THE
GABELLI
GROWTH
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 Growth Fund (the "Fund") seeks to provide capital appreciation.
Capital is the amount of money you invest in the Fund. Capital appreciation is
an increase in the value of your investment. The Fund's secondary goal is to
produce current income.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund will primarily invest in common stocks and may also invest in
securities which may be converted into common stocks. The Fund may also invest
in foreign securities. The Fund focuses on securities of companies which appear
to have favorable, yet undervalued, prospects for earnings growth and price
appreciation. The Fund's investment adviser, Gabelli Funds, LLC (the "Adviser"),
invests the Fund's assets in companies which it believes have above-average or
expanding market shares, profit margins and returns on equity.
PRINCIPAL RISKS:
The Fund's share price will fluctuate with changes in the market value of the
Fund's portfolio securities. Stocks are subject to market, economic and business
risks that cause their prices to fluctuate. When you sell Fund shares, they may
be worth less than what you paid for them. Consequently, you can lose money by
investing in the Fund. Foreign securities are subject to currency, information
and political risks. The Fund is also subject to the risk that the Adviser's
judgments about the above-average growth potential of particular companies'
stocks is incorrect and the perceived value of such stocks is not realized by
the market, or their prices decline.
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 are a long-term investor
o you seek both growth of capital and some income
o you believe that the market will favor growth over value stocks over
the long term
o you wish to include a growth strategy as a portion of your over all
investments
You may not want to invest in the Fund if:
o you are seeking a high level of current income
o you are conservative in your investment approach
o you seek stability of principal more than potential growth of capital
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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 GROWTH FUND
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
1990 -2.0%
1991 34.3%
1992 4.5%
1993 11.3%
1994 -3.4%
1995 32.7%
1996 19.4%
1997 42.6%
1998 29.8%
1999 46.3%
During the period shown in the bar chart, the highest return for a quarter was
30.2% (quarter ended December 31, 1998) and the lowest return for a quarter was
(14.5)% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS SINCE APRIL 10,
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS 1987*
- ----------------------------------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
The Gabelli Growth Fund Class AAA Shares.......... 46.25% 33.82% 20.29% 21.35%
S&P(REGISTRATION MARK) 500 Stock Index**.......... 21.03% 28.54% 18.19% 16.13%
<FN>
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* Commencement of investment operations.
** The S&P(REGISTRATION MARK) 500 Composite Stock Price Index is a widely
recognized, unmanaged index of common stock prices. The performance of the
Index does not include expenses or fees.
</FN>
</TABLE>
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.................................................... 1.00%
Distribution (Rule 12b-1) Expenses................................. 0.25%
Other Expenses..................................................... 0.12%
----
Total Annual Fund Operating Expenses............................... 1.37%
====
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EXPENSE EXAMPLE:
This example is intended to help you compare the cost of investing in Class AAA
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 each year and (4) the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$139 $434 $750 $1,646
INVESTMENT AND RISK INFORMATION
The Fund's primary investment objective is capital appreciation, and current
income is a secondary objective. The investment objective of the Fund may not be
changed without shareholder approval.
The Fund focuses on securities of companies which appear to have favorable, yet
undervalued, prospects for earnings growth and price appreciation. The Adviser
will invest the Fund's assets primarily in companies which it believes have
above-average or expanding market shares, profit margins and returns on equity.
The Adviser will sell any Fund investments which lose their perceived value when
compared to other investment alternatives.
The Adviser uses fundamental security analysis to develop earnings forecasts for
companies and to identify investment opportunities. The Adviser bases its
analysis on general economic and industry data provided by the United States
Government, various trade associations and other sources and published corporate
financial data such as annual reports, 10-Ks and quarterly statements as well as
direct interviews with company management. Generally, the Adviser makes
investment decisions first by looking at individual companies and then by
scrutinizing their growth prospects in relation to their industries and the
overall economy. The Adviser seeks to invest in companies with high future
earnings potential relative to their current market valuations.
The Fund's assets will be invested primarily in a broad range of readily
marketable equity securities consisting of common stock, preferred stock and
securities which may be converted at a later time into common stock. Many of the
common stocks the Fund will buy will not pay dividends; instead, stocks will be
bought for the potential that their prices will increase, providing capital
appreciation for the Fund. The value of equity securities will fluctuate due to
many factors, including the past and predicted earnings of the issuer, the
quality of the issuer's management, general market conditions, the forecasts for
the issuer's industry and the value of the issuer's assets. Holders of equity
securities only have rights to value in the company after all debts have been
paid, and they could lose their entire investment in a company that encounters
financial difficulty. Warrants are rights to purchase securities at a specified
time at a specified price.
The Fund may also use the following investment techniques:
o FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets
in securities of non-U.S. issuers.
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 investment grade
debt securities, obligations of the U.S. Government and its agencies
and instrumentalities, and short-term money market instruments. When
following a defensive strategy, the Fund will be less likely to achieve
its investment goal.
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Investing in the Fund involves the following risks:
o EQUITY RISK. The principal risk of investing in the Fund is equity
risk. Equity risk is the risk that the prices of the securities held by
the Fund will change due to general market and economic conditions,
perceptions regarding the industries in which the companies issuing the
securities participate and the issuer company's particular
circumstances.
o FUND AND MANAGEMENT RISK. The Fund invests in growth stocks issued by
larger companies. The Fund's price may decline if the market favors
other stocks or small capitalization stocks over stocks of larger
companies. If the Adviser is incorrect in its assessment of the growth
prospects of the securities it holds, then the value of the Fund's
shares may decline.
o FOREIGN SECURITIES RISK. Prices of the Fund's investments in foreign
securities may decline because of unfavorable foreign government
actions, political instability or the absence of accurate information
about foreign issuers. Also, a decline in the value of foreign
currencies relative to the U.S. dollar will reduce the value of
securities denominated in those currencies. Foreign securities are
sometimes less liquid and harder to value than securities of U.S.
issuers.
MANAGEMENT OF THE FUND
THE ADVISER. 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 held company listed on the
New York Stock Exchange ("NYSE").
As compensation for its services and the related expenses borne by the Adviser,
for the fiscal year ended December 31, 1999, the Fund paid the Adviser a fee
equal to 1.00% of the value of the Fund's average daily net assets.
THE PORTFOLIO MANAGER. Howard F. Ward is primarily responsible for the
day-to-day management of the Fund. Mr. Ward is a Portfolio Manager of the
Adviser, and he joined the Adviser in 1995. Prior to joining the Adviser, Mr.
Ward was a Managing Director and Director of the Quality Growth Equity
Management Group of Scudder, Stevens and Clark, Inc., with which he had been
associated since 1982 and where he also served as a lead portfolio manager for
several of its registered investment companies.
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 Class AAA Shares to finance
distribution of the Fund's Class AAA Shares. The Fund may make payments under
the Plan for the purpose of financing any activity primarily intended to result
in the sale of Class AAA Shares of the Fund. 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.
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5
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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 Growth 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 GROWTH 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.
SHARE PRICE. The Fund sells its Class AAA 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.
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6
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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 OR INTERNET 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 @ 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.
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" 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 OR THE INTERNET. 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
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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.
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 its 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 redemptions 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.
The Fund may pay you your redemption proceeds wholly or partly in portfolio
securities. Payments would be made in portfolio securities only in the rare
instance that the Fund's Board of Trustees believes that it would be in the
Fund's best interest not to pay redemption proceeds in cash.
EXCHANGE OF SHARES
You can exchange shares of the Fund you hold for shares of the same class of
another fund managed by the Adviser or their 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 into 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.
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 fund 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.
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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 orders 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 gains distributions, if any, on an
annual basis. You may have dividends or capital gains 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 gains
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.
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 capital 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.
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 generally will be taxable. Foreign shareholders
may 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.
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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. This information has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report along with the
Fund's financial statements and related notes are 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 1998 1997 1996 1995
---------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year ...... $ 35.40 $ 28.63 $ 24.14 $ 22.16 $ 19.68
---------- ---------- --------- -------- --------
Net investment income/(loss) ............ (0.23) (0.07) (0.06) 0.03 0.05
Net realized and unrealized
gain on investments ................ 16.50 8.58 10.34 4.27 6.39
---------- ---------- --------- -------- --------
Total from investment operations ........ 16.27 8.51 10.28 4.30 6.44
---------- ---------- --------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ................... - - (0.00)(a) (0.02) (0.05)
In excess of net investment income ...... - - (0.00)(a) -
Net realized gain on investments ........ (5.16) (1.74) (5.79) (2.30) (3.91)
In excess of net realized gain
on investments ..................... - (0.00)(a) (0.00)(a) - -
---------- ---------- --------- -------- --------
Total distributions ..................... (5.16) (1.74) (5.79) (2.32) (3.96)
---------- ---------- --------- -------- --------
Net asset value, end of year ............ $ 46.51 $ 35.40 $ 28.63 $ 24.14 $ 22.16
========== ========== ========= ======== ========
Total return(DAGGER)..................... 46.3% 29.8% 42.6% 19.4% 32.7%
========== ========== ========= ======== ========
RATIOS TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA:
Net assets, end of year (in 000's)....... $3,158,448 $1,864,556 $ 943,985 $609,405 $533,041
Ratio of net investment income/(loss)
to average net assets .............. (0.68)% (0.33)% (0.23)% 0.12% 0.22%
Ratio of operating expenses
to average net assets .............. 1.37% 1.41% 1.43% 1.43% 1.44%
Portfolio turnover rate ................. 52% 40% 83% 88% 140%
- ------------------
<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) Amount represents less than $0.005 per share.
</FN>
</TABLE>
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THE GABELLI GROWTH FUND
CLASS AAA SHARES
================================================================================
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 investments policies. It is incorporated by reference, and is
legally considered a part of this prospectus.
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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 Growth Fund
One Corporate Center
Rye, NY 10580
Telephone: 1-800-GABELLI (1-800-422-3554)
www.gabelli.com
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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. 811-4873)
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THE GABELLI GROWTH 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
EMAIL : [email protected]
(Net Asset Value may be obtained daily by calling
1-800-GABELLI after 6:00 P.M.)
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QUESTIONS?
Call 1-800-GABELLI
or your investment representative.
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TABLE OF CONTENTS
INVESTMENT AND PERFORMANCE SUMMARY .............. 2-4
INVESTMENT AND RISK INFORMATION ................. 4-5
MANAGEMENT OF THE FUND .......................... 5
Purchase of Shares ......................... 6
Redemption of Shares ....................... 7
Exchange of Shares ......................... 8
Pricing of Fund Shares ..................... 9
Dividends and Distributions ................ 9
Tax Information ............................ 9
FINANCIAL HIGHLIGHTS ............................ 10
<PAGE>
THE GABELLI GROWTH FUND
Statement of Additional Information
May 1, 200
This Statement of Additional Information (the "SAI"), which is not a prospectus,
describes The Gabelli Growth Fund (the "Fund"). This SAI should be read in
conjunction with the Fund's Prospectuses for Class A Shares, Class B Shares,
Class C Shares and Class AAA Shares, each dated May 1, 2000. For a free copy of
the Prospectuses, 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
PAGE
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GENERAL INFORMATION............................................................1
INVESTMENT STRATEGIES AND RISKS................................................1
INVESTMENT RESTRICTIONS........................................................6
TRUSTEES AND OFFICERS..........................................................8
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS....................................12
INVESTMENT ADVISORY AND OTHER SERVICES........................................12
DISTRIBUTION PLANS............................................................15
PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................16
REDEMPTION OF SHARES..........................................................18
DETERMINATION OF NET ASSET VALUE..............................................19
DIVIDENDS AND DISTRIBUTIONS...................................................20
TAXATION......................................................................20
INVESTMENT PERFORMANCE INFORMATION............................................23
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES..........................24
FINANCIAL STATEMENTS..........................................................25
APPENDIX A ..................................................................A-1
<PAGE>
GENERAL INFORMATION
The Fund is a diversified, open-end, management investment company organized
under the laws of the Commonwealth of Massachusetts on October 24, 1986. The
Fund commenced investment operations on April 10, 1987.
INVESTMENT STRATEGIES AND RISKS
The Fund's Prospectuses discuss the investment objective of the Fund and the
principal strategies to be employed to achieve that objective. This SAI contains
supplemental information concerning certain types of securities and other
instruments in which the Fund may invest, additional strategies that the Fund
may utilize and certain risks associated with such investments and strategies.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities when it appears to Gabelli Funds,
LLC, the Fund's adviser (the "Adviser") that it may not be prudent to be fully
invested in common stocks. The Fund will normally purchase only investment
grade, convertible debt securities having a rating of, or equivalent to, a
Standard & Poor's Rating Service ("S&P") rating of at least "BBB" (which
securities may have speculative characteristics) or, if unrated, judged by the
Adviser to be of comparable quality. However, the Fund may also invest up to 15%
of its assets in more speculative convertible debt securities which appear to
present an advantageous means of acquiring common stock having potential capital
appreciation provided such securities have a rating of, or equivalent to, at
least an S&P rating of "B" or, if unrated, judged by the Adviser to be of
comparable quality. Corporate debt obligations having a "B" rating will likely
have some quality and protective characteristics which, in the judgment of the
rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions. Although lower rated debt securities generally
have higher yields, they are also more subject to market price volatility based
on increased sensitivity to changes in interest rates and economic conditions or
the liquidity of their secondary trading market. A description of corporate debt
ratings including convertible securities is contained in Appendix A.
As with all debt securities, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. Convertible securities generally offer lower interest or dividend
yields than non-convertible securities of similar quality. However, when the
market price of the common stock underlying a convertible security exceeds the
conversion price, the price of the convertible security tends to reflect the
value of the underlying common stock. As the market price of the underlying
common stock declines, the convertible security tends to trade increasingly on a
yield basis, and thus may not depreciate to the same extent as the underlying
common stock. Convertible securities rank senior to common stocks on an issuer's
capital structure and are consequently of higher quality and entail less risk
than the issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the convertible
security sells above its value as a fixed-income security.
In selecting convertible securities for the Fund, the Adviser relies primarily
on its own evaluation of the issuer and the potential for capital appreciation
through conversion. It does not rely on the rating of the security or sell
because of a change in rating absent a change in its own evaluation of the
underlying common stock and the ability of the issuer to pay principal and
interest or dividends when due without disrupting its business goals. Interest
or dividend yield is a factor only to the extent it is reasonably consistent
with prevailing rates for securities of similar quality and thereby provides a
support level for
<PAGE>
the market price of the security. The Fund will purchase the convertible
securities of highly leveraged issuers only when, in the judgment of the
Adviser, the risk of default is outweighed by the potential for capital
appreciation.
The issuers of debt obligations having speculative characteristics may
experience difficulty in paying principal and interest when due in the event of
a downturn in the economy or unanticipated corporate developments. The market
prices of such securities may become increasingly volatile in periods of
economic uncertainty. Moreover, adverse publicity or the perceptions of
investors over which the Adviser has no control, whether or not based on
fundamental analysis, may decrease the market price and liquidity of such
investments. Although the Adviser will attempt to avoid exposing the Fund to
such risks, there is no assurance that it will be successful or that a liquid
secondary market will continue to be available for the disposition of such
securities.
BORROWING
The Fund may not borrow money except for (1) short-term credits from banks as
may be necessary for the clearance of portfolio transactions, and (2) borrowing
from banks for temporary or emergency purposes, including the meeting of
redemption requests, which would otherwise require the untimely disposition of
its portfolio securities. Borrowing may not, in the aggregate, exceed 15% of
assets after giving effect to the borrowing and borrowing for purposes other
than meeting redemptions may not exceed 5% of the value of the Fund's assets
after giving effect to the borrowing. The Fund will not make additional
investments when borrowings exceed 5% of assets. The Fund may mortgage, pledge
or hypothecate up to 20% of its assets to secure such borrowings.
Borrowing may exaggerate the effect on net asset value of any increase or
decrease in the market value of securities purchased with borrowed funds. Money
borrowed will be subject to interest costs which may or may not be recovered by
an appreciation of securities purchased.
INVESTMENTS IN WARRANTS AND RIGHTS
The Fund may invest up to 5% of its total assets in warrants and rights (other
than those acquired in units or attached to other securities) which entitle the
holder to buy equity securities at a specific price for or at the end of a
specific period of time.
Investing in rights and warrants can provide a greater potential for profit or
loss than an equivalent investment in the underlying security, and thus can be a
speculative investment. The value of a right or warrant may decline because of a
decline in the value of the underlying security, the passage of time, changes in
interest rates or in the dividend or other policies of the Fund whose equity
underlies the warrant or a change in the perception as to the future price of
the underlying security, or any combination thereof. Rights and warrants
generally pay no dividends and confer no voting or other rights other than to
purchase the underlying security.
<PAGE>
INVESTMENTS IN SMALL, UNSEASONED COMPANIES AND OTHER ILLIQUID SECURITIES
The Fund may invest up to 5% of its net assets in small, less well-known
companies which have operated for less than three years (including
predecessors). The securities of such companies may have a limited trading
market, which may adversely affect their disposition and can result in their
being priced lower than might otherwise be the case. If other investment
companies and investors who invest in such issuers trade the same securities
when the Fund attempts to dispose of its holdings, the Fund may receive lower
prices than might otherwise be obtained.
The Fund will not in the aggregate invest more than 10% of its net assets in
illiquid securities. These securities include securities which are restricted
for public sale, securities for which market quotations are not readily
available, and repurchase agreements maturing or terminable in more than seven
days. Securities freely salable among qualified institutional investors under
special rules adopted by the Securities and Exchange Commission ("SEC") may be
treated as liquid if they satisfy liquidity standards established by the Board
of Trustees. The continued liquidity of such securities is not as well assured
as that of publicly traded securities, and accordingly, the Board of Trustees
will monitor their liquidity.
LOANS OF PORTFOLIO SECURITIES
To increase income and pay a portion of its expenses, the Fund may lend its
portfolio securities to broker-dealers or financial institutions, provided the
loan is (1) collateralized according to the regulatory requirements discussed
below and (2) limited so that the value of all loaned securities does not exceed
25% of the value of the Fund's net assets. Under applicable regulatory
requirements (which are subject to change), the loan collateral must be cash, a
letter of credit from a U.S. bank or U.S. Government securities and must at all
times at least equal the value of the loaned securities. The Fund must receive
reasonable interest on the loan, any distributions on the securities and any
increase in their market value. The Fund may also pay reasonable finder's,
custodian and administrative fees. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code of 1986, as amended (the
"Code") and permit it to reacquire loaned securities on five days' notice or in
time to vote on any important matter.
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 a 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 received as a
result of the contemplated transaction, but also the financial resources and
business motivation of the offeror as well as the dynamics of the business
climate when the offer or proposal is in progress.
In making such investments, the Fund will not violate any of its diversification
requirements or investment restrictions (see below, "Investment Restrictions")
including the requirement that, except for the investment of up to 25% of its
assets in any one company or industry, not more than 5% of its assets may be
invested in the securities of any issuer. Since such investments are ordinarily
short term in nature, they will tend to increase the turnover ratio of the Fund
thereby increasing its brokerage and other transaction expenses. 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.
<PAGE>
WHEN ISSUED, DELAYED DELIVERY SECURITIES & FORWARD COMMITMENTS
The Fund may enter into forward commitments for the purchase or sale of
securities, including on a "when issued" or "delayed delivery" basis in excess
of customary settlement periods for the type of security involved. In some
cases, a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger, corporate
reorganization or debt restructuring, i.e., a when, as and if issued security.
When such transactions are negotiated, the price is fixed at the time of the
commitment, with payment and delivery taking place in the future, generally a
month or more after the date of the commitment. While the Fund will only enter
into a forward commitment with the intention of actually acquiring the security,
the Fund may sell the security before the settlement date if it is deemed
advisable.
Securities purchased under a forward commitment are subject to market
fluctuation, and no interest (or dividends) accrues to the Fund prior to the
settlement date. The Fund will segregate with its custodian cash or liquid
high-grade debt securities in an aggregate amount at least equal to the amount
of its outstanding forward commitments.
OTHER INVESTMENT COMPANIES
The Fund does not intend to purchase the shares of other open-end investment
companies but reserves the right to invest up to 10% of its total assets in the
securities of closed-end investment companies including small business
investment companies (not more than 5% of its total assets may be invested in
more than 3% of the securities of any investment company). To the extent that
the Fund invests in the securities of other investment companies, shareholders
in the Fund may be subject to duplicative advisory and administrative fees.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks and non-bank dealers of
U.S. Government securities which are listed as reporting dealers of the Federal
Reserve Bank and which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. In a repurchase agreement,
the Fund purchases a debt security from a seller which undertakes to repurchase
the security at a specified resale price on an agreed future date. The resale
price generally exceeds the purchase price by an amount which reflects an
agreed-upon market interest rate for the term of the repurchase agreement.
The Fund's risk is primarily that, if the seller defaults, the proceeds from the
disposition of underlying securities and other collateral for the seller's
obligation are less than the repurchase price. If the seller becomes bankrupt,
the Fund might be delayed in selling the collateral. Under the Investment
Company Act of 1940, as amended (the "1940 Act"), repurchase agreements are
considered loans. Repurchase agreements usually are for short periods, such as
one week or less, but could be longer. Except for repurchase agreements for a
period of a week or less in respect to obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, not more than 5% of the
Fund's total assets may be invested in repurchase agreements. In addition, the
Fund will not enter into repurchase agreements of a duration of more than seven
days if, taken together with restricted securities and other securities for
which there are no readily available quotations, more than 10% of its total
assets would be so invested. These percentage limitations are fundamental and
may not be changed without shareholder approval.
Writing Covered Call Options
The Fund may write (sell) "covered" call options and purchase options to close
out options previously written by the Fund. In writing covered call options, the
Fund expects to generate additional premium income which should serve to enhance
the Fund's total return and reduce the effect of any price decline of the asset
involved in the option.
A call option gives the holder (buyer) the "right to purchase" a security,
currency or other asset at a specified price (the exercise price) at expiration
of the option (European style) or at any time until a certain date (the
expiration date) (American style). So long as the obligation of the writer of a
call option continues, he may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by repurchasing
an option identical to that previously sold. To secure his obligation to deliver
the underlying security or currency in the case of a call option, a writer is
required to deposit in escrow the underlying security or currency or other
assets in accordance with the rules of a clearing corporation. The Fund will
write only covered call options. This means that the Fund will own at least the
same quantity of the security, currency or other assets subject to the option or
an option to purchase the same underlying security, currency or other asset,
having an exercise price equal to or less than the exercise price of the
"covered" option, or will establish and maintain with its custodian for the term
of the option, an account consisting of cash or liquid securities having a value
equal to the fluctuating market value of the optioned assets.
Portfolio assets on which call options may be written will be purchased solely
on the basis of investment considerations consistent with the Fund's investment
objectives. Writing covered call options may be used by the Fund to reduce its
exposure to securities it does not wish to sell at the time it writes the
option. When writing a covered call option, the Fund, in return for the premium,
gives up the opportunity for profit from a price increase in the underlying
asset above the exercise price, retains the risk of loss should the price
decline and also gives up, to some degree, control over the timing of sale of
the underlying assets. If a call option which the Fund has written expires, the
Fund will realize a gain in the amount of the premium; however, such gain may be
offset by a decline in the market value of the underlying asset during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying asset. The Fund does not consider an asset
covering a call to be "pledged" as that term is used in the Fund's policy which
limits the pledging or mortgaging of its assets.
Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying asset from being called, or to
permit the sale of the underlying asset. Furthermore, effecting a closing
transaction will permit the Fund to write another call option on the underlying
asset with either a different exercise price or expiration date or both. The
Fund will be unable to control losses or effect such strategies through closing
transactions where a liquid secondary market for options on such assets does not
exist. If the Fund desires to sell a particular asset from its portfolio on
which it has written a call option, or purchased a put option, it will seek to
effect a closing transaction prior to, or concurrently with, the sale of the
asset. If the Fund cannot enter into such a transaction, it may be required to
hold an asset that it might otherwise have sold. There is, of course, no
assurance that the Fund will be able to effect such closing transactions at a
favorable price.
Call options written by the Fund will normally have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, the Fund
may purchase an underlying asset for delivery in accordance with an exercise
notice of a call option assigned to it, rather than delivering such asset from
its portfolio. In such cases, additional costs may be incurred.
The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more than the premium received from the
writing of the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying asset,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying asset owned by the Fund.
However, gains and losses on investments in options depend in part on the
Adviser's ability to predict correctly the direction of stock prices, interest
rates and other economic factors. Options may fail as hedging techniques in
cases where the price movements of the securities underlying the options do not
follow the price movements of the portfolio securities subject to the hedge.
Purchasing Put Options
The Fund may purchase put options in securities, currencies or other assets
owned by the Fund or on options to purchase the same underlying security,
currency or other assets, having an exercise price equal to or less than the
exercise price of the put option. As the holder of a put option, the Fund would
have the right to sell the underlying asset at the exercise price at any time
during the option period or at the expiration of the option. The Fund may enter
into closing sale transactions with respect to such options, exercise them or
permit them to expire. The Fund may purchase put options for defensive purposes
in order to protect against an anticipated decline in the value of its assets.
An example of such use of put options is provided below.
The Fund may purchase a put option on an underlying asset owned by the Fund (a
"protective put") but does not wish to sell at that time as a defensive
technique in order to protect against an anticipated decline in the value of the
asset. Such hedge protection is provided only during the life of the put option
when the Fund, as the holder of the put option, is able to sell the underlying
asset at the put exercise price regardless of any decline in the underlying
asset's value. For example, a put option may be purchased in order to protect
unrealized appreciation of an asset where the Adviser deems it desirable to
continue to hold the asset because of tax considerations. The premium paid for
the put option and any transaction costs would reduce any capital gain otherwise
available for distribution when the asset is eventually sold.
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment objectives and the following investment restrictions are
fundamental and may not be changed without the approval of a majority of the
Fund's shareholders, defined as the lesser of (1) 67% of the Fund's shares
present at a meeting if the holders of more than 50% of the outstanding shares
are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. All other investment policies or practices are considered by
the Fund not to be fundamental and accordingly may be changed without
shareholder approval. If a percentage restriction on investment or the use of
assets set forth below is adhered to at the time the transaction is effected,
later changes in percentage resulting from changing market values or total
assets of the Fund will not be considered a deviation from policy.
Under such restrictions, the Fund may not:
(1) Purchase the securities of any one issuer, other than the United
States Government or any of its agencies or instrumentalities, if immediately
after such purchase more than 5% of the value of its total assets would be
invested in such issuer or the Fund would own more than 10% of the outstanding
voting securities of such issuer, except that up to 25% of the value of the
Fund's total assets may be invested without regard to such 5% and 10%
limitations;
(2) Invest more than 25% of the value of its total assets in any
particular industry;
(3) Purchase securities on margin, but it may obtain such short-term
credits from banks as may be necessary for the clearance of purchase and sales
of securities;
(4) Make loans of its assets except pursuant to the conditions set
forth in the Prospectus or for the purchase of debt securities;
(5) Borrow money except subject to the restrictions set forth in this
SAI;
(6) Mortgage, pledge or hypothecate any of its assets except that, in
connection with permissible borrowings mentioned in paragraph 5 above, not more
than 20% of the assets of the Fund (not including amounts borrowed) may be used
as collateral;
(7) Invest more than 5% of its total assets in more than 3% of the
securities of another investment company or invest more than 10% of its total
assets in the securities of other investment companies, nor make any such
investments other than through purchase in the open market where to the best
information of the Fund no commission or profit to a sponsor or dealer (other
than the customary broker's commission) results from such purchase;
(8) Act as an underwriter of securities of other issuers;
(9) Invest, in the aggregate, more than 10% of the value of its total
assets in securities for which market quotations are not readily available,
securities which are restricted for public sale, or in repurchase agreements
maturing or terminable in more than seven days;
(10) Purchase or otherwise acquire interests in real estate, real
estate mortgage loans or interests in oil, gas or other mineral exploration or
development programs;
<PAGE>
(11) Sell securities short or invest in options, except that the Fund
may (i) buy put options on assets it holds or has the right to obtain, (ii) sell
call options on securities it holds or has the right to obtain, and (iii) buy
and sell offsetting options to terminate the Fund's obligations;
(12) Purchase or acquire commodities or commodity contracts;
(13) Issue senior securities, except insofar as the Fund may be deemed
to have issued a senior security in connection with any permitted borrowing;
(14) Participate on a joint, or a joint and several, basis in any
securities trading account; or
(15) Invest in companies for the purpose of exercising control.
TRUSTEES AND OFFICERS
Under Massachusetts 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. Trustees deemed to be "interested
persons" of the Fund for purposes of the 1940 Act are indicated by an asterisk.
Unless otherwise specified, the address of each such person is One Corporate
Center, Rye, New York 10580-1434.
NAME, AGE AND POSITION(S)
WITH FUND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------ -------------------------------------------------
Mario J. Gabelli* Chairman of the Board and Chief Investment
Trustee Officer of Gabelli Asset Management Inc. and
Age: 57 Chief Investment Officer of Gabelli 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
Trustee Savings Bank; Director or Trustee of 10 other
Age: 75 mutual funds advised by Gabelli Funds, LLC and
its affiliates.
Anthony J. Colavita President and Attorney at Law in the law firm of
Trustee Anthony J. Colavita, P.C. since 1961; Director
Age: 64 or Trustee of 17 other mutual funds advised by
Gabelli Funds, LLC and its affiliates.
James P. Conn, Former Managing Director and C hief Investment
Trustee Officer of Financial Security Assurance Holdings
Age: 62 Ltd. 1992-1998; Director of Meditrust Corporation
(real estate investment trust) and First Republic
Bank; Director or Trustee of 5 other mutual funds
advised by Gabelli Funds, LLC and its affiliates.
<PAGE>
NAME, AGE AND POSITION(S)
WITH FUND PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------ -------------------------------------------------
Karl Otto Pohl*+ Member of the Shareholder Committee of Sal
Trustee Oppenheim Jr. & Cie (private investment bank);
Age: 70 Director of Gabelli Asset Management 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
Trustee Accounting, Pace University, since 1965; Director
Age: 74 or Trustee of 10 other mutual funds advised by
Gabelli Funds, LLC and its affiliates.
Anthony Torna,* Registered Representative with Herzog, Heine &
Trustee Geduld, Inc.
Age: 73
Anthonie C. van Ekris, Managing Director of Balmac International;
Trustee Director of Spinnaker Industries, Inc.; Director
Age: 66 of Stahel Hardmeyer A.Z.; Director or Trustee of
10 other mutual funds advised by Gabelli Funds,
LLC and its affiliates.
Bruce N. Alpert Executive Vice President and Chief Operating
Vice President and Officer of Gabelli Funds, LLC since 1988;
Treasurer President and Director of Gabelli Advisers, Inc.
Age: 48 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 Secretary and General Counsel of GAMCO Investors,
Age: 36 Inc. since 1993 and of Gabelli Asset Management
Inc. since 1999; Secretary of all mutual funds
advised by Gabelli Funds, LLC and Gabelli
Advisers, Inc. since August 1995.
- ----------------------
+ Mr. Pohl is a Director of the parent company of the Adviser.
<PAGE>
The Fund, 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 Fund.
No director, officer or employee of Gabelli & Company, Inc. ("Gabelli & Company"
or the "Distributor") or the Adviser or of any affiliate of Gabelli & Company or
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 a director,
officer or employee of the Adviser or any of their affiliates, $6,000 per annum
plus $500 per meeting attended in person or by telephone and reimburses each
Trustee for related travel and out-of-pocket expenses. The Fund also pays each
Trustee serving as a member of the Audit, Proxy or Nominating Committees a fee
of $500 per committee meeting, if held on a day other than a regularly scheduled
board meeting and the Chairman of each committee receives $1,000 per annum.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM THE FUND AND FUND
NAME OF PERSON, POSITION FROM THE FUND COMPLEX PAID TO TRUSTEES*
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mario J. Gabelli $ 0 $ 0 (17)
Trustee
Anthony J. Colavita $10,000 $ 94,875 (18)
Trustee
Felix J. Christiana $10,000 $ 99,250 (11)
Trustee
James P. Conn $8,000 $ 53,625 (6)
Trustee
Dugald A. Fletcher** $8,500 $ 17,000 (2)
Adviser
Karl Otto Pohl $2,000 $ 7,042 (19)
Trustee
Anthony R. Pustorino $11,500 $ 107,250 (11)
Trustee
Anthony Torna $9,000 $ 9,000 (1)
Trustee
Anthonie C. van Ekris $8,500 $ 60,000 (11)
Trustee
Salvatore J. Zizza** $8,500 $ 58,750 (5)
Adviser
<FN>
- ------------------
* The total compensation paid to such persons during the calendar year ending
December 31, 1999 by investment companies (including the Fund) from which
such person receives compensation that are part of the same Fund complex as
the Fund because they have common or affiliated investment advisers. The
number in parentheses represents the number of such investment companies.
** Dugald A. Fletcher and Salvatore J. Zizza resigned as Trustees of the Fund on
March 11, 1997 and March 19, 1997, respectively. They continue to serve as
advisors to the Trustees for which they receive compensation as indicated
above.
</FN>
</TABLE>
<PAGE>
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of April 17, 2000, the following persons owned of record or beneficially 5%
or more of the Fund's outstanding shares:
NAME AND ADDRESS % OF CLASS NATURE OF OWNERSHIP
---------------- ---------- -------------------
Charles Schwab & Co. Inc. 19.56% Record(a)
Special Custody Account
FBO Customers
101 Montgomery Street
San Francisco, CA 94104-4122
- ---------------
(a) Charles Schwab disclaims beneficial ownership and has not indicated that any
account holder owns beneficially more than 5% of the shares of the Fund.
As of April 17, 2000, as a group, the Trustees and officers of the Fund owned
less than 1% of the outstanding shares of common stock of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
The Adviser is a New York limited liability company which also serves as Adviser
to 13 other open-end investment companies and 4 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 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 aggregate assets in excess of $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
<PAGE>
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 five portfolios of The Treasurer's Fund, Inc. and separate accounts
having assets under management of approximately $1.4 billion as of December 31,
1999.
Affiliates of the Adviser may, in the ordinary course of their business, acquire
for their own account or for the accounts of their advisory clients, significant
(and possibly controlling) positions in the securities of companies that may
also be suitable for investment by the Fund. The securities in which the Fund
might invest may thereby be limited to some extent. For instance, many companies
in the past several years have adopted so-called "poison-pill" or other
defensive measures designed to discourage or prevent the completion of
non-negotiated offers for control of the company. Such defensive measures may
have the effect of limiting the shares of the company which might otherwise be
acquired by the Fund if the affiliates of the Adviser or their advisory accounts
have or acquire a significant position in the same securities. However, the
Adviser does not believe that the investment activities of its affiliates will
have a material adverse effect upon the Fund in seeking to achieve its
investment objectives. Securities purchased or sold pursuant to contemporaneous
orders entered on behalf of the investment company accounts of the Adviser or
the advisory accounts managed by its affiliates for their unaffiliated clients
are allocated pursuant to principles believed to be fair and not disadvantageous
to any such accounts. In addition, all such orders are accorded priority of
execution over orders entered on behalf of accounts in which the Adviser or its
affiliates have a substantial pecuniary interest. The Adviser may on occasion
give advice or take action with respect to other clients that differ from the
actions taken with respect to the Fund. The Fund may invest in the securities of
companies which are investment management clients of GAMCO. In addition,
portfolio companies or their officers or directors may be minority shareholders
of the Adviser or its affiliates.
Pursuant to an Amended and Restated Investment Advisory Contact, which was
approved by shareholders of the Fund at a meeting held on May 11, 1992 (the
"Contract"), the Adviser furnishes a continuous investment program for the
Fund's portfolio, makes the day-to-day investment decisions for the Fund,
arranges the portfolio transactions of the Fund and generally manages the Fund's
investments in accordance with the stated policies of the Fund, subject to the
general supervision of the Board of Trustees of the Fund.
Under the Contract, the Adviser also (i) provides the Fund with services of
persons competent to perform such supervisory, administrative, and clerical
functions as are necessary to provide effective administration of the Fund,
including maintaining certain books and records and overseeing the activities of
the Fund's custodian and transfer agent; (ii) oversees the performance of
administrative and professional services to the Fund by others, including PFPC
Inc., the Fund's Sub-Administrator and State Street Bank & Trust Company, the
Fund's Custodian, Transfer Agent and Dividend Disbursing Agent, as well as
accounting, auditing and other services performed for the Fund; (iii) provides
the Fund with adequate office space and facilities; (iv) prepares, but does not
pay for, the periodic updating of the Fund's registration statement,
Prospectuses and Additional Statement, including the printing of such documents
for the purpose of filings with the SEC and state securities administrators, the
Fund's tax returns, and reports to the Fund's shareholders and the SEC; (v)
calculates the net asset value of shares in the Fund; (vi) prepares, but does
not pay for, all filings under the securities or "Blue Sky" laws of such states
or countries as are designated by the Gabelli & Company Inc. (the
"Distributor"), which may be required to register or qualify, or continue the
registration or qualification, of the Fund and/or its shares under such laws;
and (vii) prepares notices and agendas for meetings of the Fund's Board of
Trustees and minutes of such meetings in all matters required by the Act to be
acted upon by the Board.
<PAGE>
The Contract provides that absent willful misfeasance, bad faith, gross
negligence or reckless disregard of its duty, the Adviser and its employees,
officers, directors and controlling persons are not liable to the Fund or any of
its investors for any act or omission by the Adviser or for any error of
judgment or for losses sustained by the Fund. However, the Contract provides
that the Fund is not waiving any rights it may have with respect to any
violation of law which cannot be waived. The Contract also provides
indemnification for the Adviser and each of these persons for any conduct for
which they are not liable to the Fund. The Contract in no way restricts the
Adviser from acting as adviser to others. The Fund has agreed by the terms of
the Contract that the word "Gabelli" in its name is derived from the name of the
Adviser which in turn is derived from the name of Mario J. Gabelli; that such
name is the property of the Adviser for copyright and/or other purposes; and
that, therefore, such name may freely be used by the Adviser for other
investment companies, entities or products. The Fund has further agreed that in
the event that for any reason, the Adviser ceases to be its investment adviser,
the Fund will, unless the Adviser otherwise consents in writing, promptly take
all steps necessary to change its name to one which does not include "Gabelli."
By its terms, the Contract will remain in effect from year to year, provided
each such annual continuance is specifically approved by the Fund's Board of
Trustees or by a "majority" (as defined in the 1940 Act) vote of its
shareholders and, in either case, by a majority vote of the Trustees who are not
parties to the Contract or interested persons of any such party, cast in person
at a meeting called specifically for the purpose of voting on the Contract. The
Contract is terminable without penalty by the Fund on sixty days' written notice
when authorized either by majority vote of its outstanding voting shares or by a
vote of a majority of its Board of Trustees, or by the Adviser on sixty days'
written notice, and will automatically terminate in the event of its
"assignment" as defined by the 1940 Act.
ADVISORY FEES EARNED AND ADVISORY FEES WAIVED
FOR THE FISCAL YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 Fees 1998 Fees 1999 Fees |
-------------------------------------------------------|
Earned Earned Earned |
------------------------------------- -----------------|
$7,701,864 $14,542,759 $22,489,007 |
-------------------------------------------------------|
SUB-ADMINISTRATOR
PFPC Inc. (formerly known as First Data Investor Services Group, Inc.) (the
"Sub-Administrator"), a majority-owned subsidiary of PNC Bank Corp. which is
located at 101 Federal Street, Boston Massachusetts 02110, serves as
Sub-Administrator to the Fund pursuant to a Sub-Administration Agreement with
the Adviser (the "Sub-Administration Agreement"). 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
<PAGE>
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 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 the services it provides, the Advisor pays the Sub-Administrator an annual
fee based on the value of the aggregate average daily net assets of all funds
under its administration managed by the Adviser as follows: up to $10 billion -
0.0275%; $10 billion to $15 billion - .0125%; over $15 billion - 0.01%.
COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York
10036, serves as the Fund's legal counsel.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, independent accountants, have been selected to audit and express their
opinion on the Fund's annual financial statements.
<PAGE>
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
State Street, 225 Franklin Street, Boston, MA 02110, is the Custodian for the
Fund's cash and securities. Boston Financial Data Services, Inc. ("BFDS"), an
affiliate of State Street located at the BFDS Building, Two Heritage Drive,
Quincy, Massachusetts 02171, performs the services of transfer agent and divided
disbursing agent for the Fund. Neither BFDS nor State Street assists in or is
responsible for investment decisions involving assets of the Fund.
DISTRIBUTOR
To implement the Fund's Rule 12b-1 Plan, the Fund has entered into a
Distribution Agreement with 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 10580-1434. The
Distributor acts as agent of the Fund for the continuous offering of its shares
on a best efforts basis.
DISTRIBUTION PLANS
The Fund has adopted a Plan of Distribution (a "Plan") pursuant to Rule 12b-1
under the 1940 Act on behalf of each of the Class AAA Shares, Class A Shares,
Class B Shares and Class C Shares. Payments may be made by the Fund under each
Distribution Plan for the purpose of financing any activity primarily intended
to result in the sales of shares of the Fund as determined by the Board of
Trustees. Such activities typically include advertising; compensation for sales
and marketing activities of the Distributor and other banks, broker-dealers and
service providers; shareholder account servicing; production and dissemination
of prospectus and sales and marketing materials; and capital or other expenses
of associated equipment, rent, salaries, bonuses, interest and other overhead.
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. Payments under the
Plan are not solely dependent on distribution expenses actually incurred by the
Distributor. The Plan is intended to benefit the Fund by increasing assets and
thereby reducing the Fund's expense ratio.
Under its terms, each Plan remains in effect so long as its continuance is
specifically approved at least annually by vote of the Fund's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Fund ("Independent Trustees"). No Plan may be amended to increase materially the
amount to be spent for services provided by the Distributor thereunder without
shareholder approval, and all material amendments of any Plan must also be
approved by the Trustees in the manner described above. Each Plan may be
terminated at any time, without penalty, by vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act). Under each Plan, the
Distributor will provide the Trustees periodic reports of amounts expended under
each Plan and the purpose for which expenditures were made. During the fiscal
year ended December 31, 1999, the Fund made distribution payments to the
Distributor pursuant to the Class AAA Share Plan in the amount of $5,622,252, or
0.25% of the Fund's average net assets. Of this amount $152,400 was spent on
advertising, $228,500 for printing, postage and stationary, $381,400 for
overhead support expenses, $612,900 for salaries of personnel of the Distributor
and $2,311,800 to brokers-dealers. The Plan compensates the Distributor
regardless of expenses.
<PAGE>
No interested person of the Fund or any Independent Trustee of the Fund had a
direct or indirect financial interest in the operation of the Plan or related
agreements.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Contract, 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. The Adviser is permitted to (1) direct Fund portfolio
brokerage to Gabelli & Company, a broker-dealer affiliate of the Adviser; (2)
pay commissions to brokers other than Gabelli & Company 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 for its investment
management of the Fund and/or other advisory accounts under the management of
the Adviser and any investment adviser affiliated with it; and (3) consider the
sales of shares of the Fund by brokers other than Gabelli & Company as a factor
in its selection of brokers for Fund portfolio transactions. Transactions in
securities other than those for which a securities exchange is the principal
market are generally executed through a brokerage firm and a commission is paid
wherever it appears that the broker can obtain a more favorable overall price.
In general, there may be no stated commission on principal transactions in
over-the-counter securities, but the prices of such securities may usually
include undisclosed commissions or markups.
When consistent with the objective of obtaining best execution, Fund brokerage
may be directed to brokers or dealers which furnish brokerage or research
services to the Fund or the Adviser of the type described in Section 28(e) of
the Securities Exchange Act of 1934, as amended. The commissions charged by a
broker furnishing such brokerage or research services may be greater than that
which another qualified broker might charge if the Adviser determines, in good
faith, that the amount of such greater commission is reasonable in relation to
the value of the additional brokerage or research services provided by the
executing broker, viewed in terms of either the particular transaction or the
overall responsibilities of the Adviser or its advisory affiliates to the
accounts over which they exercise investment discretion. Since it is not
feasible to do so, the Adviser need not attempt to place a specific dollar value
on such services or the portion of the commission which reflects the amount paid
for such services but must be prepared to demonstrate a good faith basis for its
determinations.
Investment research obtained by allocations of Fund brokerage is used to augment
the scope and supplement the internal research and investment strategy
capabilities of the Adviser but does not reduce the overall expenses of the
Adviser to any material extent. Such investment research may be in written form
or through direct contact with individuals and includes information on
particular companies and industries as well as market, economic or institutional
activity areas. Research services furnished by brokers 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 their
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.
Neither the Fund nor the Adviser has any agreement or legally binding
understanding with any broker 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, the
Adviser does consider the level of services provided and, based on such
determinations, has allocated
<PAGE>
brokerage commissions of $1,564,191 on portfolio transactions in the principal
amounts of $1,813,956,388 during 1999. The average commission on these
transactions was $0.0505 per share.
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 of other qualified brokers. As required by Rule 17e-1
under the 1940 Act, the Board of Trustees of the Fund 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. The Adviser and
Gabelli are also required to furnish reports and maintain records in connection
with such reviews.
To obtain the best execution of portfolio transactions 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 the Fund by a clearing house member
firm which remits the commission less its clearance charges to Gabelli &
Company. Pursuant to an agreement with the Fund, Gabelli & Company pays all
charges incurred for such services and reports at least quarterly to the Board
the amount of such expenses and commissions. The net compensation realized by
Gabelli & Company for its brokerage services is subject to the approval of the
Board and the Independent Trustees of the Fund who must approve the continuance
of the arrangement at least annually. Commissions paid the Fund pursuant to the
arrangement may not exceed the commission level specified by the procedures
described above. Gabelli & Company may also effect Fund portfolio transactions
in the same manner and pursuant to the same arrangements on other national
securities exchanges which adopt direct order access rules similar to those of
the NYSE.
The following table sets forth certain information regarding the Fund's payment
of brokerage commissions, including commissions paid to Gabelli & Company.
<TABLE>
<CAPTION>
Fiscal Year
Ended
DECEMBER 31, Commissions
PAID
<S> <C> <C>
Total Brokerage Commissions 1997 $ 894,602
1998 $ 1,330,436
1999 $ 590,796
Commissions paid to Gabelli & Company* 1997 $ 3,750
- ----------------
* For the fiscal years ending December 31, 1998 and 1999, the Fund did not
make brokerage commission payments to Gabelli & Company.
</TABLE>
<PAGE>
REDEMPTION OF SHARES
Payment of the redemption price for shares redeemed may be made either in cash
or in portfolio securities (selected in the discretion of the Board of Trustees
of the Fund and taken at their value used in determining the Fund's net asset
value per share as described under "Computation of Net Asset Value"), or partly
in cash and partly in portfolio securities. However, payments will be made
wholly in cash unless the shareholder has redeemed more than $250,000 over the
preceeding three months 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.
Cancellation of purchase orders for Fund shares (as, for example, when checks
submitted to purchase shares are returned unpaid) causes a loss to be incurred
when the net asset value of the Fund shares on the date of cancellation is less
than on the original date of purchase. The investor is responsible for such
loss, and the Fund may reimburse itself or the Distributor for such loss by
automatically redeeming shares from any account registered at any time in that
shareholder's name, or by seeking other redress. If the Fund is unable to
recover any loss to itself, it is the position of the SEC that the Distributor
will be immediately obligated to make the Fund whole.
DETERMINATION OF NET ASSET VALUE
Net asset value ("NAV") is calculated separately for each class of the Fund. The
NAV of Class B Shares and Class C Shares of the Fund will generally be lower
than the NAV of Class A Shares or Class AAA Shares as a result of the higher
distribution-related fee to which Class B Shares and Class C Shares are subject.
It is expected, however, that the NAV per share of each class will tend to
converge immediately after the recording of dividends, if any, which will differ
by approximately the amount of the distribution and/or service fee expense
accrual differential among the classes.
For purposes of determining the Fund's NAV 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
NYSE on the business day as of which 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.
<PAGE>
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.
United States Government obligations and other short-term debt instruments
having 60 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.
DIVIDENDS AND DISTRIBUTIONS
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 on 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.
<PAGE>
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 capital 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 OCTOBER 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 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 (which includes taxable
interest and dividend income and the excess of net short-term capital gains over
long-term capital losses) are taxable to U.S. shareholders 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.
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.
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.
<PAGE>
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.
FOREIGN TAXES
The Fund may be subject to certain taxes imposed by the countries in which it
invests or operates. The Fund will not have more than 50% of its total assets
invested in securities of foreign governments or corporations and consequently
will not qualify to elect to treat any foreign taxes paid by the Fund as having
been paid by the Fund's shareholders.
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 and the
shareholder's level of taxable income. 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
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
advisers regarding U.S. 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.
<PAGE>
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.
<PAGE>
INVESTMENT PERFORMANCE INFORMATION
The investment performance of the Fund quoted in advertising or sales literature
for the sale of its shares will be calculated on a total return basis which
assumes the reinvestment of all dividends and distributions. Total return is
computed by comparing the value of an assumed investment in Fund shares at the
offering price in effect at the beginning of the period shown with the
redemption price of the same investment at the end of the period (including
share(s) accrued thereon by the reinvestment of dividends and distributions).
Performance quotations given as a percentage will be derived by dividing the
amount of such total return by the amount of the assumed investment. When the
period shown is greater than one year, the result is referred to as cumulative
performance or cumulative total return.
Quotations of the Fund's total return will represent the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5, and 10 years (up to life of the Fund), and are calculated pursuant to
following formula:
P(1+T)n = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV= the redeemable value at the end
of the period of a $1,000 payment made at the beginning of period. Total return
figures will reflect the deduction of Fund expenses (net of certain expense
reimbursement by the Adviser) on an annual basis, and will assume that all
dividends and distributions are reinvested and will deduct the maximum sales
charge, if any is imposed.
Investors are cautioned that past results are not necessarily representative of
future results; that investment returns and principal value will fluctuate; that
investment performance is primarily a function of portfolio management (which is
affected by the economic and market environment as well as the volatility of
portfolio investments) and operating expenses; and that performance information,
such as that described above, may not provide a valid basis of comparison with
other investments and investment companies using a different method of computing
performance data.
The Fund's average annual total return figures for Class AAA Shares are
as follows:
46.3% for the one year fiscal period from January 1, 1999 through
December 31, 1999
33.8% for the five year period from January 1, 1995 through December
31, 1999
20.3% for the ten year period from January 1, 1990 through December 31,
1999
21.4% for the period from the Fund's inception on April 10, 1987
through December 31, 1999
As of December 31, 1999 the Fund had not commenced offering Class A, Class B and
Class C Shares to the public.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Fund may issue an unlimited number of full and fractional shares of
beneficial interest (par value $.01 per share). The Fund's shares have no
preemptive or conversion rights.
<PAGE>
VOTING RIGHTS
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 Massachusetts 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, the Fund's Trustees will call a meeting of shareholders to vote
upon the written request of the shareholders of 331/3% of its shares (10% in the
case of removal of a Trustee). In addition, ten shareholders holding the lesser
of $25,000 worth or one percent of Fund shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then, if requested
by the applicants, mail at the applicants' expense, the applicants'
communication to all other shareholders. The Declaration of Trust, as amended
and supplemented, provides that the Fund's shareholders have the right, upon the
declaration in writing or vote of more than two thirds of its outstanding
shares, to remove a Trustee. Except for a change in the name of the Trust, no
amendment may be made to the Declaration of Trust without the affirmative vote
of the holders of more than 50% of its outstanding shares. Shareholders have no
preemptive or conversion rights. The Fund may be terminated upon the sale of its
assets to another issuer, if such sale is approved by the vote of the holders of
more than 50% of its outstanding shares.
If not so terminated, the Fund intends to continue indefinitely.
LIABILITIES
The Fund's Declaration of Trust, as amended and supplemented, 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, as amended and supplemented, 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 this office. Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable as partners for a trust's obligations. However, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself is unable to meet its
obligations since the Declaration of Trust provides for indemnification and
reimbursement of expenses out of the property of the Fund to any shareholder
held personally liable for any obligation of the Fund and also provides that the
Fund shall, if requested, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
recovered thereon.
FINANCIAL STATEMENTS
The Fund's Financial Statements for the year ended December 31, 1999, including
the report of PricewaterhouseCoopers LLP, independent accountants, is
incorporated by reference to the Fund's Annual Report. The Fund's Annual Report
is available upon request and without charge. PricewaterhouseCoopers LLP
provides audit services, tax preparation and assistance and consultation in
connection with certain SEC filings.
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE DEBT RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa: Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Unrated: Where no rating has
been assigned or where a rating has been suspended or withdrawn, it may
be for reasons unrelated to the quality of the issue.
<PAGE>
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
3. There is a lack of essential data pertaining to the issue
or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's Investors Services, Inc.'s publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa A, Baa Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the
symbols Aa-1, A-1, Baa-1 and B-1.
STANDARD & POOR'S RATINGS SERVICE
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's
Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P").
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in the highest rated categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB, B, CCC, CC, C: Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of this
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, they are outweighed by large
uncertainties of major risk exposures to adverse conditions.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus(+) Or Minus(-): The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
