust in any respect without any vote of shareholders to make any
change that does not (i) impair the exemptions from personal liability as
provided therein or (ii) permit assessments on shareholders. Shareholders have
no preemptive or conversion rights except with respect to shares that may be
denominated as being convertible or as otherwise provided by the Trustees or
applicable law. The Fund may be (i) terminated upon the affirmative vote of a
majority of the Trustees or (ii) merged or consolidated with, or sell all or
substantially all of its assets to another issuer, if such transaction is
approved by the vote of two-thirds of the Trustees without any vote of the
shareholders, in each case except as may be required by the 1940 Act or any
other applicable law. If not so terminated, the Fund intends to continue
indefinitely.
The Fund's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. Under Delaware law, shareholders of such a trust may not be held
personally liable as partners for a trust's obligations.
<PAGE>
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended December 31, 1999, including
the report of Ernst & Young LLP, independent auditors, are incorporated by
reference to the Fund's Annual Report. The Fund's Annual Report is available
upon request and without charge. Ernst & Young LLP provides audit services, tax
return preparation and assistance and consultation in connection with certain
SEC filings.
